Have you ever thought about retiring? I bet you have! Heck, I’m only 26 and I know I’ve thought about it. Every time you go on vacation you think, “Wow, why can’t life be like this all the time. Do I really have to go back to work in 2 days…?” Well, if you really do want to retire, why not make a plan to do it in 5 years? Anyone can do it!
In order for someone to retire in their 60s, the typical method is to stock small amounts of money away for a long period of time. In order to retire in 5 years, we’d obviously have to ramp up these deposits!
Let’s say you spend an average of $3,700 per month, leaving you with about $300 to put into your retirement savings.
- Mortgage = $1,000
- Home Insurance = $50
- Property Taxes = $200
- Car Payments (2 cars) = $500
- Gas = $500
- Car Insurance = $200
- Food = $400
- Personal Essentials = $100
- Phones = $200
- Internet = $55
- Gas/Electric/Water = $150-$400
- Clothing = $200
In order to retire in 5 years, you must severely cut your spending so that you can ramp up your retirement savings. You were previously spending $3,700 each month (which isn’t overly crazy – there are plenty of people in this world that spend much more than that in a month) and only saving $300.
What would you say if I told you that you could cut your spending to $600 a month? I know I know, I’m crazy. It could never happen…. Just hear me out and take a look at the numbers!
Mortgage – you don’t need one. Sell your home and use the equity to buy a modest home for cash (preferably near your work). It may only be a one bedroom condo, but it will be yours free and clear with no mortgage.
Cars – sell your cars and get used to your bicycles (which is why I said you should live close to work). This move is going to save you a ton of money. Sure, it may be inconvenient at times, but some sacrifices need to be made if you’re going to retire in only 5 years time.
Food – You remember your favorite expensive restaurant? Well say goodbye for a while. Cooking within your home is much cheaper, and quite often more healthy!
Phones – Let’s face it. You don’t really need the data plans on you cell phone. In fact, you don’t really need a cell phone. How about a tracfone? Use a phone only when you truly need to call someone. This can reduce your monthly bill tremendously.
Internet – No need for the internet at home. Just take a strole over to the library and use theirs for free! I did it for a while and I survived! 🙂
Gas/Electric/Water – remember our first method to saving money? We purchased a small condo for cash. That is going to reduce your utility expenses. Most likely, your bills will be cut in half!
Clothing – Yep, we still need clothes, but there are plenty of good buys at Goodwill or the consignment shops.
With the above adjustments, here’s your new budget:
- Mortgage = $0
- Home Insurance = $20 (cheaper place = cheaper insurance)
- Property Taxes = $50 (again, cheaper place)
- Car Payments (2 cars) = $0 (no more cars, just bicycles)
- Gas = $0
- Car Insurance = $0
- Food = $200
- Personal Essentials = $70 (bring your coupons!)
- Phones = $40
- Internet = $0
- Gas/Electric/Water = $75-$200
- Clothing = $80
Do You Realize How Much Money You Can Bank?
With this new budget, you can live off only $600 a month, or $7,200 a year. Since (in the next 5 years), you still earn an income of $4,000 a month (after tax), this means that you can put $3,400 away for retirement each month! That’s $40,800 each year, which equates to $204,000 after 5 years.
Living Off The Interest
By investing your $204,000 savings into a Treasury Bond (or some other “safe” investment – P.S. Don’t just put your money in one place, this is just a simple example), you’ll earn 4.5% interest, which means that you could earn $9,180 each year on the interest without even touching the principle of the account! And, take note that you’re now earning $2,000 more than you needed in those 5 years of saving for retirement. Vacation anyone?
This plan works. You’ll never be rich, but you’ll be able to live life without the restriction of work, and sometimes, that’s worth more than a large corporate paycheck each week.
What do you think of this plan. Would you ever like to try it?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.