Do you sometimes just want to retire and spend the rest of your time relaxing, travelling and doing the things you love? Well, who doesn’t?! But the road to early retirement isn’t an easy one. It’s time-consuming and requires discipline to earn, invest, and save as much as you can.
An early retirement could have different meanings to different people. Thus, no two people can or should have the same plan. But regardless of what your ultimate picture of a relaxed life looks like, you can’t deny that you’ll need ample funds to support yourself once you quit the 9 to 5.
Getting a little overwhelmed there? Well, there’s no need. We’re here to give you some awesome tips you can use to chart up your retirement plans.
First, define your meaning of an early retirement
An early retirement doesn’t necessarily have to imply never earning again. For several early retirees, it’s synonymous with financial independence, i.e, not having to slog to live. You may want to leave your corporate work for your passion or something creative where you’re in charge of the hours.
Or you could focus on non-income producing hobbies like traveling. Regardless, the first step is to figure out what exactly retirement means to you. After this, you’ll be able to establish your ideal schedule. You don’t need to plan every small detail right in the beginning though; it will evolve over time.
Next, count your finances
The second step for an aspiring early retiree is to take an inventory of their finances in order to make a plan for the future. Along with your net worth, calculate your annual spending as well. You can do this by checking your credit card statement, bank account habits, or with the help of an automated tracking app to verify how much money goes out annually.
Then, set your target number
Now that you’ve got a basic idea, it’s time to check how much money you actually need to make to retire early. It has been suggested to have at least 30X your expected yearly expenses saved or invested and an additional year’s worth of expenses ready in cash!
We know that it may be a huge number, and this part may be difficult to calculate on your own, especially if multiple scenarios such as recession need to be considered. Hence, you can consult an experienced financial planner to help you get the exact numbers.
Now, start living lower than your means
It’s quite tricky to build substantial long-term wealth if you spend more than you earn. Thus, while working towards an early retirement, it’s suggested that you try to live below your means in order to save and invest more. You could try increasing your saving rate by cutting down on big expenses such as housing, food, and transportation.
Finally, invest the leftovers
If you’re planning on maxing out on your retirement accounts, move to a brokerage account where you can directly invest your money in the stock market and cash it out when required. Most retirees go with low-cost index funds, which are an all-in-one investment strategy that tracks a specific financial market and is designed to diversify your money while minimizing the risk.
So then, are you ready?
It may sound like rainbows and sunshine, but the path to an early retirement requires time and discipline. Just keep saving and investing. Reaching your goal is important, but don’t get too caught up in your ideal future. It’s critical to not forget about the present you’re living in!