How to retire early by earning, saving and investing

The path toward early retirement isn’t easy an easy commute. It’s a path the requires a lot of time and discipline to navigate. It’ll require that you earn, save and invest at the maximum amount you’re able, for as long as you’re able to do it.

People in the US typically retire in their mid-60’s. Others don’t want to wait that long due to a deep desire to pursue other, more personal interests. Fortunately, with careful planning, consistent investing and disciplined spending, early retirement could be well within your reach.

Before you spend all of your time calculating stock return results in hopes of lucky riches, let’s take a look at specific actions you can take that’ll allow an early retirement.

  1. Define Your Early Retirement Goal

When you retire, it doesn’t mean that you’ll never again earn a paycheck (unless you don’t want to, of course). Most retired people define retirement as not having to count on a full-time job to live. Retirement is the ability to be financially independent.

However, your retirement goal could be to get out of a stuffy corporate position and work in a creative field that lets you set your work working hours. Or, your goal could be to put your focus on hobbies or passions that don’t produce an income.

Maybe you’d enjoy working in month-long spurts, then traveling in the interim.

No matter what your retirement goal is, you can’t establish your path without first defining where you want to go.

  1. See Where Things Currently Sit

After determining where you want to go, the next step is taking inventory of where you currently are.

There are two specific things you’ll need to figure out when you’re ready to set your future retirement plan. The first is your total net worth. Most people can calculate this within a few hours.

Secondly, you’ll need a realistic calculation of your total spending annually. A good way to calculate your spending is by totaling up all of your checking and credit card statements for the year. Include every single dollar you’ve spent.

Another good way to track annual spending is by setting up an app that tracks your spending and verifies how much money you spend every month.

  1. Create a Target Number

Now we need to figure out how much money it’s going to take in order to turn our early retirement dreams into reality.

As a general rule of thumb, you want to have around 30 times your annual expenses invested or saved. You also want a full year’s worth of expenses in easily-accessible cash.

To start reaching this goal, it’ll require you to first calculate what that total target number is. Then you can break down what you’ll need to save over the years on a daily, weekly and monthly basis.

If you’re not able to accurately calculate these amounts by yourself, get in touch with a financial planner that can crunch all the numbers for you.

  1. Stop Living Beyond Your Means

It’s impossible to build wealth when you spend more money than you bring in. When early retirement is your goal, it’s time to start living below your means rather than living above them.

One of your main points of focus needs to be on reducing your largest expenses, which are, undoubtedly, your housing, vehicles and monthly food bill. When you re-invest the money you’re able to creatively save in these areas, you drastically increase your rate of savings.

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  1. Maximize Your Income

Keeping your expenses in check is a critical step toward early retirement. But there are only so many cost-cutting measures you can take. You can make even larger gains toward your goal by figuring out ways to increase how much money you earn.

If you’re happy in your career but still want to earn more income, it’s time to take up a side hustle. While side hustles like driving for Uber are solid ideas, what you really want is a side gig that creates passive income.

Real estate investing is a good way of doing this. By building a passive income and equity gains in your real estate investments, you could reach your retirement goals much earlier than you expected.

  1. Pay off Your Mortgage… If You Want

Early retirement preparation should definitely involve the elimination of your high-interest consumer debt. That’s a no-brainer. But what about your mortgage?

For some people, the question of paying off their mortgage isn’t cut-and-dry.

There’s a lot to be said about being free of all financial liabilities. That’s one big benefit of paying off your mortgage.

However, some argue that the cash you’ll save by avoiding larger interest payments will be minuscule compared to the returns you could have gotten on investments.

Consider that a lot of what will make you happy when you retire is mental. If being liability-free gives you peace of mind, then pay down your mortgage as quickly as possible.

  1. Research Health Insurance Options

When you leave your employer, it’ll also mean saying goodbye to your health insurance. If you decide to wait until Medicare kicks in, it’s cheapest to get on your working spouse’s plan if that’s an option.

If not, consider looking at COBRA options through one of your former employers. You can also see what’s available to you under the Affordable Care Act, get a part-time job with health benefits, or research affordable private plans.

Make Sure You Have a Backup Plan

Even the most absolute foolproof early retirement plans can find a way of turning south due to unforeseen circumstances.

You might even find out that you don’t enjoy your early retirement days and decide to go back into the workforce. Or, the entire economy could go into the tank, taking your retirement along with it.

Do you have a backup plan? Consider what the absolute worst-case scenario could be, then be prepared for it.

But in the meantime, start down the path toward early retirement by earning, saving and investing your way toward your dream.



Disclaimer: This content does not necessarily represent the views of IWB.


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