When you are planning to retire early you need to aim at having at least 25 to 30 times the money you spend annually including savings and investments. However, this number can be lowered or raised depending on the lifestyle you have in mind. For achieving the target you will have to live below the means, raise the income, and maximize the retirement account. You also need to pay off all the high-interest debts before you retire including the mortgage debts. Never forget to create a backup plan in case of emergencies. The road you need to follow before you can retire early is not easy and it takes a lot of time and discipline to make money, save, and invest it in the required fashion. Here are the steps you can follow.

 

  1. Decide what you mean by early retirement

 

By retiring early it doesn’t mean that you are not required to earn a paycheck again unless you want to. Most people retiring early define it as not having to work again to make a living viz. financial independence. You may wish to leave a corporate job to do something more creative for which you can decide the working hours. Or you may wish to concentrate on non-income hobbies or travel a lot between works. So, the first step is figuring out what early retirement means to you.

 

  1. Take an inventory of your finances

 

Another initial step for those aspiring for early retirement is taking inventory of their finances. You need to know two things to make a plan for the future. First, evaluate your net worth which can be done within a few hours. Secondly, calculate your annual expenditure. You can estimate this by using the credit card statements and by checking the bank account statements. You can also set up a semi-automated tracking system by using an app to find out the money that goes away from you every year.

 

  1. Establish a target

 

After deciding on your idea of early retirement it is time to determine the amount of money you will need to convert this idea into reality. You need to have 25 to 30 times your annual expenses in savings and a year’s expenses in cash. This is the rough formula you can use for calculating the target number. Later, this can be broken into weekly, monthly, and yearly targets for saving. However, certain aspects may be difficult to predict and can affect your plans such as a recession that can affect the investments contrariwise. You can get help from a financial planner to get the numbers you are looking for and an actionable plan for achieving your goals.

 

  1. Always live below your means

 

It is extremely difficult to develop substantial long term wealth when you are spending more than you can earn. If you are working towards an early retirement you must live below your means as it is the only way of saving and investing aggressively. Concentrate on decreasing the large expenses such as a house, transport, and food as they will all contribute toward improving the saving rate. Focus on living a minimalist lifestyle, if you’re living in a big house, you might be paying more than you can afford for utilities. In this case, if you’d like to move into a more economical accommodation, such as a smaller house, or an apartment, you can start wondering how to sell my house fast and adjust your lifestyle in a smaller but more friendly space.

 

  1. Leverage the income

 

It is critical for your plans to keep the spending in check. However, you will succeed in cutting costs only to a certain degree. There is no need to start a podcast to know that the real big difference comes from raising your income. Decreasing your expenditure and daily spending needs you to make a continuous effort but it is a short-term solution. A raise in cash-flow is the long-term and beneficial solution. Take up some side income to increase your income streams. The passive income generating hustles such as real estate can contribute a great deal towards this effort.

 

  1. Invest the remaining money

 

When you have maxed out the retirement account you need to move to the brokerage account. This money can be used for investing in stock markets and you can cash it out whenever required. Many people who retire early and self-made millionaires use the Warren Buffet investment formula of investing in low-cost index funds. These are all-in-one kind of investments that keep track of a particular financial market. They are designed to minimize the risk and diversify your money.

 

 

 

Sarah Morris is a business advisor for several companies in the Arkansas region, and also provides Press Release Translation and PR consulting. She has experience working in a range of industries and providing technical support in topics such as business growth, market expansion, and product development.