Financial independence is now being used to refer to retirement. With this, retirement isn’t tied solely to a specific age and may entail consistent planning even at a very early stage. People are increasingly becoming aware of the value of saving and investing on a regular basis. Therefore, we put the most important things you should know about early retirement to be able to live the kind of life you’ve always wanted.
Retirement: It’s nice to get out of the rat race, but you have to learn to get along with less cheese. ~Gene Perret
How to Get Started
Smart financial planning can help you ditch the rat race sooner than you imagine. Here’s what you need to know to jumpstart your journey to financial freedom:
Know the basic rule
The amount you need to save depends entirely on how much you spend. Remember you need enough money to support your lifestyle for the rest of your life. Therefore, your spending rate is the single biggest factor that should determine when you’re wealthy enough to retire.
Always monitor your spending
You can download mobile apps or create a spreadsheet to help you track your expenses and plan your finances. If you’re uncomfortable with these technologies, you may opt to go back to basics. List down all your expenses on a notebook and carry it with you at all times. Whatever way you prefer, figure out where your money is going and how much you spend each month. Also, consider cutting your expenses by eliminating those unnecessary items on the list that you can live without.
Learn your priorities and stick to them
Your priorities (education, travel, car, house, insurance, etc.) are as important as your goals. Just remember that your list must be SMART – specific, measurable, attainable, realistic, and time-bound.
Determine which investment portfolio best suits you and your targets
Experienced investors recommend that you first pick a portfolio. Next, do your best to match it depending on the investment choices available to you. After that, allocate your money as per the portfolio and stick with it. Remember that it has to be rigid yet flexible in case you need to rebalance your investment funds and push them to other portfolio options.
Do the long-term math
Since early retirees will need to support more years, they have to create a much bigger savings pool than those who’d retire later. Work with a financial professional to determine what rates of return you’ll need to see from your investments to have a sustainable withdrawal rate that helps you live your desired retirement lifestyle.
Manage your taxes
Market Watch explains that it’s crucial to include an estimate of your annual tax bill in your “total savings needed” amount. As such, taxes are a significant consideration in retirement whether you opt for early retirement or not. Here is the bottom line:
- Invest in tax-advantaged accounts.
- Investments that don’t have early withdrawal penalties.
Make more money
If you plan to retire early, your savings should go way beyond the average “savers’”. Since yours has to be aggressive, engaging in other jobs that can make you earn more is a wise move. If you can’t save more because of your limited income in your day job, then maybe you can start focusing on making more money outside of work. You could start a part-time business or work on passive income (real estate or dividends).
Wish you could retire right now?
You want to ditch the rat race, embrace a life of independence, reduce your stress, and have more time for what you value most — your family, education, travel, etc. Although this may seem like a fantasy to most of us, early retirement is actually within our reach. That is, only if we are willing to take the steps in making it happen.
Financial independence, after all, is a simple concept. Preparing for it may be difficult at first, but once you’ve already embraced it as a habit, it becomes much easier because apart from your determination, there is already passion in doing it. As such, you don’t require to force yourself and feel bad about yourself.
This infographic gives you specific sets of retirement tips depending on your age bracket.
It’s never too late to save and invest. Putting your hard earned money into something you think would be favorable and profitable in the future is indeed a good move. It’s all going to be worthwhile.
