Do you day-dream about one day quitting your 9 to 5 to travel the world? Well early retirement is not impossible. With some focus and self discipline, you too could have enough money saved up to retire early and quit the rat-race once and for all.
Here are 7 smart moves you should make in order to help you retire early.
1. Save 10% Of Your Income
Social security isn’t going to be enough to have you living the good life in retirement. So you’ll need to have a healthy retirement account so you can enjoy your golden years.
Get into the habit of spending less than you earn. It’s a simple concept, yet so many find it difficult to execute. Start by forcing yourself to save 10% of your income. So if you make $3,000 a month, $300 goes into savings.
Start off by creating an emergency fund. Once you have your rainy day fund fully funded, continue saving 10% of your income and put it in a retirement account.
2. Start Saving As Early As You Can
Because of the power of compounding interest, saving a little bit of money out of every check can really go a long way in the long run. But you will only see the true impact of compounding interest if you start saving early.
Did you know that if you save just $100 a month starting at the age of 20, by the time you retire you could end up with half a million dollars? And you would have just invested a little over $50,000 of your own money. If that doesn’t motivate you to start saving for retirement early, nothing will.
3. Delay Social Security Benefits
If you’ve been wise about your finances, you’ll have a nice retirement account ready to go when you wish to retire. Doing so will afford you the ability to delay receiving social security benefits.
By putting off receiving social security, you will maximize the amount you can get. While it’s possible to begin getting money when you turn 62, you will get 30% less than if you wait until you turn full retirement age, 67.
4. Take Advantage Of A 401k Company Match
Free money is something you should never pass up. Yet that’s what many young people do. Many companies offer to match your contribution to your retirement account, up to a certain percentage.
Say you make $3,000 a month. A company match of 5% is $150. So you should minimally be investing $150 a month into your retirement account. If you do, your employer will pony up the other $150.
With the offer of a company match of your 401k contribution, you could reach your retirement goal in half the time.
5. Don’t Get Saddled With Debt
Debt comes in many forms. Some debts are good, others not so good. Good debts are tax deductible like a low interest fixed rate home loan. Bad debts to stay away from are high interest ones like credit cards.
Try and stay away from other debts like car loans and student loan debt if you can. It can make it hard to justify adding money to a savings account when you’re still paying interest on debts.
6. Don’t Have Kids Too Early
If you have kids before you finish school and start your career, you will be hurting your income potential for the rest of your life.
An unplanned pregnancy can take a toll on your education and your future finances, so consider waiting until you are both financially ready.
7. Have A Smaller Family
On the topic of kids, it is a far better option to have one or two kids, if your plan is to retire early. Let me explain. While it is certainly possible to afford to feed and clothe five kids, having a lot of children affects you financially in other ways too.
You might not be able to live in a two-bed, one-bath home. Instead, you may have to fork over much more money on a 4 bed 3 bath house – a difference of at least a hundred thousand dollars. That can really take a bite out of your early retirement dreams.
It’s not just a bigger house, but you’ll need a bigger car too. Then there’s sports activities, music lessons and family vacations to have to budget for. When you add the cost of a college education for each child, you might as well kiss your dreams of retiring early goodbye.