Introduction to Financial Steps To Achieve Early Retirement
Retiring early. It’s an ambition we’ve all thought about or daydreamed of while working our 9 to 5 jobs. Early retirement can be a distant dream for many and, if it’s your goal, you’ll need to have saved or invested approximately 25 times your yearly expenses.
Consider this, though. Retiring early means different things to different people. This means you still might be able to achieve your version of early retirement in your own timeframe.
It’s still in reach and, depending on the steps you take, you might be able to achieve it faster than you expect. With that in mind, we’ve put together a list of the critical factors that will help you on the path to early retirement. First, though, let’s start by looking at what early retirement means.
What does retirement mean to you?
Though many consider retirement to mean ‘total financial independence’ or ‘never having to work again’, this isn’t the only definition out there. Sure, these examples might be the ideal definition of retirement, but there are different forms of retirement.
To achieve early retirement for instance, some people might decide to leave their full-time job in search of a creative side hustle, a small business that still generates some income, or intermittent work with a less time-consuming work contract.
In this case, before you retire early, you’ll need to think about what early retirement will look like for you. It truly is different for different people, which means that planning what you’ll do during early retirement and how you will achieve it will be completely unique to you.
5 steps to take to achieve early retirement
Now that we’ve established what early retirement means to you, what are your next steps? You have various options, but keep reading as we’ve included five critical steps you should follow to help you on the path to early retirement.
Getting the right advice early is crucial
According to Nigel Green, of the deVere Group, it’s critical that you get the right advice when planning to retire early. The kind of expert, impartial financial guidance you receive is vital because it will help you achieve your goals quicker than “going it alone”.
Financial experts will help you formulate a plan and put it into action, giving you the peace of mind that you are well prepared to achieve your financial goals for early retirement.
Getting this type of advice, as early as possible, is crucial. It can mean the difference between efficient planning and retiring later than you initially planned.
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Consider what your spending habits will look like
As mentioned, planning is vital if you want to retire early. You’ll need to know the amount of money you will require for your future retirement lifestyle habits. This approach involves getting specific about your retirement dreams and thinking about what your retirement will look like beforehand.
Always bear in mind that certain factors can influence your savings rate, such as inflation and recession. Your investments and the amount you’re able to put towards your retirement fund can be impacted by these factors, so planning ahead for every eventuality is important.
Figure out how much passive income you need
Passive income is important if you plan to retire early. You’ll require a certain amount to cover your expenses, which not only includes living costs but costs that you’ll require for reinvestment. You’ll also need to make a projection in terms of your passive income, that considers the taxes you might have to pay.
But what other factors will you need to consider? As well as the costs of inflation you’ll also need to think about potential medical costs, which can impact on how you spend your passive income in the long run. This means that being conservative and making cautious projections about your passive income is an essential step to retiring early.
Begin to put money away for your retirement
The key to early retirement is saving or investing your income. Those who are able to achieve financial independence and retire early put away a certain percentage of their money and create a nest egg as early as possible.
One case in point is Jeremy Schneider, owner of RentLinx, who, after saving his income for a number of years using the FIRE movement, sold his company and retired at the age of 36.
Though you don’t have to excessively reduce your living costs, putting money away as early as possible is one crucial factor that can make early retirement a reality for you.
Think about how to create various sources of passive income
So, putting money away is important. But what about other passive income strategies? There are many ways that you can transform your investments into liquid assets.
You might choose to invest in things like real estate or in dividend stocks. You might choose to go with an ETF (exchange-traded fund), or opt for a high-yield certificate of deposit. Whichever you select, having various passive income streams is ideal if you’re planning to retire early. The more, the better!
Retire early and comfortably: the key takeaways
Retiring early needn’t be a distant dream. It is difficult, but it’s achievable with the right steps. Remember to:
o Seek financial advice about your retirement plans
o Think about the amount of passive income you’ll need, and
o Try to create various sources of passive income too
Saving is also essential, as is investing. But by combining and following each of these steps, not only will you be able to retire earlier, you will very soon be able to retire comfortably.