Most people today focus on retiring early for various reasons such as better health, more leisure time or freedom to explore other passions or opportunities. Infact who doesnt love to live life in a relaxed manner without having to worry about money. So today we bring to you tips on how to retire early and young.
1. Build Passive Income
2. Increase your income
3. Clear all debts and mortgages first
4. Save as much as you can
5. Invest your savings
6. Know your lifestyle and forecast your monthly and yearly expenses
7. Consider having an abled financial advisor
1. Build Passive Income
Passive Income is income earned without exchanging your time. It is earned without you moving a single step. You earn passive income even when you sleep if you have planned accordingly for it. We recommend starting by taking up side hustles in your free time to increase your savings. Also, stopping all unnecessary expenses which do not add much value to your life helps you increase your savings too. The goal is to try to increase your income, increase your savings and reduce your unncessary expenses. Save and invest as much as you can to build your wealth fund which can make more money for you.
2. Increase your income
Make sure you decide early on a career that pays you well. If you haven’t do not worry. Focus on taking up jobs where you see growth consistently. In case you are doing a business, try to increase your business income by leveraging other people’s time and building efficient systems so that you can focus on the overall business growth and not redundant tasks.
3. Clear all debts and mortgages first
In most countries, your debt costs more than the average rate of interest you receive on your money and it is often 8% to even 20%. Imagine paying interest on your debts especially your car loan and home loan for a minimum of 5 years at 20% and the Bank is also paying you 5 % on your income saved in long-term deposits. In this case, is it a good idea to save first or clear your debt first? What do you think? Clearing off your debt saves you 15% interest cost. This is much better than making 5% and losing 20%.
However, if you have community benefited loans where your interest cost is none or negligible. Financially, you need not race to clear your debt. Nonetheless, our highest recommendation is to take debt only when you can create assets. If you have no choice but to take debt, then try to clear it as early as possible to save on the high-interest payments.
4. Save as much as you can
After clearing your non-productive debts, focus on increasing your savings rate. The savings rate is the percentage of the money you are able to save from your monthly paycheck. After that, try to remove all unnecessary and unproductive expenses. Your goal is to build a money nest where your money can work for you to generate passive income. Your biggest expenses are rent and food. Try to minimize this as much as possible. Consider sharing your house with a roommate or even shift out to your parents in the initial years to save on rent. Remember the power of compounding works best when you start early.
5. Invest your savings
Once you start saving, you can invest your money into Low-risk investments like long-term deposits, your government funds, and securities, or you can invest in high-risk investments such as stock, ETFs, mutual funds, land, etc… The type of investment will depend on your risk appetite. It is always better to reach out to a good reliable financial advisor in case you need better help managing your money.
6. Know your lifestyle and forecast your monthly and yearly expenses
It is important to know how much money you need for your monthly expenses. Once you know the amount, you will have to earn an amount equal to or more than these expenses as your passive income. Once you reach this level, you are free to do anything with your time.
However, also take into account for any lifestyle inflation or just plan inflation that may occur over period of time. The value of money keeps changing with time and therefore it is important to consider this.
Remember to budget for your food, utilities, mortgage (or rent if you are a traveler), medical expenses, car expenses.
7. Consider having an abled financial advisor
Although we can work to achieve sound financial literacy, it is still not possible to learn everything in a short time and especially not have access to the various investment avenues available. Finding a good reliable financial advisor can go a long way in your building your wealth. This is not necessary and you can manage your finances by yourself. However, if you really need help, it is a good idea.
Remember no age is too young. As long as your are happy and motivated with your choices, there is no hard and fast rule that you should retire early. Take me for example, I love what I do. Even after I achieve financial freedom, I think I will be working. Financial freedom means different things to different people. What does it mean to you? Let us know in the comments below.
I hope you enjoyed reading How to Retire Early and Young? and hope these tips will help you on your goal to Your rich freedom. Check out Your Rich Freedom for more interesting content.
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Disclaimer: The content of this blog is based on our personal experience in our race to achieve Our Rich Freedom and are writing this blog with the hope that it helps you reach Your Rich Freedom just like us. Please note that all the content on www.yourrichfreedom.com is for general information and entertainment purposes only. None of the content on this blog is Financial advice. Please reach out to a certified financial advisor before making any financial decisions.
