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How I saved and invested to retire at 28

David Gow

I grew up in Western Australia and when I was 19, I became disillusioned with factory work. I looked around and noticed many people didn’t seem happy.

Working every week just to pay bills, with no end in sight. I quickly decided that’s not how I want to live. There must be another way!

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It became obvious, the only way to escape this treadmill was to become wealthy. And the best way to achieve that was investing.

Like many people, I was uncomfortable with shares, due to the irrational price movements. Property investing was the natural choice.

After realising I had to do something to change my future, I built a little pot of savings by age 20. I lived in a share house, worked overtime regularly, and still enjoyed myself.

Soon after, I met my partner and moved in with her just outside Perth.

I kept living simply and saved a hefty portion of my wage. By age 23, I’d purchased two properties with savings.

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The same year, my partner purchased a property with her savings. She bought into the idea of financial independence.

We both earned decent wages – around $75,000 on average, before tax. We also managed to contain our living expenses at $45,000 per year on average, where our spending still sits today.

This dual income is around $115,000 after tax, meaning we were saving $70,000 per year. 

If you plug that into a compound interest calculator and add a return of 7% per annum, in 10 years you’ll have just under $1 million.

Saving that much might sound absurd, but it’s really quite simple.

Our strategy? Simply don’t buy stuff we don’t need. And that turns out to be a lot of stuff!

It’s about being efficient.

More home cooking, less restaurants. More local holidays, less international. More homemade lattes, less café trips.  

We also live in moderately-priced housing and avoid upgrading our cars and phones constantly, as seems to be the norm.

We also purchased a weights setup, allowing us to workout from home, saving time, avoiding gym memberships and unnecessary driving.

In short, we found a way to optimise each category of spending to get the most benefit for the lowest cost. 

We learned that humans don’t need much to live a happy life. This enables sensible spending, large savings and fast wealth building.

Being quite a bit older than me, my partner was a long-time homeowner. After our first few purchases, we decided to join our finances and use equity in her house to buy more property.

We still had plenty of spare cashflow from our jobs, which we saved and combined with growing equity to increase our portfolio.

By 2014-15, we’d maxed out our borrowing, but still had savings each month to invest.

That’s when I came across a slightly different form of investing in shares – investing for dividends. To me, this made a lot of sense!

After doing some more research, making a few investments and receiving a few dividends, I was hooked.

Simply buy a parcel of shares in a good company or index fund, and it spits out increasing sums of money at you over time.

By 2016, we realised how simple and effective this was, and if our equity was put into dividend-paying shares, we could retire soon. 

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Strong dividend yields and franking credits mean you earn a vastly higher income compared to rent from property, especially after expenses and maintenance. 

We continued buying dividend-paying shares, and in late 2016, we decided to begin slowly selling our properties, with the proceeds going into shares.

We left work in early 2017, around my 28th birthday. We finally got our lives back!

At a rough guess, we made around $800k was from saving and investment gains over 9 years, and the rest was the existing equity.

Fortunately we ended up with more than the example, and more than we needed, when including the equity my partner had. 

So I worked hard, but I got lucky too!

Our properties performed okay on average, even including leverage. The real magic ingredient was saving.

Try the 10 year calculation for yourself, and you’ll see how the vast majority of the result comes from saving.

As we continue transitioning into shares, we use some of the money to live on, while the dividend stream keeps building.

I’m completely sold on long-term dividend focused investing. My favourite types of investments are those with a long history of increasing dividend payments. 

These include LICs such as Argo Investments Limited(ASX: ARG), Milton Corporation Limited(ASX: MLT) and Australian Foundation Investment Co. Ltd.(ASX: AFI)

Also, other reliable dividend-payers such as Wesfarmers Ltd(ASX: WES) and Washington H. Soul Pattinson and Co. Ltd(ASX: SOL).

These days, we continue to live our simple and happy life. Lately we’ve even started doing some part-time work because we want to, not because we have to.

That’s the powerful shift that comes with saving and reaching financial independence.

I also started a blog – strongmoneyaustralia.com– where I share my thoughts on saving, investing and financial independence. 

Feel free to stop by sometime!

Motley Fool contributor  David Gow owns shares in Argo Investments Limited, Milton Corporation Limited, Australian Foundation Investment Co. Ltd, Wesfarmers Ltd and Washington H. Soul Pattinson and Co. Ltd. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company Limited and Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.