One of the most common goals people have in life is to retire early. Retiring early means less work, less stress, and more days and years of relaxation. There can be various reasons why you want or will need to retire early. Be it because of health or other reasons that make retiring early necessary or travelling, dreaming of doing volunteer work, and such that make it a luxury, it’s possible to retire early. However, it will need some planning to make it possible.
The start of planning for early retirement
Early retirement can mean different things to people. You should define what it means to you. For some, it means financial independence — not having to work to provide for you and your family’s daily needs. For others, it means a change in career or work environment where you’ll get to be creative and make your schedule. Those who have prepared for it and can afford it pertain to early retirement as a lot of travelling and doing your hobbies. You have to decide what it means to you so you can plan for your retirement.
Moreover, not only should you decide on what you’ll be doing after, but you should also start envisioning and defining the lifestyle you’ll be having when you retire. This will help you evaluate your assets and how much would you need to save to afford the retirement lifestyle you want. Although, this can change at any time depending on what your final preference is.
Assess your finances
One of the first steps in planning to retire at 55 or even earlier is to account for your finances. There are two things you need in taking inventory of your finances. The first one is to know your net worth, and the other one is to compute for your annual spending. It would be best to set up an app, software, or other tools and techniques to track your expenses. You can estimate this based on your credit card statements or past checking account statements and habits.
Set a target number to save
Given what you have established at the start of your retirement plan — what you will be doing and what lifestyle you will be having, you’ll need to estimate and set a goal on how much money you’ll need to earn and save so you can make what you envision into reality.
Early retirees have suggested to take what you have calculated for your annual expenses, multiply it by 25 to 30 times, and add extra cash that amounts to a year of costs. After setting the number, you’ll have to set goals in saving; it can be monthly, weekly, and even daily.
Cut expenses and increase your income.
It’s challenging to save up for retirement when you keep living beyond your means. Your goal is to save. To boost your saving rate, you should avoid any unnecessary expenses. The small act of reducing your costs can go a long way in saving.
Saving for 30 times your annual expenses is a very challenging goal. Cutting down costs can do so much, but it’s not enough to ensure you’ll achieve your target number. Increasing your income is more long-term. Lessening your expenses can take so much effort, but amplifying your cash inflow when you find the right passive-income-generating side hustle can help you reach your goal of becoming financially independent enough for retirement.