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How to Retire Early on a Tight Budget

Who can think about saving for retirement when our daily needs, from food to housing, seem so expensive these days? Plus, you work hard for your money. You want to enjoy your earnings and live for today, right? But you may be concerned that you aren’t saving enough for retirement.

Well guess what? It is possible to save for (early) retirement and enjoy life at the same time! You just need a comprehensive financial plan.

Let me explain my strategy for early retirement from my full-time job.

Step 1: Document and assess your starting point

Assess your overall budget. Then, print out your last three months of bank account, credit card, and debt statements. Review them in detail and summarize your financial situation. Sum up the totals and document your net worth. If you want the work done for you, you can download Personal Capital’s free app and plug in your account information.

Here are a few questions to ask yourself.

  • How do I feel about my current financial situation based on this assessment?
  • Have I been making progress toward my goals or away from my financial goals?

My personal finance tip: Write out your long term and short-term goals. If your goal is to create a $5,000 emergency fund, you’ll want to save about $420 a month. You’ll add that amount into your monthly budget, knowing that you’ll likely have to cut other areas.

Step 2: Time to marry your 401k

If you are working, contact your human resources department and request information on your retirement savings options. There are many options to consider, such as a 401k (or 403b), Roth 401k and 457b, among others. I say I married my 401k because it’s a long-term relationship – the commitment has helped me lessen my current year taxes and invest more for retirement.

Here are a few questions to ask yourself.

  • Am I contributing at least to any company match?
  • Am I contributing to all available retirement accounts?
  • Have I maxed out any or all accounts?
  • Have I opened an investment account outside my workplace to invest for my future?

My personal finance tip: Calculate how many more years you’ll work, based on the amount you are contributing today. When can you expect to retire? Are you happy with this age? If not, determine how you can reduce expenses (step 1) and contribute more to retirement and investment accounts (step 2).

Read More: How I Started Investing in My Late 30s

Step 3: Calculate your FIRE number

Saving and investing is great but if you don’t know how much you need to become financially independent, you may work longer than you have too.

Here is the most important question to ask yourself: Considering all necessities including vacations, how much money do you need every year? Don’t count taxes yet and use your annual salary. Go back to step 1 and use your exact number. I need less than $40,000 a year to live because I’ve been able to reduce my expenses so much. If I want to live on more, I can, but if I have $40,000 to cover my annual expenses, I don’t have to work.

My personal finance tip: Now that you know your annual expense number, you can calculate your FIRE number. Financial independence retire early (FIRE) is changing your spending habits to focus on investing to become financially free. When you can pay your living expenses from gains and passive income, you are financially free. I saved and invested in the stock market until my nest egg reached 25 times my necessary annual expenses. I can withdraw 4% annually to live off and spend my days as I wish.

Even on a tight budget, a little reprioritization can go a long way to start saving for retirement.

My personal finance tip: Personal Capital is the app I use for tracking my net worth and my progress toward my long-term financial goals.

Get Started with Personal Capital’s Free Financial Tools


Featured individual is a paid spokesperson and not a client of Personal Capital Advisors Corporation (“PCAC”) and does not make any endorsements or recommendations about securities offerings or investment strategy. The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Lakisha L. Simmons, PhD, is a Personal Capital Financial Hero. She retired early from her position as a tenured professor of business analytics at 41 years old. She is co-author with her 11-year-old son of "Divorced: 7 Keys to Making it Through Your Parents’ Divorce," the author of "The Unlikely Achieveher," and CEO of BRAVE Consulting, where she teaches women how to be happy, healthy, and wealthy. She enjoys traveling and spending quality time with her family. She can be reached via or on social media at @drkishasimmons.
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Let us know…

This year, my top financial priority is:

Building my emergency fund
Paying off high-interest debt
Budgeting better
Saving for a short-term goal, like a vacation or new car
Increasing my investment contributions
Maintaining status quo - I’ve got this under control

Make moves toward your money goals with Personal Capital’s free financial tools.