We all want early retirement. Who doesn’t? But retiring early is not just about having a lot of money. You can have a lot of money and it would still not be a good idea to retire. There are certain signs that will tell you that you can retire early. These signs are a combination of your financial position and your habits too.
Some people make the mistake of focusing on the numbers alone. They do not realize that their habits and attitude towards money will also play an important role in their ability to retire at an early age. First of all, you need to have the right habits in order to reach your retirement fund target fast. Not only that, you also need to have the same set of habits, and probably more, to ensure that your retirement fund will outlive you.
According to statistics, the majority of Americans only have less than $10,000 in their retirement fund. One out of three has nothing saved. Obviously, these people have a long way to go. They need to save up enough money to retire and they also have to develop the right habits that will help them live off that fund.
Both feats are actually not easy but it is not impossible either. You just have to focus on the habits that will help you achieve early retirement.
Habits that will help you retire early
When you develop these habits, it will be a win-win situation for you. It will not only be easier to save up the money you need to retire, it will also guide you in making the right choices when it comes to your finances. Here are the eight habits that you need to work on.
Know your objectives
First of all, you need to know what your objectives are. Otherwise, you will just be running in circles and making all these sacrifices that are not really taking you closer to your goal. Define the objectives – specifically the amount that you need to reach. Not only that, you also have to identify when you want to reach your goal. This will give the goal a sense of urgency that will encourage you to act on reaching your target.
Plan every financial decision
This habit is actually tied to the first one. When you know your goals and objectives, you become more decisive when it comes to your finances. But even if you are, you have to make sure that you plan every decision that you make. In the end, it is your financial decisions today that will affect your future. Whether that is a positive or negative effect will depend on what decisions you will make.
Always be aware of your priorities
This habit is useful when you have limited finances and yet a lot of financial opportunities. Most of the time, people are torn between saving or paying off their debt. If you are in the same predicament, it pays to know your priorities. What is more important, retiring with enough money or retiring without debt? The choice will depend on your personal preference. Of course, you can always increase your income so you can afford both. Or you can work on your debt to lower your balance or at least the interest rate. But if that does not work, just choose what you can live with. In the end, you have to get used to thinking of yourself as the priority. What choice will put your welfare first?
Organize your finances
Being organized will make you more aware of the different aspects of your finances. When you know your finances, you have more control over it. If you are falling short on your plans for early retirement, you can immediately act on it. You can increase your contributions and stay on track. The same is true if there are some funds that are not being used properly.
Observe current events
You should also keep an eye on what is happening outside. Do not just focus on your own. Make sure you have an idea about tax rates, interest rates, and even stock options that you may have. These will help increase your extra money and in effect, your retirement contributions.
Keep increasing your income
The most proactive way for you to reach your retirement goals faster is to simply increase your income. The more you earn, the more extra money you can put towards your retirement fund. According to statistics, the average American household’s gross income is $71,258. With this income, there should be enough to help you save for early retirement. But if not, you may want to find a way to increase your monthly income – like get a second job or set up a passive income. You can also request a raise from your existing work. That way, you earn more without really having to spend more hours working – at least, not more than what you are doing.
Simplify your lifestyle
If it is hard for you to increase your income, you can simplify your lifestyle so you can be more frugal. Spend only on what you need to survive. Most people who have successfully retired early made a decision to live a simple life. This allowed them to save a big portion of their income. You should also remember that this is the type of lifestyle that you should continue even after you retire. This will help stretch your retirement fund so it outlives you.
Finally, you need to have a habit of staying committed to your goals. It does not matter if you have a foolproof plan. If you have a problem committing to it until the end, you will never reach your goal and enjoy early retirement. There will be a lot of struggles and sacrifices along the way. You will falter and fail if you are not committed to this. If you make plans, make sure you can stay true to it and contribute until the very end.
Have a plan to keep your retirement money from running out
Once you have successfully reached your early retirement goals, your efforts will not end there. You have to make sure that the money you saved up will not run out. While it is a dream for most people, retiring early comes with a lot of challenges.
The main challenge is having enough money until the very end. When you retire early, it means you need a bigger retirement fund. After all, you will be using that to support yourself for a longer time. If you retire when you are 65 years old, you only need enough to survive around 20 to 25 years. But if you retire in your 40s or your 50s, you will need a lot more money to make sure that your funds will outlive you.
With the statistics about retirement savings, it is evident that a lot of people are falling short of their targets. The solution for some people is to continue working even during retirement. While some people want to keep working just so they have something to do, 6 out of 10 are forced into it because of financial reasons.
If you really want to enjoy early retirement, you have to make sure that your finances will last long. Most people have a simple plan to make it last. They only live off the interest of their investments. If they have a 4% income from the interest, they try to live below that. This is how they keep their fund from depleting faster than it can grow in the market.