Early retirement is something very few would snub their noses at. Who doesn’t want the freedom to travel whenever you want, spend more time with friends and family, or just sleep in on a weekday? Yet, short of winning the lottery or having a very affluent relative leave you a substantial inheritance, it seems like nothing more than an unatainable dream. DEPRESSING!
While I don’t have all the answers because everyone’s situations and goals are different, I do have a few ideas and concepts to get you started off right.
- Determine your needs . I want to get simplest and least exciting out of the way. It’s not glamorous, but it’s probably the most important. Decide what you will need in retirement. Do you want a minimalist lifestyle or lavish? What will you need to put back for emergencies or basic medical? How much do you anticipate your income needs to grow year over year? How you answer these questions will determine how quickly you can retire and what sort of investments you will need to hit your target.
- Minimize expenses. Now I’m sure this sounds obvious and this concept has been beaten to death by everyone who has ever written about finance. While that’s for good reason, I’m going take it a step farther. Now I’m sure most of us aren’t having the $5 coffee every single day that investing “experts” tell us that we would be rich if we justs gave up. That being said, if there’s anything you can eliminate, do it and divert that money to savings or investing. For those things you can’t get rid of (occasional lunches, celebrations, getting Memaw her favorite spiced rum for her b-day) cash back is the next best thing. There are tons of cash back cards out there that give up to 5% cash back, plus there are now really great apps you can stack them with. My favorites are Fluz and Swagbucks. At a minimum you can usually get 1% back on those apps, so if you spend even as little $1,000 per year you’re missing out on $60 plus if you’re not taking advantage of these cash back opportunities. Plus with Fluz you can actually earn by referring others too, so there’s a little bonus. For lowering expenses I’m really just barely touching on some basics, but a post that will really dig in deep is coming shortly.
- Develop multiple income streams. Truly this is by far the most important step. You’re not preparing for “No Income”, your savings will run out. You’re preparing for self-sustaining income, or “passive income”. In order to do that you will need more than just your job to earning you income. Part time or contract work is always a good way to start hoarding cash, but eventually you need your money to make you money. The easiest way to get started is through dividend investing. It’s among the safest if you do it right, so it’s a good place to start. Some other ways I like are P2P lending, passive real estate investing and asset rentals. You can see a beginners guide here.
- Pay off debt. This one is a little tricky because in some cases it’s can actually be better invest than to pay down debt. I don’t recommend this if you’re not extremely comfortable with financial management, but for a simple example, if you have $10,000 in debt at a 3% interest rate and you have $10,000 cash, but the average return in the stock market is 8%, you MAY be better off hedging your loan by investing. On the other hand, if free cash flow is what you need or want, then by all means pay down your debt for more flexibility.
- Keep learning. I know this is cheesy, but it’s so important. Knowing how to leverage your money can mean the difference between a successful, lavish early retirement and having to return to work. Some things to consider focusing your attention on would be tax laws, new passive income opportunities, personal finance and general stock market news, drivers and operations.
I get it, this probably isn’t the secret formula to retiring tomorrow that you wanted but believe me, this is a good place to start. While this is a thousand foot view and vague, more posts are coming to dive in on a little more of the “how to” for most of these topics and more, so if you liked this then bear with me and keep checking back for more.