Retire early! Learn how you can do it now

retire early main

Nobody wants to work for 50 years. However, the majority of us will undoubtedly do so until we are in our sixties in one form or another. Life is a temptress in that it convinces us to make financial decisions that result in an overly prolonged career. While there are plenty of rewarding careers, everyone has their down days where they ask themselves “How long do I have to do this for?”. The truth is unless you are as dedicated to your future self as your current, your answer is going to be “far too many years”. By entertaining some of the proposals below you may just find yourself with opportunity to retire early reducing your working years greatly.

Counteract the trend and retire early

So how do we overcome ourselves and secure the future the we seek? Answer: An alternative financial life-style. You may have seen or read articles about individuals who were able to pay off large sums of debt in astonishingly short time periods. Each of these accomplishments shared a common thread, the individuals did not spend money on anything unnecessary, they eradicated any and all debt and repeated the process until they reached their goal. Debt is the greatest adversary to our financial future and the longer it is clogging up your monthly budget the longer you have to carry on your working life delaying the chance to retire early.

For most of us if we took a good hard look at our budget we could probably find hundreds or even thousands of dollars in money saving opportunities by not doing the following:

debt cut list

  • Purchasing new cars, clothes, cellphones, TVs and other expensive electronics
  • Going out for meals
  • Purchasing overly expensive homes, vacations and big ticket items
  • Continually indulging in seemingly small but costly habits like premium coffee, bar tabs and other inflated goods and services
  • Signing up for pricey subscriptions such as cable TV and cellphone plans

While some of these cuts may seem frustrating and cause undesired changes in your current lifestyle your future self will be doing the happy dance. Imagine if you were able to modify your purchasing lifestyle, minimizing new expenditures and curtail any future ones with lower cost alternatives. Your path to an early retirement starts with just one of these cuts.

Retirement is an accomplishment not an age.

accomplishment

There is no written rule or requirement that you have to work into your golden years. The official age to collect Social Security payments is 67 so should you just to retire early you would need to ensure you had your own savings available. Myself personally if I could choose my window for retirement it would be in the 45-55 age range, I’ll take the Social Security collection as a bonus when the time comes. Like the idea of thought of early retirement? If so, let’s get started!

Building the safety net

As I mentioned earlier, debt is the number one enemy of retirement and thus must be dealt with immediately. However, before any debt-reduction efforts are to occur we have to ensure we protect ourselves with a financial safety net known as The Emergency Fund. If you do not have an Emergency Fund than that is where you need to start. You should begin by building the fund up to single paycheck’s worth and upwards until you have several months put off to the side (preferably an easily accessible but, interest bearing account to let the money help build itself). Online savings accounts are my preferred residence as they earn more interest than your local bank branches. This might take several months even up to a year to complete but, if you have cut enough expenditures you will be able to do it! Not having an Emergency Fund leaves you exceptionally vulnerable to financial upset in the event of anything catastrophic and/or unfortunate happening.

The Snowball Tactic

snowball tactic

Once you have your Emergency Fund in place you can begin planning which of your interest generating debts to pay-off first. You can go about this in one-of-two ways, by the highest interest rate or the lowest balance. I normally go with a weighted approach of the two, the highest interest rate but lowest number of payments left. Examples of debts that could fall into this category are credit cards and/or vehicle loans.

The Snowball Tactic is simple in approach, it involves taking all the extra funds you have set aside from your cut’s list and combing them to expedite your debt pay-offs. Each time you successfully pay off a debt you then add the previous monthly payment to your cut list savings and apply them both to the next debt. You will repeat this process until you have worked through all your debts except one, the mortgage. By now you will have created a giant and powerful snowball which has already improved your immediate and future well-being but, the last debt is the final boss (to use a video game reference). Conquering this debt gives you the early retirement cheat code in more ways than one. If you do not have a mortgage you can still benefit from the tips below should you decide to purchase a home with one.

How to eliminate years from your mortgage

mortgage debt

The average American household spends around $1,483 per month on housing. If you were to pay off your mortgage and invest the savings, you would be able to set-aside an additional $17,000+ each year! Making just one extra payment per year knocks off approximately 5-6 years off the term. However, if your snowball is big enough to double the monthly payment amount you can shorten your repayment term by nearly 20 years!

Paying 2x times your mortgage amount is an undoubtedly difficult thing to accomplish unless you were fortunate enough to make deep enough cuts or already had a low enough mortgage to begin with (good for you if so). If you are set on doubling down on the mortgage you could look for extra funds through additional side work or selling unused items on eBay or CraigsList.

If doubled mortgage payments or even making the extra lump sum payment per year on your mortgage is too much to financially handle, then there are alternatives. You can make bi-weekly payments of your original monthly amount to reduce the repayment term. Bi-weekly payments equate to making an additional payment each year and up to 20%-30% savings in total interest. If your mortgage company does not allow you to make bi-weekly payments, then you can also break one month’s payment into 12 equal shares and add that to each transaction which will go straight to the principal. At the very least you should aim to pay down your principal balance far enough to remove any PMI (Private Mortgage Insurance) through increasing ownership on the home to 21%.

house

While paying off a mortgage is feat only accomplished by about 30% of homeowners, simply getting to this point is almost as rare. According to the most recent Census data available, the average US household has incurred upwards of $70,000 worth of debt.  Eliminating lingering debts will afford you the opportunity to secure your financial future and retire early. It is important to stay strong whenever temptation arises, know there is always another decision to make and that waking up each day in early retirement is what you are looking forward to.

 

Sources:
https://www.census.gov/newsroom/press-releases/2013/cb13-51.html
http://www.bls.gov/news.release/pdf/cesan.pdf

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