Nobody wants to be stuck in their job till they are 70 years old or worse. In fact, the sooner you can retire and enjoy your golden years, the better. But retiring early requires a lot of financial discipline.
It is, however, a dream worth working hard for. In this post, we thought it would be great to look at some of the financial habits you can start doing right now that will ultimately push you to early retirement.
What is Early Retirement Anyway?
Typically, the average age most people are expected to leave the workforce is 65. In some countries, the retirement age can be as low as 55. For you to say you’ve retired early, you would need to exit the workforce before you turn 55 years old.
It would be even better if you can do it before 50. It means you have so much time to pursue your passions or just get to that bucket list you’ve been talking about for years.
5 Tips for Early Retirement
Early retirement is not for everyone. But for those who have the commitment and discipline to do it, you can take a few steps. Here are five big ones:
Live Within Your Means
The number one rule of money is to always spend less than what you make. Of course, this is easier said than done. But if you want to retire early and build a reasonable portfolio of income-generating assets in your golden years, you may need to sacrifice a few things today.
After all, you can only invest surplus capital. This is basically money that is left behind once you take care of expenses.
If your expenses are much higher than your income, then you can either cut them or find a side hustle. Either way, you must put effort into living within your means as much as possible.
Learn How to Invest and Start Early
It’s funny how a decade just flies by, right? You’ll be graduating from college one day, and before you know it, you’ve turned 30. How about you make good use of that time by starting your investments early?
In fact, the earlier you start investing, the higher the chances of early retirement. But you cannot just invest anyhow. You need to have some basic knowledge of which assets are worth the money and which ones are aligned with your goals.
Besides, you can always get investment advice from a wealth manager or even join a managed fund to ensure you have a stress-free investment journey. But the sooner you start, the better.
Steer Clear of Your Retirement Account
Retirement accounts are designed to hold your money until you retire. However, it is still your money, and you can withdraw anytime you see fit. However, this is not such a great idea.
For starters, withdrawing money early from retirement accounts will attract certain financial penalties. This may include additional taxation, so you still lose money. Secondly, a retirement fund is not an emergency fund.
While sometimes unforeseen emergencies could occur, withdrawing money from your retirement account should be a last resort.
Avoid Too Much Debt
There is nothing wrong with debt as long as it’s good debt. As a golden rule, debt should only be used to purchase assets. In fact, this is how most rich people do it.
They borrow money to buy income-generating assets. They then leverage these assets to access low-cost capital, which they use to buy more and more income-generating assets. This is a great way of using debt to grow financially.
But if you are borrowing money to go on holiday, you are probably digging a very sad financial grave. Also, try and avoid credit card debt as much as possible.
Have you seen the interest rates and fees on credit card loans? It’s just not worth it, especially if you can pay cash for stuff.
Get A Passive Income
This is probably one of the world’s most recommended personal finance tips. And to be honest, it’s actually not as easy as it sounds. Building a side business requires time, money, and a bit of attention.
If you are already juggling a 9 – 5 job with a family along the way, it may be hard to find that extra hour to focus on your business. However, many passive income ideas don’t need too much investment.
While initially, you may need to spend some money and time, once everything is set up, maintenance is so easy. Educate yourself on these ventures as much as you can and see what you come up with.
Money Management Tips to Keep in Mind
As you steamroll towards your retirement, you will always face the need to manage money on your own without external advice.
Remember, how well you manage your money will ultimately determine the kind of retirement you end up with.
So, even as you take into account the 5 points above, you may also want to consider these money management tips as well:
Create a Budget and Stick to It
The main reason why most folks tend to live well beyond their means is that they don’t account for how they spend. This is how you end up spending so much money without even knowing. But there is actually a very simple solution for this.
Learn to create a budget every month or week where you prioritize the most pressing needs. That way, it will be much easier to account for every coin you spend.
You Must Have an Emergency Fund
It is also important to have an emergency fund, just in case. This is, however, not that easy to do. In fact, this survey found that over 50% of all adults in the United States cannot be able to deal with a $1,000 emergency.
It shows you that while most people do make money, the cost of living is sometimes so high that you cannot save.
But despite this, you may want to do as much as you can to have at least a small rainy-day fund that you can use during unforeseen circumstances.
It is also very important to make sure you have insurance. Now, these days you can insure anything you want. However, the four that really matter are health insurance, homeowners’ insurance, car insurance, and life insurance.
Insurance coverage is one way of ensuring that any unforeseen emergencies are taken care of.
The last thing you need is to pay for medical emergencies from your savings. With the cost of healthcare being what it is, it can drive you to bankruptcy.
Account for Your Money
It is also important to always account for every penny that you spend. Yes, it can be hard to do so, especially on small payments. But a good rule would be to sit at the end of every month, look through your receipts, and account for every cent.
This will allow you to know which areas are taking much of your expenditure, how to reduce that and develop a plan to spend only on the things that actually matter to you.
How to Invest for Retirement
Getting to early retirement will also be determined by how effectively you invest money today. Although the IRA retirement account may seem like enough for most people, there are still other ways to diversify your investments.
First, always think long-term. After all, if you are investing money for retirement, it makes sense that you would want to buy assets with the long-term potential of unlocking value. For this reason, you can pick relatively mid-cap firms with decent fundamentals.
Secondly, ensure you are aware of the trends in finance and investment. Just think about crypto, for example. Although we are not suggesting you should invest in these digital currencies, people who got into crypto early have now made enough money to retire.
If you can pick some of these trends and understand the risks and opportunities involved, you may make a lot of money. Thirdly, always use expert help when investing money. Do not do the trial-and-error game.
Besides, wealth managers are not always that hard to come by these days. These folks have enough expertise and a fiduciary duty to help you put your money in the right places.
Finally, invest your money incrementally. Do not wait to accumulate lots of capital for you to start investing. Even small amounts of money can go a long way if they are invested incrementally over time.
The dream of early retirement lives on in many people. But retiring early is often easier said than done. However, the only thing it takes is proper money management.
If you are intentional about how you spend money, it should be easy to develop a financial plan that ultimately leads to early retirement.
The tips above should help you at least get foundational knowledge on how to do this. But feel free to always seek more expert advice, especially on potential investments.