The Best Planning for Early Retirement — The 7 Steps

Early retirement requires you to be smarter to build wealth fast. How can you earn a lot of money? The side hustles. The only way to retire early and live independently.

Why retire early? You can smartly invest your time. Your ideas will earn you money, and you will live free. You will be able to pursue your dreams.

Let’s talk about the best early retirement strategy for young people. Earn smart and invest wisely.

[box type=”success” align=”aligncenter” class=”” width=””]Invest smart, build your wealth. Retire early and live free.[/box]

Successful Early Retirement Strategies

early retirement strategies for young entrepreneurs

Early retirement is something many of us dream of, but it is not easy for the lazy dreamers. The dreams without plans are just dreams that never come true.

All the successful early retirement strategies will have critical assessments and wise investments. Meanwhile, you can read the Major Reasons to Save Money for Retirement.

Thes are the seven simple, yet perfect steps for early retirement planning:

  1. Do the math — know your numbers
  2. Calculate the cost of living — reduce expenses
  3. Stay out of debt — it will sabotage your early retirement dream
  4. The house owns you — don’t be a house poor 
  5. Save more than ever — up your game
  6. Increase your income — the side hustles
  7. Upgrade your investment portfolio — adjust if required.

retire early

It takes three easy-to-understand principles to make a perfect financial plan that will give you opportunities to pursue your dream. These are:

  • The money you invested wisely
  • Rate of return, the growth rate of your money
  • The amount of time it has to grow big

You need to learn how to find high growth areas and invest in them. Smart work pays more than hard work.

Do the Math — Make A Plan

The first mistake people make is they don’t have any plans. All they have is their wishes. This is the start where things go wrong.

By knowing your numbers, we ask you two have to things. The first thing is the annual amount of income you will need and the second one is an early retirement portfolio needed.

Majority of the American think, they can’t afford early retirement while a few people with a solid plan manages to do it. If your retirement income will be 80-90% of the pre-retirement salary, it is wise to retire.

What after retirement plans you have will decide how easy or difficult the decision is. Calculating your needed retirement portfolio amount is essential. Know your target numbers. You might have heard about the safe withdrawal rule? follow it, you will never run short of money.

By using the 4% safe withdrawal rate, you can determine whatever your necessary annual income number is, you can multiply it by 25 to find out how large your portfolio will need to be.

Don’t forget to factor inflation into your plans

There’s no hard and fast rule or the way to know what inflation will be during your retirement life, but you can do the theoretical calculations based on history.

Using the U.S. Bureau of labor statistics calculations you can find out the consumer inflation index at a certain time in the future. This tool helps you predict inflation for the twenty years from now.

At the end of step one, I would advise you to plan for contingencies as well. The heavy inflation is the biggest enemy of early retirees. A possible recession would affect your investments, take notes from the COVID-19. This coronavirus has shaken the world. You have to cater to things like that. Read more, Coronavirus May Impact Your Retirement.

Know the Cost of Living

The cost of living has a direct link with your savings hence retirement. The less money you need to live on, the more you save. Reducing your needs could help you progress quickly towards early retirement.

Know the opportunity cost — reasonable alternative options for living a less expensive life.

limitations are yours

You may consider relocation from an expensive city to a less expensive vicinity. But let’s see a few things before you move, the friends, neighbors, schools and medical facilities over there. Having an old car rather than a luxury car and boat is yet another example.

[box type=”note” align=”aligncenter” class=”” width=””]Building your own business or investing in real estate changes the math of retirement.[/box]

Your goal should be to focus on what you can control. And where to invest the money. Dan Lok, an entrepreneur who retired at the age of 27 is telling his story. How I retired at 27.

The key takeaways from his interview on early retirement are:

  • Develop high-income skills, focus on serious learnings. Learn from the mistakes of others.
  • First five years of work, I didn’t take a single day off. He had to work 7 to 14 hrs a day.
  • You don’t sacrifice your dreams, you work for them.
  • Start saving as early as you can. Notice the trends and start a smart business that produces results.
  • Pursue your dream, build it around your strength. Live free and do it from where you love it.

The answer to early retirement is much easier when you have confidence, lower streamlined expenditures, and a good retirement investment plan.

There are two things so far, knowing your net worth and calculating your annual spending. Let’s dig more to find out new ideas.

Stay out of Debt

Debt is another one of those dream killers that will sabotage your early retirement plans.

Mortgages and other loans reduce your cash flow, and that will reduce the amount of available money to save for retirement. Debt is a constant threat to your financial independence because it keeps taking your hard-earned money.

Why stay out of debt? These are the reasons to avoid debt:

  • It’s a threat to your financial independence.
  • You take debt for luxuries not living, it becomes a burden.
  • Debt leads to stress, stress leads to an unhappy life.
  • It increases the number of bills you have to pay.
  • Lead by example, teach your kids to be debt-free.
  • Get out of the mercy of the lenders.

Eliminating all consumer debt is a clear indication that you are getting ready for retirement. Not only do you need to get debt-free, but you also need to stay out of debt and put the savings for retirement.

Most of the time, the peace of mind of being liability-free is worth paying off all debts. It is important to teach your kids to live a free life. If the number of bills and subscriptions keeps increases, the bring tension along.

Make the right move. It’s not a chess game where you just lose the game. It’s life, you can’t take heavy risks.

The House Owns You

what is house poor?

Who doesn’t want to have a beautiful house? Nobody. Think of a situation where you have worked for years to buy a house and now you are out of the money for daily needs. This situation is called a house poor.

Your new house is a long-term expense— a kind of liability that will have a significant impact on your cash flow, but it is also the kind of acquisition that can set the spending trend in your life. For instance, a higher-end home will need more costly maintenance, very costly furniture, typically more expensive utilities, and costlier maintenance, particularly in regard to landscaping.

As suggested by many entrepreneurs, this could be a great early retirement investment if you can manage things well. Exceptions are always there. What works for you may not work someone with a little money.

Why not buy a house? These are the reason early retirees should not buy a house:

  • You will not be financially stable after this purchase.
  • Mortgages haunt you forever.
  • You won’t have emergency savings
  • There will be a chance of missing investment opportunities
  • Maintenance and repair of the house
  • The volatile housing market

cash flow

Being house poor is not an encouraging situation when you’re planning for early retirement. It is kind of a purchase that limits your cash flow.

Save More Than Ever

If you want to retire early, you need to plan early, save early, and spend less. If you plan to go home in 10-15 years, you should be saving 50-60% of your salary.

I’m sure you will have a 401(k) plan. You need to contribute to a traditional or Roth IRA if you can qualify. Save some emergency funds outside of your retirement saving accounts.

There are many retirement savings options favored by the self-employed or small business owners. For example, you can start 401(k) solo, which is also known as uni-k.

It is almost the same as 401(k) which is offered by most of the businesses, the only difference is you are the employers as well as the employee. This plan can be adopted by those planning early retirement.

In this plan, the elective deferrals for 2020 can be up to $19,500, or $26,000 if age 50 or older. Total contributions to this saving plan cannot exceed $57,000 for the people below age 50 or $63,000 for people age 50 or older as of 2020.

These are the best ways to save more:

  • Cut down on groceries, grow in the kitchen garden.
  • Cancel all your unnecessary memberships and subscriptions.
  • Cut ties with cable, there are plenty of streaming services.
  • Take advantage of your library.
  • Reduce energy costs, go solar if feasible.
  • Unsubscribe from those marketing emails, they make you buy.
  • Pack lunch — eat at home.

When you are determined, nothing can stop you from saving money. But when you are lazy, things go out of control at times.

Cutting your expenses and daily spending is a short-term solution. Let’s up the game by something else. Here comes the next step.

Increase your Income

To increase your income, there is a possibility that you work harder to get a better paying position. If this isn’t the case then the part-time job is always there.

The ‘side hustles’ is your only way to financial independence and early retirement. This extra money helps you with so many things that eat your salary.

[box type=”info” align=”aligncenter” class=”” width=””]There are always opportunities to grasp if you’re willing to seek one.[/box]

How to earn some extra money? These are the side hustles you can start today:

  • Create tutorials on YouTube
  • Conduct a webinar.
  • Build a simple sales funnel.
  • Do social media marketing for businesses
  • Become a virtual assistant
  • Start copywriting and proofreading
  • You can start blogging for money
  • Start a digital marketing business
  • Resell high-value domains
  • Build a great website

Starting an online part-time job is one of the easiest ways to start earning money. There are times when people leave their full-time jobs for these part-time activities as they get viral or become influencers on social media platforms.

So, you can give it a try. It’s doesn’t require any special education certificates. All you need is a working attitude. These are all practical jobs and earn you a handsome amount of extra cash to save for early retirement.

Upgrade your investment portfolio:

Your investment portfolio is a basket of assets that needs to be properly examined from time to time. There would be underperforming assets or more profit opportunities if you adjust them. Be wise in the projection of your expected rate of return (ROR) on your investments.

achieve a diversified portfolio
Credits: Investopedia

When the market is booming, you cannot sell out the stocks. It requires some good research and analysis. All you need is a well-diversified portfolio.

If you’re perfect with your early retirement savings— maximum contributed, then make a brokerage account. This will be cash you can invest any time in the stock market. You can always take it out when required.

How to diversify your investment portfolio? These are the best ways to diversify your portfolio:

  • Spread the wealth—don’t put all the money in one stock.
  • Consider adding an index or fixed-income funds
  • Keep adding to your investments regularly
  • Know when to get out or make adjustments
  • Keep yourself updated.

Investing wisely can and should be fun but when you are planning for early retirement, things can get a little serious. The fun doesn’t stop though.

Conclusion:

Early retirement is a big decision that requires a lot of calculations and savings. But the rewards are of course, worth it. The only thing to do is making sure you have enough savings and assets to provide an adequate income for your needs in the future.

Unless you get a wealthier legacy, win a special lottery, or have some other kind of freebies, for most people the best way to retire early is to start saving and planning well ahead. You’ll be required to accumulate a lot of wealth, find new ways to live on less money—or, even better, do a bit of both.

About Faheem Rafique

The author is a digital marketer who loves technology, design, marketing and online businesses. He has pretty good experience in automation, strategies, digital marketing. We can help you to manage and build brands on the web.

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