by Lina Martinez
Picture by Fuu J
The conventional way of thinking and living is to get a good job, buy a home, have a family, and retire around the traditional pension age set by the state. The conventional way also includes borrowing money we don't have, buying houses you might never actually own, and financing new shiny cars just to replace them a few years later on. It's reasonable to consider this way of living is questionable, as you're expected to work the majority of your life, and encouraged to purchase things out of your price range to maintain the ongoing cycle of working and buying more things.
What is gradually becoming the status quo or ‘the American dream’ is one that is lead by consumers, searching to fill a gap in their life with material possessions.
We are encouraged to work as much as possible and feel proud of working long hours, even if this means working up until we’re close to our deathbeds. But life doesn’t have to be a never-ending treadmill of working as being smarter about your income now could mean you have the option to retire early in the future. Otherwise, a lack of planning for early retirement could mean you’re forced to retire in your old age.
If you're feeling confident to venture off track, work against the grain and put plans in motion to retire early, here are a few things you can do to get you started.
If you know an early retirement is what you want but you’re unsure how to get there, not to worry this can be solved by mapping out the years ahead up to your planned retirement date. This will enable you to work out what’s feasible to set aside for retirement and if this will impact your existing lifestyle. Before you draft the income and outgoings for the years ahead, you will need to think of an age or a date that you would most like to retire and create your budget up until this date. Consider the following points to help you map out your plan for the upcoming years.
Work out your yearly income and outgoings over the duration before the hopeful retirement date.
Take into consideration potential pay rises, inflation, reasonable sick periods, children leaving home, saving pots for your emergency funds, college funds for the children, the date your mortgage will be paid off and so forth. This will provide you with a more realistic outlook on your earning potential over the next however many years, and fluctuating expenses.
If you and your partner jointly wish to retire early, you should work out your income together.
Take a look at your existing pension plans in detail to see how much you will have accumulated based on the amount you pay into your pension each month. This is to establish if you will have enough to live on during your early retirement.
Calculate the average amount it’s likely to cost to live during your retirement (consider inflation) and if this will support you through the remainder of your (and your partners) life.
By fulfilling the questions above, you will develop a clear picture of your income, pension pots and if the date you want to retire is a possibility. If the age you had planned to retire is not possible with your existing budget, earning potential etc., you can change elements of your ongoing spending/savings plans to reach your early retirement goal. For guidance on tweaking your budget, take a look below.
Spending And Budgeting
Picture by Pixabay
Everything you spend over the coming years will have an impact big and small on whether your dream for early retirement is possible. Which means being conscientious of your spending is essential to ensure you’re not taking money away from your future-self.
If you’ve already taken a look at the step above, and established whether your retirement date is feasible (or not) you may be looking to adjust and monitor your budget for the upcoming years to either pack-out your pension pot or to make cuts and changes to your existing budget to help achieve your goal. Here are a few options that may be applicable to you, to enable you to tighten up your budget and work towards your bid for financial freedom.
Overhaul your bills (water, gas electric, phone) regularly to switch to competitive deals and save you money to put towards early retirement. Consider getting rid of payments that are going to waste. Such as a magazine or newspaper subscription you barely use, or a gym pass that you haven’t used for a few months.
Save an emergency fund to prevent needing to borrow money when for instance; an appliance breaks one of your cars breaks down. The less money you need to acquire, the less opportunity for you to need to pay interest on that which you’ve borrowed.
If you in a position where you need to borrow money from a lender, shop around for different finance, credit and loan options, there are various online resources for you to compare credit cards resources and loans based on your credit score and borrowing history.
Taking on some credit is necessary to keep your credit score healthy, and will come in handy when you need to borrow money. Those with a better borrowing history will have more options available to them with lower interest rates. Those with poor lending history are viewed as a risk or liability to lenders, meaning they are either refused credit or will have to pay an extortionate amount in interest. Keeping your credit score in good condition will enable you to access cheap money when you need it most.
Pay off high-interest debt first, as this is the money borrowed that is costing you the most long-term, which is taking away money you could be putting into your pension pot to enable you to retire early.
Scrutinize Large Financial Commitments
Buying a house and car will probably be the biggest purchase you make in your entire life, it’s a big decision of many other financial decisions you make that will either carve your way to early retirement or your fleeting financial decisions might forfeit your future freedom, meaning you will be working up until the state pension age. If you're in the market to purchase a home, be thoughtful about what it means for your future selfs finances. If you want to retire at 40 for instance, does this house fall in line with the plans you have for early retirement. Here are a few factors to consider;
The term of the mortgage and whether this will be paid before your planned retirement?
Can you afford to pay your mortgage off before your projected retirement date?
Do you have money and a pension aside to pay for your mortgage if you retire from work early?
Would you be looking to downsize your home around the age you wish to retire early?
In this case, would it be wiser to search for a house that you can see yourself in throughout retirement, but that also serves the needs of your family now?
Similar questions should be asked about any car purchases you wish to make. Scrutinizing your purchases in consideration of your retirement will help to set restrictions on what it will mean for your financial future in terms of retiring early.
An unorthodox early retirement is possible by considering and using the above steps as a guide. By planning, and budgeting in advance for your early retirement you will have a clear goal and plan to follow to achieve your dream of an unorthodox early retirement.