You could probably count the number of people who you know who don’t want to retire early on one hand and have fingers left to spare. To retire early, you must work very hard early on as well as make some, and stick to, smart financial decisions. Here are a few tips that you can use to help guide you on the path to early retirement and financial freedom.
Adjust Your Budget
By adjusting your budget, you’ll need to do a lot more than just skipping your daily takeout coffee, although you’ll have to do that too. Focus on eliminating or drastically reducing your daily, weekly, and monthly expenses. Things like takeout beverages and/or meals, streaming services, subscriptions, gym memberships are all things that can be done at home for either free or much cheaper than what you are paying for now.
A library card can get you access to not only books but movies and audiobooks as well. Many libraries even offer their own free services which allow you to stream music or read digital magazines through their website. Some hardcore spendthrifts even cancel their internet and go to the library to use their computers. Make your own lunch or coffee/tea at home and bring it to work with you. These are all easy ways to start on the path to early retirement
Throw Your Money at Debt
The next you will want to take is to eliminate your debt. This doesn’t mean just paying off credit cards, this also means paying off mortgages and student loan debt as quickly as possible. If you are able to make double payments on these debts, great, but an even better way to knock out your student loan is to get a consolidation loan. Not only will you be able to negotiate a lower interest payment, but you will have only one payment due instead of payments due from several lenders.
Calculate What You’ll Spend
Next, you’ll want to be a real financial nerd and tally up what you will be spending every month when you are retired. Some things may be added, some may be reduced or eliminated altogether, it all depends on your personal situation. It may be a good idea to tack on an extra 20% of what you are calculating to adjust for surprise events. After you calculate what you are likely to spend in a month, multiply it by 12 and you will have the amount of what you will be spending every year. Remember to factor in forgotten expenses such as taxes and health insurance.
Count Up the Total Savings
Most experts recommend saving 25 times their annual spending amount. So, if you plan on spending $60,000 a year, you will need to have $1.5 million saved when you walk out of that workplace door for the last time. Assuming that your retirement nest egg is kept in investments, you can plan on being able to withdraw 4% of your savings every year. It is best to speak with a financial advisor about investments unless you are completely comfortable investing by yourself.