It is an early morning. You just woke up, but your eyes are still closed. You feel the warmth of the sheets against your skin. You are rested, comfortable and relaxed. It feels good. You can hear your loved one in a kitchen humming his favorite tune. You smile, imaging his face…
Then, suddenly a random though pierces your presence – I am late to work! You might think: ”I need to get up now and get ready, or I will be late and my boss will be pissed again!”. Momentarily, anxiety creeps in and your thoughts start spinning.
Suddenly you open your eyes and realize you are not at home! You are in a tropical bungalow in the middle of the Caribbean ocean. You are retired. You don’t need to go to work. Ahhh… You exhale and close your eyes again. While inhaling ocean breeze, you recall how two weeks ago, you handed your resignation letter to your bewildered boss. You recall your last day at work, last Friday and you recall you are on a long-awaited vacation with your spouse in tropics of Punta Cana, for two weeks.
Sounds amazing, right? Maybe you too want to leave your full-time job and live a life of your dreams: start a business, spend more time with a family, or travel the world instead of working?
Plenty of us do, but the real question is can you afford to stop working early?
The reality is achieving Early Retirement might be easier than you think. This post will unveil a secret formula to your Early Retirement.
Five Steps to Your Early Retirement:
- Define your retirement lifestyle
- Create a financial plan
- Earn more and spend less
- Start to Invest earlier
- Pay off your debt
Step 1: Define your retirement lifestyle
Retirement is the action or leaving one’s job and ceasing to work. (Google). That said, each of us will have our own definition of retirement. For example, maybe for you, retirement means dedicating more time to hobbies, family, traveling, or recreation. On the other hand, maybe you daydream about a life of luxury and unbounded entertainment.
Every person has a different idea about how they want to live in their retirement years. The first step is to set the stage since each lifestyle will require a different action plan to accomplish the goal. Next, let`s set some time aside with yourself and/or your partner to define what type of lifestyle you want to have in your retirement.
Step 2: Create a financial plan
The following logical step is to meet with a financial adviser and create a plan. The adviser will assist you with three things: review your current finances, estimate annual income needed for the lifestyle of your choice and propose a financial plan on how to get there. Well organized, written financial plan will keep you motivated, focused and accountable to your future goals.
Step 3: Earn more and spend less
This seems like a no-brainer, but it is easier said than done. What tends to happen is when we have low income, and we learn to be frugal. Most of us know how to live on a very low income, we have done it for many years! We don`t eat out and we cut costs in every possible way. Over time as a family, we start earning more money and little by little our expenses rise as well. Don`t fall into the trap. We will discuss more tools and techniques in future posts on how to earn more and spend less.
For now, let`s commit to a frugal living. Starting today, do your best to eliminate all frivolous spending, such as expensive and frequent vacations, dining out, expensive clothing and new cars. Your frugality today will pay off for decades in your early retirement.
Step 4: Start to invest earlier
They say- timing is everything. It definitely holds true for early retirement.
There are two commons myths about investments. The myths are: you must have extensive knowledge of stock trading and you need a lot of money to start investing. In fact, neither one of those believes are accurate. You can start investing earlier by using simple strategies and with a small amount of cash. We will discuss the strategies and how to get started in our future posts.
How can you get started? Starting this month, let`s focus on one thing – forming a habit and a discipline of setting some money aside every month. It can be as little as $50 a month. The most important is to take action and get started. Your early start and your persistence will pay off.
Step 5: Pay off your debt
Credit card and consumer debt can be very detrimental to your financial health. We will talk in details in later posts about “Good” and “Bad” debt and discuss how to manage your debt and repay it quickly.
For now, set some time aside with your significant other to have an honest conversation about your current debt balances. Work with your financial adviser and devise a debt repayment plan. Eliminating credit card payments will set your free, reduce your overall costs and bring you one step closer to your early retirement goals.
Many of us dream about early retirement. I am one of the dreamers too. In the sequential posts in Early Retirement Series, we will talk more how to get your life from where you are today to the day when you can wake up in the tropical paradise, smell coffee and instead of grabbing a briefcase, grab a beach towel and head to the beach to enjoy your early retirement.
For now, I want you to remember, Early Retirement is possible, and you can achieve it too! I am living proof of that. Remember Five steps to Early Retirement are: setting a vision, creating a plan, earning more and spending less, start Investing earlier and paying off your debt.
I am 39 years old and I a semi-retired. Our family followed the Five Steps to Early Retirement religiously.
Define your retirement lifestyle. Early in our marriage I and my spouse discussed strategies on how we could stop working early. We dreamed about a retirement lifestyle that focuses on family, hobbies, travel, and wellness. Our goal was to have roughly $75,000 of annual income and have no debt.
Create a financial plan. Our plan, in the beginning, was mostly focused on contributing as much as possible to our retirement accounts. Later on, we partnered with a financial adviser, who helped us to build an actual financial plan. Our strategy changed over the years, but we never deviated from our goal to retire early.
Earn more and spend less. You may know by now, I am born and raised in Ukraine. If there is a person who can live nearly on nothing, it is me! We always lived a frugal life and it took a few years for me and my spouse to learn how to have a blast and spend almost nothing on day to day things. I will share all my secrets in subsequent posts, I promise.
Start to Invest earlier. The first time I heard about investing was in 2005, while I attended college at the University of Northern Colorado. In fact, I was so fascinated by the topic of personal finance that I decided to change my major, after taking my first Finance class. I aspired to become a Personal Financial Adviser and to help hundreds of people create the life of their dreams. I felt that every single person must know about the opportunities to make money in passive investments. I feel the same way today.
Later on, in 2008 I graduated with my degree in Finance. Also, in 2008, I opened my first retirement account at Vanguard and invested my first money. The truth is I was very scared about investing and my spouse thought that I was plain crazy. By that time I was a licensed Financial Broker (holding Series 7, 63 and 66 Professional licenses). That said, I was not 100% certain about my investment decisions, but what I did know that for the sake of our future I had to take action right now. So I started to invest and I learned more over time.
Pay off debts. From the first day I arrived in America I was wondering about how banks make all the money. Today I know – by charging you and me high-interest rates. I decided not to give my money to the banks and keep it for my kids instead. It took a few years, but we significantly reduced our debt and continue working on eliminating it all together.
The end goal. Today, ten years after we started investing, we have a considerable investment portfolio. Today I no longer must work full time, because income from our investments produces enough money for us to be able to live comfortably on only one salary. This semi-retirement allowed me to do what I always dreamed to do – help others to achieve their financial goals. Of course, we continue growing our portfolio and we plan to completely retire in the next 7-8 years, according to our plan.