How to Retire Early
Obvious to many but practiced by few, the key to saving for retirement is spending less than you earn and investing the remainder. Most people spend almost every dollar they earn regardless of how much they make. People that make over $100k per year just have fancier bigger houses and more expensive vehicles than the rest of us but often the same savings rate of 5% or 10% of their income.
Don’t scale up your purchases with your raises.
most people scale up their purchases when they receive a raise or a cash windfall. Staying in an affordable apartment or purchasing a small, well maintained house instead of a 5000 sq ft mansion keeps your expenses manageable. Smaller hatch back cars should be bought used with cash on hand if possible instead of large brand new $50,000 SUV’s on credit. I enjoy working with my hands but you don’t buy such an expensive item that you realistically only need once or twice per year. I feel most people are in the same boat with how little they actually need and use their trucks. Get a hitch and trailer for your car if you can, borrow or rent a truck if you have to. Purchasing a rarely used expensive gas guzzling vehicle should be, like anything else, only bought if you’re using it on a constant frequent basis when other options cheaper options are too impractical. on top of insurance, driving always has a cost associated with it in gas and maintenance. Generally speaking the closer your home is to your work the better. When considering a new job and not wanting to move, ALWAYS consider the cost of gas, maintenance and travel time. do not underestimate the effect of any of these
controlling your cost on housing and vehicles are the biggest items that will make a huge difference in your bank account. After tackling your big purchases, scale down or live completely without brain numbing entertainment such as cable or satellite TV and super high speed internet. Push your comfort level and try to lower your heat bill in the winter and electric air conditioning bill in the summer. Without freezing your pipes, try to heat and chill your home less when your not home. Avoid coffee shops, restaurants, prepackaged foods, random cluttering nick-nacs and gadgets. Whenever needing a new item like a circular saw, printer, computer, phone, etc. always research the products and do a cost analysis. Don’t buy a premium product you’ll rarely use or a cheap product you’ll use daily. If it’s an item you very rarely use think hard if you really need to buy it or wait a month and see if you still think you need it.
The idea is to be efficient with your purchases. Only buy what you need and don’t buy too high or low of quality for how frequently you use it. Always do research.
Once you’ve gotten rid of your debt and built up some savings, it’s important to start moving some of your savings into investments so it doesn’t entice you to buy something you don’t need.
These are the principles I’ve used with my budget and here is a rough estimate of the current path I Could be on, if I was 100% efficient, to reach my large goal of $600,000.
I like to break my goals into smaller chunks. My first goal was to invest $10,000 into personal IRA’s which I reached recently. Learning about personal IRA accounts you can currently put a max of $5500 in an IRA each year. I opened a 2014 Roth IRA and max it out before filing my 2014 taxes. Maxing out My IRA is something I plan to do every year until I stop making income and is a basic goal I think everyone should attempt. Although I fully expect to spend less in retirement than I make now, I chose to use a Roth IRA as it does kill two birds with one stone. It provides a income source if I do retire early because you can pull your principle out without penalty since it is already taxed. It also provides an emergency fund I can more easily tap into in the near future if needed. The cost is that if I ended up not touching these accounts until I’m 59 1/2 I more than likely would be better served financially with traditional IRA’s. This is because with my low cost of living, I expect to be on a lower tax bracket when I retire.
My next goal is to reach $50,000 invested and expect to cross that barrier in a little over 2 years. I also hope to reduce some of my expenses to possibly increase my monthly contribution.