Do you find yourself dreaming of late mornings, travel, more family time, and impromptu vacations?
Well, most people do. But the idea often remains just but a dream.
But what if you could actually do it? It would certainly take years of planning, hard work, and discipline, but an early retirement would undoubtedly make it worth the sacrifices.
The question is, how?
Here are some tips to help make your early retirement dream a reality.
1. Define ‘Early Retirement’
You will be surprised at how different your idea of early retirement is from the next person’s.
However, it would help if you defined what it means to you.
This means defining the age at which you want to retire. You also need to give some thought into what exactly you want to do.
Does retirement for you mean never working for a paycheck again, or does it mean being financially secure not to have to work again?
Conversely, some people view retirement as quitting formal employment, to focus on an income-generating hobby, consultancy work, and so on.
Whichever it is, begin by clearly defining it.
2. Make Career Choices Wisely
Your choice of career features dominantly on determining whether or not your early retirement plans are feasible.
The career you pick determines how much you earn, how much money you will have to make investments, and, ultimately, how quickly you can build a retirement kitty.
If you begin thinking about early retirement as early on in life as possible, you are in luck. At this point, you have some leeway to make some smart career choices and take on high paying courses.
3. Leverage Your Income
While a high salary is a journey half-won, it won’t get you to your dream by itself. Your attitude about money will.
This calls you to evaluate your spending habits. It is challenging to build wealth if you spend more or just about the same amount you earn.
When saving up for early retirement, living beyond your means is imperative. This leaves you with more to save, which takes us to the next point.
4. Save and Invest
Saving and investing are different but equally important concepts.
Saving keeps your money safe, investing helps you grow your money. However, your investments are often shaped by the cash you have in your savings.
Your savings goal, at any one point, should be to have six months’ worth of living expenses saved up. The surplus can then comfortably go into investments.
This is especially important if you wish to make longer-term investments that have better returns for investment options such as the stock market.
You can also opt for short-term investments such as buying rental property and collecting rental income on a weekly or monthly basis.
As you consider your options, your goal should be diversification. Ultimately, this cushions you against future uncertainties.
5. Handle Debt
Evaluate all your debt, including mortgage, student loans, car loans, and so on.
Unless you set up substantial savings and investments, carrying debt into retirement can significantly affect your financial stability and peace of mind.
If you are looking to retire early, you’re better off clearing these before retiring. This is not cut and dry, either.
Evaluate which actions will deliver the most gains. You can clear your debt and go into retirement liability-free. Or you can instead use these funds to invest and grow your wealth and use the proceeds to make your repayments.
Think through these options to identify which one will work best for you.
Proper planning and discipline with follow-through should pave your way to early retirement. However, having a back-up plan never hurt anyone.
Run through the worst-case scenario like a recession or even the idea that you might hate not working. Come up with contingencies for these as well to ensure you are not caught flat-footed.