Everyone that I talk to about early retirement says pretty much the same thing: It would be nice, but I don’t see how I can afford it. On the one hand, when I hear these sorts of statements, I can understand what they are talking about. It’s hard to set yourself up with enough money and income that will last you for the rest of your life and the last thing anyone wants to do is to run out of money. It’s hard enough to pay your bills with earning the income that you do, right?
Yet, on the other hand, early retirement is a lot easier to obtain than most people think. If you want it badly enough, you CAN make it happen. It’s all a matter of setting financial priorities. Here are some basic tips to enter retirement a few years earlier.
Minimize Expenses – Some people may think this goes without saying, but considering that most people don’t know how to save money, this is an important step to cover. Not only does living on less money each year give you more money to put towards retirement, it also reduces the amount you need to save. If you save an extra 10% of your income each year, that means you become used to living on that much less. Here’s an example that should give you a better picture of how spending less can help you retire earlier (ignoring inflation and interest rates for simplicity). Let’s say that you make $60,000 per year and that you have been saving 10% towards retirement, meaning that you are living off of $54,000. If you were to save an extra 10% or $6,000 per year, you would become used to living off of $48,000. If we are assuming that you are going to live 30 years into retirement, that is $180,000 less that you need to save AND an extra $6,000 each year to meet that smaller savings goal.
Diversify Income – Most families that I know are currently living off of one or maybe two incomes (if both adults are working). While this is certainly their right to do, it also eliminates the option of additional financial security. By developing multiple sources of income, you can speed up the process of retirement. Early retirement may not seem that big of a dream if you start earning $2,000-$3,000 from passive income. You may think that is impossible to accomplish on your income, but let’s look at another example. Imagine buying 2-3 rental properties over the course of your career. If you can pay them off over the course of 20-30 years, you could easily generate a few thousand dollars each month. If you add this income to your retirement funds, I bet you could manage to retire earlier than you thought possible.
Invest NOW – Last, but certainly not least, is the importance of investing and investing a lot! If you think you can manage to retire early without prioritizing investing, you have another thing coming to you. By starting early and doing it a lot, you will be ahead of the game and give yourself the opportunity to retire early. While the stock market may seem uncertain, compound interest is one of the best ways to significantly increase your net worth over the years of your career.
Early retirement may seem like a lofty dream to those struggling to pay your bills, but if you get serious about your goal and implement this basic steps, you will be that much closer to retirement. If early retirement and financial security mean that much to you, why not start working towards that goal today.
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Readers, what other tips are important for achieving early retirement?
This post was written by Corey, a staff writer from 20’s Finances.
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.