PREPPING FOR FIRE
By many accounts, the FIRE movement is gaining momentum in this country, particularly among young Americans. For those not yet familiar with the term, it means Financial Independence, Early Retirement. There are countless stories of those who have managed to achieve this goal, but in reality, saying goodbye to work well before full retirement age can be challenging, requiring discipline, planning, and frugality. Want to start laying the groundwork now? Personal finance experts from around the country share their top tips for achieving financial freedom early.
DEFINE WHAT RETIREMENT MEANS FOR YOU
The first step, which should be done well before you turn off your wage-earner card, is to imagine what retirement will look like, says Jeff Motske, CFP, president and CEO of Trilogy Financial. "Will you be playing tennis every day or spending more time with the grandkids?... How much will that cost?" says Motske. "For most of us, our free time is not free. We fill it up with eating out, traveling to see family and friends, or spending time on activities and hobbies that have some sort of cost attached to them." Not sure where to start when defining your retirement lifestyle? Look at what you do in your free time now and determine if you would like to do more of that when you stop working, says Motske. The more details you can determine, the better.
INCREASE YOUR CURRENT CAREER WORTH
Increasing your current career worth is about allowing you to make more money now, says Todd Kunsman, founder ofInvested Wallet. "When you learn new skills or take on new tasks, you build more skills that can be used to either get a raise or find a job that pays more," says Kunsman. And when you make more money, use that to your savings advantage by investing more in your retirement accounts.
LIVE BELOW YOUR MEANS
When people begin making more money, they tend to upgrade their lifestyle, says Kunsman, of Invested Wallet. "While some minor upgrades can be okay, the goal is to live below your means," he explains. "This allows you to save money, have a nice cushion, and not get trapped in the overspending on material things. Many millionairesdon't look or act rich. That's because they have the right mindset to protect their money and not go into debt." Just because you can afford something doesn't mean it makes sense to purchase it.
START A SIDE HUSTLE AND INVEST THE MONEY
Side hustles are a growing trend thanks to the proliferation of such platforms as Uber, Airbnb, Upwork, and more. "Find something extra on the side to make you money. Mow lawns, flip items on eBay, start a blog, start a dropship business," says Kunsman. "A few extra hundred dollars a month invested can compound into quite a lot over five to 10 years."
UNDERSTAND THE NUMBERS
How much do you need a year to survive? What will inflation be by the time you want to retire? How much in total will you need in order to retire and start withdrawing? There should be no guessing when answering these questions, says Kunsman. "Of course, there will be some slight estimations, but you need to do the math and check the numbers," he explains. "There's a lot to think about like health insurance, unexpected bills, we are living longer. You don't want to miscalculate or you might belooking for work again."
START CUTTING EXPENSES NOW
In addition to saving more and making more money, you need to cut expenses, which can allow you to save even more. "Downgrade unnecessary home size, coupon when grocery shopping, don't get a new car every few years, cut cable," says Kunsman. "Look at everything you have and are spending on, see what can be changed and save you money. Again, even a few hundred dollars a month can make all the difference and shave off time until you can retire." Sacrifices now can be very rewarding in the future.
START BUILDING PASSIVE INCOME STREAMS
Building passive income streams is another way to help create cash flow to fund an early retirement. But you’ll have to invest something first, whether it’s time or money, says Peter Koch, creator of the personal finance site Seller at Heart. "Time to create a book, music or even videos that collect royalties, or invest money in stocks and bonds that collect dividends," says Koch, explaining that you can produce staged videos for YouTube or you can sell videos to major media outlets through content licensing agencies such as Newsflare, Rumble, or Jukin Media.
BUY RENTAL PROPERTIES
Yet another way to create a passive income stream that can help fund an early retirement is to buy rental properties that generate cash flow, suggests Shawn Breyer, owner of Breyer Home Buyers. "Rental income, purchased properly, can weather a financial storm while providing you with recurring monthly income that can carry you through retirement without the fear of stretching your savings," says Breyer. "Small multi-family rentals in hard-working, blue-collar neighborhoods close to schools and hospitals are where downturns tend to affect rentals less, mitigating your risks."
PAY OFF YOUR MORTGAGE EARLY
To reduce your expenses during retirement, pay off your mortgage as soon as possible. "Living mortgage free or rent-free is life changing," says John Myers, owner-broker of Myers & Myers in New Mexico. "So how do you pay off your mortgage early? Most mortgages allow you to make additional principal payments with no penalty," says Myers. "Set up your mortgage to be auto-drafted from your bank account each month and pay as much as you can to principal reduction." If you come into extra money, consider making a lump sum payment to the principal reduction, he adds.
GET RID OF DEBT
If you’re serious about saying goodbye to work and sailing off into the sunset, start paying off your debt and eliminating it altogether now. "The sooner you get rid of some debt, whether its student loans, credit cards, or car loans, the sooner that money can be invested and saved for retirement," says financial coachKaren Ford, creator of the site Money Matters.
ENROLL IN AN EMPLOYEE-SPONSORED 401K PLAN
Check with your employer to find out whether they offer a 401k Plan or some type of pre-tax retirement plan. If they match your investments in such a plan, then be sure to invest at least as much as is being matched, says Ford, of Money Matters. "The percentage they match your investment is like free money from your employer," says Ford, who suggests that eventually, you should be investing 15 percent of your income in a 401k or Roth IRA.
ENROLL IN A DRIP
A dividend reinvestment plan (DRIP) is one of the easiest ways to grow a stock portfolio over time, says Steven Millstein, creator of the site CreditRepairExpert. "The dividends are plowed back into more stocks. A DRIP and stock splits are exactly how some little old ladies wind up worth a cool quarter million for little to no effort," says Millstein. A dividend reinvestment plan allows investors to reinvest cash dividends from a stock back into additional shares or fractional shares of that stock.
MOVE SOMEWHERE CHEAPER
There is certainly something to be said for saying goodbye to the sky-high real estate prices, property taxes, food and fuel costs that are associated with some of the most expensive states in the country. "If you live someplace pricey, like California or New York, consider moving someplace cheaper," says Millstein, of CreditRepairExpert.com "A cheaper place to live may put you several years closer to retirement."
REDUCE TRANSPORTATION COSTS
For most people, housing is their single biggest expense followed closely by transportation, says Millstein. "If you can go from a two-car family to a one-car family or a one-car family to living car-free, you can potentially save thousands annually," he says.
EAT RIGHT AND EXERCISE
A shockingly high percentage of the American GDP gets spent on medical care, says Millstein, of CreditRepairExpert.com. "Taking care of yourself is one of the best ways to keep your medical bills from completely ruining the planned budget," says Millstein.
SEE FRESH MONEY AS FOUND MONEY
Treat all fresh money, such as a pay raise, an end of year bonus, a tax refund, or even a financial windfall, as found money, says George Krueger, co-founder of BIGG Success. "Bank it all," says Krueger. "You won't miss something you never had. While the amount may not be significant, it adds up year after year, especially with the power of compounding — your money multiplying to make more money."
SAVE, SAVE, SAVE
In case it's not already clear from all of these tips, one of the keys to retiring early is living frugally and saving more of your income now. "I save roughly 60 percent right now, all going towards retirement accounts and other investments," says Kunsman, of Invested Wallet.
FOLLOW FIRE BLOGS
There are many FIRE blogs, discussion boards, and other resources available for people who want help figuring out how to retire early, says Millstein. Some of the well-known blogs on this topic include Early Retirement Extreme, Think Save Retire, Financial Samurai, and others. Just Google FIRE to find your own favorite blogs on the topic. "These blogs can help people like you figure out how to get there sooner rather than later," says Millstein.