As a visual person, I very much appreciate graphical motivators such as wall charts and the like. Whether you are tracking weight loss, or progress towards early retirement, a wall chart can be a powerful tool.

This concept was first introduced to me in the book Your Money or Your Life. The book’s authors advocated creating a retirement chart to track passive income and expenses. The idea was that as expenses were lowered, and passive income increased, you moved closer and closer to not having to work for money. Sounds like a good plan to me!

How To Construct an Early Retirement Chart

1. Determine your total monthly expenses. For the next month (or use the previous month if you have all the records), track all expenses. This includes everything from the mortgage payment to the daily trips to the vending machine at work. When you have a good idea just how much money you spend each month, move to step 2.

2. Calculate your current monthly income. Begin to track your income from all forms of employment. That is, track money earned from your primary job as well as any self-employment or freelancing work.

2b. Calculate your currently passive monthly income. Add up your monthly passive income–that is, income that is not earned in step 2. This might include interest on deposits, stock dividends, book royalties, etc.

2. Construct an early retirement chart. This step can be as high-tech or low-tech as you prefer. I personally like to go low-tech here, opting for a giant poster-board available in the school supply sections of most stores. Using a large ruler, or similar straight edge, draw a large X and Y axis taking up most of the poster.

Divide the vertical axis by an interval that fits your situation. Most of us could probably work with a chart from $0 to $10,000 in increments of $100. Again, using your ruler and a pencil, lightly draw horizontal grid line across the chart at every $100 marker.

Along the lower axis, label the current month/year combination (i.e. “07/09″) and increment the months out as far as the size of the post poster allows, spacing about 1/2 inch in between months.

3. Plot your progress. Using three separate colors, begin to chart your monthly expenses, income and passive income. Chances are your chart will start off looking like mine did – my expenses exceeded my income each month, which explained why I was accumulating debt. However, over time we managed to lower our expenses and increase our income, which also increased the amount of passive income we were earning.

4. Find your intersection. After tracking passive income and expenses for a few months you will start to see a trend where these two segments will eventually meet. Your Money or Your Life refers to this as the cross-over point, because this is the point where your expenses are met by passive income. Theoretically, this is the point where you could quit working for income, assuming your expenses never increased.

One thing to keep in mind is that there are no guarantees with passive income. There are many variables that can affect this amount from month to month. Companies might slash dividends. Interest rates may rise and fall and affect your interest income. Royalty sales might drop significantly reducing the amount of payments to expect. For this reason, try to “lock in” as much of this income-producing money as possible by investing in things like long-term CDs, bonds and high-interest savings and money market accounts.

This post appeared in the Money Hacks Carnival: 84th Edition

Photo by thombo2

The term “cashing out” has many meanings depending on the context. Most people think of things like 401k balances, life insurance policies, and cashing out chips in Vegas. However, there is another little-used definition of to “cash out” that I will apply to my story here. From a Google search:

Cash out – to choose a simpler life style after questioning personal and career satisfaction goals.

That definition pretty much sums it up, but a little elaboration is probably required to get my full point across. In the coming weeks and months I’ll share more about what it means to cash out, and what I plan to do with my life after choosing that simpler life.

Simple living has always been an interest of mine, as has personal finance. It seems only natural to combine my two interests here at CashingOutLife.com. To make my dream a reality I will need to study up on various investment vehicles and strategies for retiring early. Here are just a few of the things I’ll need to learn more about:

• Investing in non-retirement accounts
• Dividend investing
• Self employed health insurance
• Safe withdrawal rates
• Dealing with inflation
• Taxes
• Real estate
• The psychology of being semi-retired

As you can see, I’ll be busy diving into each of these subjects (and many more) as I begin to game plan an early exit from the corporate world. While it nearly seems to be an unreachable goal these days, it is possible to cash out to a simpler existence through disciplined savings and frugal living.

Photo by Katie@!