Everyone dreams about retiring early, and for some people, early retirement gets to become a reality, and for others, it’s a necessity. Regardless of which group you fall into, there are steps you can take to make early retirement happen and live the life you always dreamt about.
Know your goals
Before you can figure out exactly how much money you need to save, you need to know your retirement goals. For example, do you want to live in a small town in a small home? A luxury condo in a big city? Travel around Australia and the world (when it’s possible again)? What kind of lifestyle do you see yourself living when you retire? Are you planning on following your creative dreams and selling what you make? Will you still earn a small income but on a very casual basis? Are you planning on fully retiring?
The answers to these questions will help you determine how much money you need to start saving now—and how aggressively you need to do it—to set you up for early retirement. Establish what you want your day-to-day life to look like in retirement so you can better plan for it.
Have a retirement budget
The information you come up with about the lifestyle you want to live will help you create a realistic budget for retirement. For example, how much of your budget do you need to spend on utilities and groceries? How much do you want to save for repairs or renovations on your home? Will you want to downsize your home?
Anticipate any healthcare costs that may come up. You can’t plan for everything, but remember that prescription needs and healthcare costs tend to increase as you age. It’s best to be prepared financially for those charges.
Pay off your mortgage
Having fewer expenses in retirement means the better your cash flow will be. Not having a monthly mortgage will drastically reduce your expenses when you’re no longer earning a steady income. As a bonus, when you do pay off your mortgage early, you’ll likely pay less in interest. So you’ll be saving yourself even more money for retirement.
Having the peace of mind that your home is paid off entirely will give you excellent security and financial freedom in your retirement.
Have a financial plan
You will need a financial plan that sets out your goals, income, expenses, and debts to know where your finances sit. Any significant purchases need to be checked against this plan, keeping you on track as you head toward your goals.
Review and revise your plan as necessary—if any significant expenses have set you back, see if there are ways you can limit your spending in other areas. Or see if there are ways you can earn an extra income while you’re still working.
Remember that you’ll probably need to live below your means if you’re saving for early retirement. So reduce your expenses where possible and increase your income.
Generate passive income
Cutting expenses can always help you save some money. However, adding in a passive income, such as real estate, can be a more profitable idea. Your passive income can be developed to cover your monthly expenses, enabling you to become financially independent much more quickly.
Regardless of why you want to retire early, having a solid plan in place and following the above steps can help you reach the financial independence you may need to feel comfortable enough to leave your job.
It’s important to live in the present even when you’re looking to the future. Of course, you will need to sacrifice some things to stay on the retirement track, but don’t give up everything. Instead, treat yourself sometimes, and remember to celebrate when you reach those goals.
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