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Memento mori.

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How to Retire by 50 on a Minimum Wage.

A few thoughts on personal finance.

Talk about starting with a statement. I better not waste any time and get straight to the point. Before I do that, however, I would like to remind you there are no magic tricks. So keep that in mind. Speaking of mind, as always, please keep it open. At least while reading these words.

Motivation.

The idea for this article comes mainly from personal experience. Most of the financial advice out there is tailored to middle or upper class members, with little support for those in the lowest ranks by income. Little has changed since the Bible was written.

For whoever has will be given more, and they will have an abundance. Whoever does not have, even what they have will be taken from them.

Matthew 25:29

The second reason I am writing this is because I am still a newcomer to this planet, and if you know anything about the economics, it ain’t easy, especially for people like me. I am not talking about the ever-increasing quality of life, longer lifespans, or drops in global poverty. I am talking about facing the scariest financial future of any generation since the Great Depression. And we are being advised by people who got their houses for next to nothing and had guaranteed income (hi mum).

Now that sounds scary. I tried to find words to explain the concept I am about to present, but unfortunately my English turns off under stress. I will have to use another language. A language we all know and love – Mathematics.

A Simple Formula.

If you are still reading (😬), here is why I love to use the Math alphabet. (Hey, at least it’s still letters.) Don’t worry if you’re lost in the abstract stuff, I will discuss it below, but try to understand as much as you can.

Let’s start by defining a few things. We want to define our minimum salary s (as advertised in the post title), a coefficient c, and start and end dates t1 t2 (today and your funeral). I apologise in advance for not offering an interactive demo, I might consider it in the future. I do not apologise for bringing death into this.

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const s = 14382; // ~UK minimum wage, that's ~$15,080 for US residents
const c = .5; // savings coefficient
const t1 = 20; // age when you started saving for retirement
const t2 = 80; // your life expectancy in years

We have defined our base variables. You can substitute your current age for t1 and change your age expectancy for t2. I recommend using official statistics instead of wishful thinking since we tend to overestimate. We are doing science here, not a presidential campaign promise. Before I get to the remaining constants, let’s look at our final formula.

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const y = (t2 - t1) * (1 - c); // years to retirement
const z = t1 + y; // your retirement age

At this point, I should really offer a demo. Again, accept my extended apologies. There is something magical about hand-writing things on a piece of paper.

Discusion Time.

If you managed to complete the previous exercise, you are ready for a wider discussion. At this point I will refer you to more mainstream articles about retiring on a minimum wage by Huffington Post and Investopedia. Skimming through the headlines is enough to get the main points. You will notice they slightly differ based on the source, but you get the point. Let’s discuss each advice.

  1. Start saving early.

    Look at our formula and you can clearly see the correlation between t1 and z. The greater the start date, the greater your retirement age. I have also excluded from the formula compound interest, the World’s Eight Wonder. To motivate you further, save at least $1,000 in your first year, you will be ahead of more than 50% of Americans.

  2. Free money.

    Everybody loves free money. Your employer probably offers a contribution matching scheme (e.g. NEST in the UK, 401(k) in the US), so take full advantage of it. This will directly affect your coefficient c. And just like with the early start, this decision compounds over time. Never underestimate that.

  3. Save It Like It’s Yours.

    It seems baffling to me that anyone would rely solely on the state to support them in their final years. From the economical perspective, you are a burden. You extract value from the system while not contributing anymore. And if you live in a country with aging population (optionally add a pinch of anti-immigration policies), where exactly is this money going to come from? OK, maybe the next generation will pay it back. But don’t rely on that alone.

As is probably obvious, the coefficient c will have the greatest influence on your retirement age. This is something that is different with every person, so I will let you figure that out. People living in large cities spend more on their rent and transportation costs, so might be saving less. You can try different numbers to see how they change your retirement age.

One thing you might have noticed is the minimum wage wasn’t used at all! This is by design. As it turns out, it’s completely irrelevant to our computations. But would you read an article titled “A sound approach to personal finance?”

The point of defining salary was to prove your retirement depends only on how many % you can save. Furthermore, if you manage to reach your retirement age using this method, the theory assumes you will want to keep up the same lifestyle afterwards. Apparently some people spend less in their retirement, so your savings could extend even further. I personally spend more when idle, so let’s agree to not change anything.

I don’t want to discount the benefits of earning $200,000/yr, but it’s really no good when it comes to saving if you’re left with $500 every month. Earning less shouldn’t discourage you from saving, which is why I specifically focused on lower-income earners. The whole retirement strategy is more about your lifestyle than it is about numbers. If you can save 50% of your salary every month, you can retire in half your expected final age and maintain the same lifestyle, regardless of your income.

Keeping It One Hundred.

How do you maintain a stable coefficient value? Unexpected accidents happen, as one advertisement claims (for absolute proof, see my birth). You might lose your laptop, job, or limb. That’s why you need to have a buffer. If you let yourself spiral into the debt, it can become hard to escape and it will cost you a lot of resources.

The answer is, you cannot predict accidents. Just as you cannot predict you won’t die tomorrow. A whole insurance industry operates on this premise, but that’s perhaps for another day. Your job is to skew the odds in your favour as much as possible. If you’re unsure, use a conservative coefficient in your calculations, but aim for a target 20-50% higher. This is akin to building a road bridge – it works under regular conditions, but it should weather extreme conditions too if it ever comes to that.

Final Words.

And there you have it. A simple principle working wonders when applied properly. You don’t even need to be particularly smart to use it. I know people who would never count as smart, but they have their financial situation in check thanks to these few rules. Your job is not to be smart, after all, but to use a sound financial strategy. When you prepare breakfast, you’re not transforming into master chef either, you simply follow a predefined, battle-tested recipe (hopefully). Bon appétit!

Hero of the Month.

Let me do something unusual and give a shoutout to Purpicks and their founder Jenise Lee. Her company is all about reviews of products you feel good about and I can confirm she’s the nicest person I had the chance to interact with in a long time. I am not sure if it’s because she’s Canadian. 😬

Jenise Lee Purpicks

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