For many people in the workforce, retirement can’t come soon enough. That is why the FIRE movement is becoming increasingly popular. FIRE movement stands for “financially independent, retire early.” Before people had to wait to retire till their 60s but with planning, investing, and smart spending they are now able to retire as early as their 40s or 50s. This gives people a chance to not only stop working but to travel or pursue their passions. Retiring early takes a lot of work and self-restraint, here are a few tips and tricks to help make the dream of retiring early a reality.
Reduce your spending
A goal for most people who are planning on retiring early is to live off of only 50% of their income and save the rest. How you live your life currently will play a big factor in how you live your life in the future. There is no better time to start saving than now. One of your main focuses should be to get rid of any debt you have so that you eliminate any extra expenses. When it comes to day-to-day expenses like food or gas try to cut back any unnecessary spending. If you don’t want to decrease your spending, you will need to find a way to increase your earnings either through investing or getting a second job.
Figure out your retirement spending
In order to know how much you will need to save you will need to know how much money you will need to live the lifestyle you want once you retire. To do this you will want to calculate your annual spending. Look at your current monthly spending and multiply it by 12 and that will give you an estimate of what you will need. It is recommended to increase that by between 10-20% just in case you didn’t account for certain spending or an issue arises. Something most people forget to factor in is health care and taxes.
Retiring early means you have less time to save, therefore let investing help your savings grow. In order to get the best growth, you will need to invest in a balanced portfolio. Although you may think the opposite, it is recommended to invest in a higher-risk stock. This will help you generate higher returns in a shorter amount of time. Once you get closer to your retirement you should begin moving some of your savings out. Leave the rest invested to continue collecting revenue and only take cash out when you need it.
Keep to your budget
Once you’ve estimated your spending during retirement then comes the hard part, sticking to it. It is easy to get caught up and spend more than you originally planned, whether it is a vacation or shopping spree. You should not be taking out more than 4% of your invested savings during your first year of retirement and each year after you can take out the amount that would be adjusted for inflation.