Today, we’ll talk about five steps you can take to get the ball rolling and start moving toward financial independence at a level that will set you up for early retirement.
The following post is by MPFJ staff writer, Laurie Blank. Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.
If you like to read personal finance blogs and books, you may already know that FIRE (Financial Independence, Retire Early) is a hot topic these days.
The thought of having enough cash in savings and investments that you no longer need to work is an enticing one. Imagine being able to spend your days as you please instead of as your boss – or your bank account – tell you to.
Today, we’ll talk about five steps you can take to get the ball rolling and start moving toward financial independence at a level that will allow you to be able to retire.
I know every financial situation is different, and that your route to FIRE won’t likely be the same as your neighbor’s, but it’s important to remember that every step toward a financial situation that allows you to retire early is a good one.
Even if retiring early to you means working until age 59 instead of age 62, you’ve created the ability to have freedom earlier than you expected, so let’s get to work!
Early Retirement Step 1. Assess Your Situation
You’ve got to know where you are before you can get to where you want to be. Write down every asset and liability you have, write down your current household take-home pay, and get a snapshot of your monthly budget so you know what your outgoing expenses are at this point.
For debts, write down the minimum payment, total balance and the interest rate you’re paying. For assets, write down the current value.
Your budget is important too. If you’re not currently using one, make one. Knowing where your money goes each month is key to financial independence.
Once you get an idea of where you’re at you can go on to figuring out where you need to be in order to retire early.
Early Retirement Step 2. Determine Where You Need to Be
How much money do you need to pay off your debts (an important part of any early retirement plan)? How much cash will you need each month in order to live without having a job?
Create a post-retirement budget that covers all of your expenses in retirement. Don’t forget to include money for travel or other extras, for medical expenses and for occasional expenses like replacement vehicles.
Next, use a retirement calculator to determine how much money you need to have in savings. You’ll want to save enough so that your money will last for decades to come, so plan for a long lifespan.
For instance, if you save $1 million, put it in an investment account earning five percent a year and take out $4,000 per month to live on, you’ll have a cash reserve that will last indefinitely.
Early Retirement Step 3. Make the Most of Your Money
So, you know where you’re at, and how much money you need to save to retire early. Now it’s time to go about getting there. Follow these three steps:
By taking these three steps, you’ll be able to maximize the amount of money you save and get to early retirement much faster.
Early Retirement Step 4. Use Motivation and Imagination
Part of the reason so few people retire early is not that they don’t have the cash – it’s because they don’t use the cash that they have in a way that aligns with their goals.
They believe the lie that success equals going to work at a good company until you’re 65 and then living on Social Security.
Jacob Lund Fisker, who wrote Early Retirement Extreme, sees things differently: “A wage slave is a wage earner who is entirely dependent on their wages. While the wage slave is free to leave the current job, he isn’t free to leave the job market altogether and he can likely not imagine the possibility of doing so.”
If you want to amass enough money to retire early you have to first envision that it is possible. This will help inspire you to take the steps you need to take so that you can reach your goal.
Early Retirement Step 5. Be Willing to Persevere
Running a marathon takes more than physical ability; it takes a willingness to keep on running until you cross the finish line. As a former runner, I can attest that this isn’t always easy.
It’s easy to say to yourself as you’re running, “You’ve done so well already; it’s fine to quit at twenty miles.”
The same temptations will come as you work to reach a level of financial independence that will allow you to retire early. Only you can douse the lies of “good enough” with action and persevere until you cross the financial finish line that will allow you to bid adieu to your job.
***Photo courtesy of https://www.flickr.com/photos/darronb/14061173988/in/
