Early retirement is something that millions of people dream of but do not believe they can actually achieve. Many people haphazardly save and invest their money, hoping to get lucky and retire early. This is a mistake. The truth is that with some planning and hard work you can retire earlier than most of your peers. Simply apply these steps to your retirement plan and you will know how to save for early retirement.
Set a Date
Start your road to early retirement by deciding exactly how early you want to retire. It does not matter if you want to retire at 40 or 60, set a date as a goal for your retirement. You will need that goal so you know how much you need to save every month for your retirement. So go ahead and set that date.
How Much Will You Need?
You are also going to need to find out how much you will need to save in order to retire. Total up your expenses for the year and multiply that total by the number of years you expect to live past your retirement goal. Then make sure you add another 10-20% on top of that total to help account for inflation. This is the amount of money you need to save in order to retire yearly.
So you know how much you will need to save monthly, take that large number and divide it by the number of months you have until you retire. That is the amount you are going to need to save every month so you can reach your retirement goals. Now all you need to do is find out how to set aside that amount of money every month.
Start Cutting Expenses
If you are like most people, the number you came up with is much higher than you thought it would be. In order to reach this financial goal, you are going to have to sacrifice some now so you can enjoy retirement before your peers. So, start cutting unnecessary expenses out of your monthly budget. Turn down the thermostat a few degrees, stop eating out as often and maybe even sell that car that you never drive. See how much money you can find every month in your current budget to put toward your early retirement goal.
Make Extra Money
Even living on nothing but beans and rice, it still may be necessary for you to find ways to earn extra money to meet your monthly savings goal. A second job is probably they best way to do this. Delivering pizza or waiting tables a few nights a week can easily bring in an extra $1000 a month to put toward your retirement savings. However, if a traditional second job is just not right for your life right now you can still make extra money. Write articles online, donate plasma twice a week or start babysitting to bring in additional income. It really does not matter what you do so long as you meet your monthly savings goal.
Now that you have worked so hard to save money for your early retirement, it is important to invest it properly. If you plan on retiring in the next five years you are not going to want to invest the same as someone who will be retiring in twenty years. So when you are looking at mutual funds and other investments, be sure to see if they have a good track record for the amount of time you are working with.
However, no matter how good an investment you find, you want to be sure to diversify your investments. Nothing is worse than working hard for your money only to lose it because a single stock crashes just before you retire. Spread your money between high yield savings accounts, mutual funds, single stocks and property. This way, you are not hurt as badly if one of them takes a nose dive.
As you can see, it is possible to retire early when you plan well and work hard. There is no short cut to retirement, but that does not mean you can not get there faster than everyone else. Apply these steps to your own financial future and you will be kicking your feet up at least a little sooner than age 65.