Highlights in this issue:

*** Obsessed with the latest gadget or a bigger house, chances are you're standing in the way of ever retiring early…
*** The experts’ view on retirement planning…
*** Learn to get by with 10% less…

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From the pen of Karin Iten…

Dear Investment Academy Reader,

In a recent issue of Investment Academy (published on the 9th of November) I gave you the keys to your very own retirement booster plan.

That, I thought was that. But I was wrong. While chatting to my colleague – and personal finance expert – Alexander Green yesterday he told me an incredible story Kiplinger.com recently carried. It’s all about retirees Billy and Akaisha Kaderli, who live in an exclusive retirement village in Mesa, Arizona in the US.

“What’s so amazing about that?” you ask. Well don’t tell anyone, but they don’t meet the village's minimum age requirements. Although they retired 16 years ago, they are both just 54.

How did they do it? Keep reading… Alex reveals the full story.

Early retirement planning 101

Most folks would say Billy and Akaisha are living the dream, playing golf, travelling the world and socialising with friends, whenever they want. They aren’t rich, though, merely frugal.

And they’re a fine example of early retirement planning leading to an “extreme early retirement.” You can enjoy it, too – provided you’re willing to make some admittedly tough choices.

How they planned for early retirement

In their late thirties, Billy and Akaisha decided they were working too hard, enjoying it too little and paying too much in taxes. Most people would stop there and say “well, that’s life”.

But is it really?

Or is it more about the choices we make about saving and spending?

“Every time I looked at a latte or a new pair of shoes,” says Akaisha, “I decided I didn’t need them. If you’re clear about what you want, it becomes easier. You can either buy this or be days closer to your goal.”

Contrast this point of view with the materialistic mindset of many of us, who often find ourselves stuck on what psychologists call “the hedonic treadmill.” Instead of thinking about financial freedom, we’re obsessed with thoughts of a bigger house, a fancier car, that hot new restaurant and, of course, a high-definition 50″ flat-screen TV.
 
Now I’d be the last to argue that these things don’t make life more enjoyable. And, who knows, a bigger house may be the best investment you ever made. (Although if you pulled the equity out and spent it, it really hasn’t brought you any closer to your financial goals.)

Karin spends a lot of time talking about investing in this eletter. But without saving, let’s face it, there’s precious little to invest. Yet statistics show that most of us are saving virtually nothing.

How the experts view retirement planning

In the investment classic Financial Genius, now undeservedly out of print, Mark Haroldson boils down investment success to four factors:

*** Plan
*** Save
*** Invest
*** Compound

Yet many folks never make it to step two.

In The Millionaire Next Door, Thomas Stanley reports that most Americans with a net worth of a million dollars or more followed a remarkably similar path.

They maximised their income, minimised their expenses, lived beneath their means, and religiously saved the difference. It sounds pedestrian, I know. But if you do this for years you just may wake up and say: “Honey, we’ve got a seven-figure net worth!”

It means making sacrifices, however. As we go through life, we quickly find that expenses rise to meet the income available. In our wonderfully capitalistic society, there’ll never be a shortage of fabulous products and services vying for our attention.

The truth is, almost everyone can save for retirement

During a TV interview last year, the interviewer suddenly popped this question on me. “What do you say to those people out there who say they just can’t save ANYTHING?”

Little did he know I’d just returned from a two-week investment tour of China. During the trip, I saw many labourers who made less than $150 a month. Yet the average Chinese worker – acutely aware that his government provides next to nothing in social security – saves over 30% of his income.

“Too many of us don’t save anything,” I said, half-jokingly, “because we’re spending money we don’t have, on things we don’t need, to impress people we don’t like.”

Judging by the look on his face, that wasn’t the answer he was expecting.

Look, I know that when you’re poor and starting out in life, saving may not be an option. When you get older and you have kids (and sometimes parents) to support, saving can be awfully tough, too.

But most of us could get by – by hook or by crook – on 10% less than what we’re living on today. If we pay ourselves that 10% first, it can mean an awful lot 10, 20 or 30 years down the road.

Just ask the Kaderlis… when they finish the back nine.

Here’s to your financial freedom,

Alex Green
For the Investment Academy