Who doesn’t dream of retiring early and leaving the daily grind behind?
While a pipedream for most, other Las Vegans are already working to become independently wealthy. They are putting in the work now to ensure that they can retire early, while still enjoying a certain standard of living.
Here are the main habits you need to adopt if you’re going to take early retirement.
1. Set Clear, Specific Retirement Goals
Not everyone needs the same amount of money to retire on. Someone who lives a frugal life and has the intention of living in Mexico will need far fewer funds than someone with a taste for luxury.
There are no magic numbers financial advisors can provide. You need to work out how much you need to retire on.
Above all, your lifestyle must be sustainable. Early retirement could mean living on your passive income for the next 20-40 years.
2. Invest Early
The power of compounding is the key to invest and grow your wealth. Time is the most powerful asset all young people have. The longer you stay in the market the more you’re going to make. Unfortunately, too many Americans start investing too late.
Every year lost means thousands of dollars not in your pocket. If you want to become a stock market millionaire it’s time to start investing.
Here are some tips for getting started on the road to early retirement:
- Invest in conservative, low-risk assets, such as stocks, bonds, and ETFs.
- Choose a reliable, low-cost platform to invest with. We recommend M1 Finance, so read our M1 review
- Keep your money invested for the long haul. Attempting to time the market and maximize your profits will likely only lead to larger losses.
Investing, for most people who take early retirement, is how you will sustain your lifestyle after you quit working. It’s the way to generate an income without cutting into the main body of your portfolio.
3. Take the Time to Analyze Your Finances
Everyone who has retired early has a perfect understanding of their finances at any one time. Knowing where the money is going and what it’s being used for is key to paying down debt, saving, and investing.
Tools like Atom Finance are perfect for analyzing investments to make sure your money is working hard. Read this review on Atom Finance to find out more.
For your personal savings, we recommend choosing Trim, which is an app to help you stay on top of your finances. It helps you to manage your recurring payments to ensure you’re only spending on the things you actually use. Check out this review on Trim for more information.
Try to keep your budget simple. An Excel spreadsheet is all you need to get started.
4. Be Wary of Lifestyle Creep
Lifestyle creep happens to all of us at some point. It’s the concept that as you earn more money you’ll spend more money.
A certain level of lifestyle creep is perfectly acceptable since every Las Vegan has to live a little sometimes, but where do you draw the line?
There’s no single answer to that. It’s a matter of budgeting and comparing your spending over longer periods. Being able to catch lifestyle creep early can potentially add thousands of dollars to your retirement fund.
5. Debt is the Enemy
For the average American, debt is the biggest monthly expense. Whether it’s the mortgage payment or the car payment, every month you’re paying not just for the money you borrowed but the interest levied.
Adopt an aggressive stance on debt. Make more than the minimum monthly repayment and go out of your way to eliminate the principal as soon as possible.
Debt is your biggest obstacle to achieving early retirement.
6. Managing Your Retirement Income Flow
Deciding to retire early depends largely on where your retirement income comes from. The value of your retirement fund should break even, at worst. This can be achieved through a mixture of traditional and Roth IRAs.
You may also want to shift to individual stocks with high dividends to further supplement your early retirement income.
Finally, avoid risky investing behaviors, such as short term investing. Although most rules on day trading allow for big profits, there’s also the risk of large losses. Stick to a more conservative strategy on making your money work for you.
Ultimately, your retirement fund should be able to sustain you and your family in perpetuity. Crunch the numbers to see if you’re ready to step away from the 9-5 grind.
Final Thoughts
Early retirement is a long term commitment that requires making sacrifices now in exchange for joy throughout your golden years.
Not everyone will be able to hit early retirement at the same pace. It depends on a range of factors, such as your income, level of debt, and lifestyle.
Begin taking the steps towards early retirement today and make the most of the rest of your life!
