A common wish among Americans is that they have time to appreciate the things that they have worked for and more time to spend with their loved ones. A way to achieve this is by retiring early. The common retirement age for Americans is in their early to mid-60s but retiring early can allow for more free time to relax and travel. There are many secrets to self-made millionaires and here are a few keys to building wealth and building the path to early retirement. This can be accomplished with some hard work beforehand, which will all pay off in the end!
Reduce Unnecessary Spending
The easiest way to save for early retirement is to stop spending every dollar that you earn. A strict budget will allow you to pay for your necessary expenditures and save enough for the future. Downsizing to a smaller house or buying cheaper cars are a good way to reduce your annual expenditures and leave more for your retirement savings account.
Determine your Goal
It is important to establish how much money you need to save in order to retire. Otherwise, you might be in for a rude awakening when you run out of money five years into your retirement. A common rule of thumb is to assume that you will need 25 times your annual spending in order to remain comfortable in your later phase of life. So, for example, if you believe that you will spend $70,000 per year once you retire, you will need to save up $1,750,000 in order to achieve this goal. Keep in mind that this does not include unexpected costs such as health care or home repairs.
Capitalize On Cash Back Credit Cards
Every time you spend money, there are opportunities to responsibly use credit cards to maximize savings and benefits. One way is by using credit cards that provide cash back on spending. Some cards may only give cash back to you for specific purchases in categories like gas or shopping, but many of these everyday purchases can add up quickly. If you manage those cash back bonuses, or even maximize them, you can also put them toward your interest-bearing savings accounts, withdraw them annually to put into an IRA, or even use them to invest in ETF‘s or other options.
Use Retirement Savings Accounts
If your workplace has a pension plan in place, take advantage of it as soon as you can. If not, there are many retirement savings plans that you can open on your own, such as a 401(k), 403(b), traditional IRA, and a Roth IRA. Make sure that you are contributing the maximum amount per year in order to optimize your savings. If you are not sure how much to contribute, work with a financial advisor and they will be able to point you in the right direction.
Invest in the Markets
Using some of the money that you have been saving up, start investing. Stocks, real estate, and bonds are a good way to increase your earnings, depending on which ones you choose. You can also make business investments throughout your career, such as becoming a silent partner. This is known as passive income, as it will generally continue to increase without you having to do any work for it.
Get a Side Job
Often, simply working for a salary will not give you enough money needed to retire early. There needs to be something else, such as opening your own business or getting a side job. Look at your talents and decide what you would enjoy doing in your free time while earning money. This could include freelance writing, design, computer programing, or tutoring. The addition of this second job will give you more income to add to your retirement savings account, or to invest.