Early retirement seems to be a goal many people aim for so they can enjoy the fruits of the labor. They do not want to work for a long time and want to be able to retire as soon as they can. Of course, like most consumers, the main hurdle is money or the lack of it. It is quite challenging to save up for retirement because you need a big amount to tide you through your golden years.
If you plan to retire early, the challenge is that you need to save more with a shorter amount of time. As Gallup shares, the expected retirement age in the US is 67 years old. This means that the time you have to save up for retirement is longer if you start from your very first paycheck. The problem starts when you do not believe in retirement planning at all.
It is a little challenging to acknowledge the need to plan for retirement when you are just on your first job right after college. You have so many plans in front of you that early retirement might not be a priority. However, you need to understand that the sooner you save for retirement, the better your chances of enjoying your golden years.
One of the many ways that can help people with their retirement plans is getting a side hustle to help them save up. Not everyone can do it with their current salary that is why getting a secondary source of income has been gaining traction with people trying to strengthen their finances. If you are looking to apply your extra earnings towards retiring early, here are a few things to think about.
Do you have a plan in retirement
If early retirement is your main goal, the first thing you need to identify what you want to be doing when you take up retirement. The most common scenario for people who wants to retire is heading to sunny and warm places. Apart from the inviting weather, it gives retirees the chance to indulge in various relaxing and fun activities.
However, to make sure that you enjoy retirement, you need to identify what it is you really want to do when you finally retire. Especially of retiring early is your goal, what will you do with your time? How will you augment your finances? Are you going to retire in-country or relocate to another place or country altogether?
You might not be a beach person but prefer to live near the woods or a farm. Retirement could also be having a huge room with all your favorite books and reading the days away. You might also spend most of your time doing your hobby and probably earning from it. Whatever your plans are, make sure that you identify it soon so you can focus your retirement preparations towards it.
Plan of action to reach your retirement goal
Now that you have an idea of how to enjoy your retirement, the next thing you have to do is make preparations for what you want to be doing in retirement. If you see yourself traveling a lot to visit friends and family, especially grandchildren, make sure that you include the cost of traveling to the amount you need in retirement.
If early retirement means living in the country of your dream, make sure you conduct due diligence. The place you want to retire to might look beautiful during tourist season but check how it is during the offseason. How is the place when it starts to rain? How accessible is the hospital, police, and even the grocery?
If retirement means starting up a business of your own, make sure that you do the numbers and plan for the unexpected. This is important especially if it is your first time to run a business of your own. If you are going to use your retirement money to get the business going, be sure you have contingencies in place because if you don’t and the business does not work out, you might find the need to come out of retirement. Having a side hustle helps you prepare for these instances better but only if you already have an idea what you want to be doing in retirement.
Early retirement means saving early and saving often
A lot of people would say that to reach early retirement, the best time to start saving was yesterday. The next best day is today and there is a reason for this. NY Times shares that saving early for retirement gives you the chance to take advantage of compound interest and habit building opportunities. These two helps you save for retirement a lot faster.
Compound interest works best if you save as early as you can because the longer time it has, the more you can earn overtime. This is because the interest you earn is added to your capital savings and that amount then earns interest over time. You do over the course of years and you can end up with a big sum at the end.
The habit building is one of the key advantages of saving early if you want to retire early. The more you get used to saving small amounts, the easier it will be to do the same regardless of what amount you set aside for retirement. If you are used to saving for something, you increase the chances of doing that first before spending your money on anything else. All these are within your reach if you have a side hustle to speak of.
Aim to save for more than what you need
Once you have determined the amount you need for the retirement plan you have in mind, try and save more than what you actually need. Having a side hustle can help you in this area of your planning. This is one way of putting a buffer amount in your retirement fund which you may or may not need. This is the knowledge behind having something you may not need rather than needing something you do not have.
If you see yourself spending a good 20 years in retirement, try and save for maybe 10 or 15 more. You can use the money if in case you do live a longer life or to offset any increase in medical care. This is one of the more expensive items on your list you have to keep an eye on. It can be anything from medicines to operations, or even assisted living situations in the future.
Your side hustle can help you strengthen your emergency fund
Do not overlook the importance of having an emergency fund even if you are earning more than what you need at the moment. Learn to save for a rainy day because you never know when you might find the need for it. It can be a broken appliance at home or an emergency medical operation you need to have done.
Your side hustle can help you plan for old age early but you also need to make sure that you save for emergency situations. This is because if you focused solely on your retirement and you encounter problems along the way, there is a good chance that you will reach into your retirement fund to cover the need. There goes your retirement savings and you lose potential compound interest on the fund.
There is no question that having a side hustle can help you plan for early retirement but you need to channel that extra funds wisely. Having a concrete plan for retirement and how you want to get there will increase your chances of saving for it and help you retire early.