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You may think you can only retire once you’re gray and a pensioner, but that isn’t the case. While the average retirement age in the U.S. is 62, around 2% of Americans retire as early as their 40s.
What if there are things you can start doing now that allow you to retire earlier? How would your life change? As far out of reach as early retirement might sound, there are concrete things you can start doing today to put you on track for an earlier retirement date.
I’ve compiled a list of 12 simple financial hacks that can help you retire much sooner than you think. You may find some of these easier than others. That’s okay. Start with the small things and work up to the others. See if these steps don’t give you the confidence of the possibility of an earlier retirement than you planned.
Have a Good Savings Plan
The first thing you should do when planning for an early retirement is to have a good savings plan. The amount of money you save every month will depend on your scenario, but remember: the more you save, the quicker you can retire. A good idea is to save around 10% to 15% of your income before tax. Some experts suggest saving more, but this can be done if you still have money available after paying all monthly expenses.
Invest Early
One of the best things you can do with your money is invest it as early as possible. Successful investor and Shark Tank host Kevin O’Leary started investing early and made sure he was consistent to invest weekly, as this pays off in the long run. To invest successfully, make sure you’re investing in something you understand and are interested in. For example, real estate is a good starting investment for many people.
Have Additional Income Streams
Unfortunately, with the current economic climate of high inflation and a rising cost of living, relying on one income is not enough. Consider starting a side hustle to supplement your income and push you into an early retirement. Some good side hustles that can make you six figures include starting your own blog or offering consulting services.
Minimize Your Debt
It is almost impossible to save money while you’re still in debt. Think of it like trying to complete a running race with your feet bound. Use financial guru Dave Ramsey’s snowball method to pay off your debt as soon as possible. This means prioritizing paying off the smallest debt first.
Take Advantage of Compound Interest
Image Credit: Shutterstock. Compound interest can be a very powerful wealth-building tool that you can use to reinvest your money to grow it even further. Some of the best investments for compound interest are certificates of deposit(CDs), bonds, money market accounts, high-yield savings accounts, real estate investment trusts (REITs), and dividend stocks.
Track Your Financial Spending
Keep track of your spending with a spending plan. This is a great way to make sure you’re not spending your money on things you don’t actually need. You can track your money at the end of each month to understand your spending habits. You can create your own spreadsheet or download a free tracking app on your smartphone.
Live Frugally
One of the best ways to save money to retire early is by living frugally, which is something personal finance expert Dave Ramsey suggests. Some simple, frugal Ramsey suggestions are canceling unused subscriptions, buying generic products, bringing your lunch to work, or limiting how often you eat out. For example, canceling one $15 subscription can save you $120 per year, which can make a difference in the long run.
Understand the Difference Between Good Debt and Bad Debt
It might be surprising to learn that not all debt is bad debt. Good debt is money that can be used to build wealth by increasing your credit score. Credit cards have a reputation for being in bad debt, but if you keep up with your monthly payments and pay them in full, you can keep a healthy credit score and avoid bad debt.
Start a Health Savings Account (HSA)
Whether you’re young or old, medical expenses can sneak up on you, and when they do, they can become very costly if you are not prepared. Part of retirement readiness is saving enough money for planned and unplanned medical expenses. Consider starting a health savings account (HSA). These savings accounts are often offered with your deductible health care plan and allow tax-free contributions. Avoid withdrawing funds from this account while you’re still working.
Take Advantage of Employer Stock Plans
Some businesses will allow employees to buy company stock at discounted prices. An employer stock plan is a good idea if your employer offers this opportunity. If you’re unsure if your business provides this, it may be a good idea to chat with your HR representative.
Keep an Emergency Fund
In addition to keeping money aside for your retirement, having a decent emergency fund is crucial to keep you afloat during difficult times. The minimum amount your emergency fund should have is at least $1000, and the recommended amount should be at least 3 to 6 months of your expenses.
Review Your Insurance
When was the last time you looked at your insurance policies? You may want to do this as it is not uncommon to find you’re paying for things you no longer need. If you have multiple insurance policies, consider moving them to one insurance provider that gives you a discounted rate.
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