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If you’re reading this article, you’ve woken up to the fact that trading the majority of your waking hours for money isn’t as fulfilling as the company you’re working for would have you believe. When you add up all the time you dedicate to work, including your commute, meal prepping, and the fact that your free time is sliced in half by the workday, it becomes clear just how much freedom we sacrifice for the money we need to survive.
As any SMSF accountants worth their fees will tell you, setting up a retirement plan that will allow you to make a smooth exit from this burdensome arrangement while you’re still young should be a top priority. Read on to learn just how to make your early retirement dream a reality.
1. Define what “early” means for you
The problem with words is that they’re so subjective. The age of 55 might feel like early retirement for your buddy, whereas anything over 40 might seem like an endless grinding nightmare to you.
To put things in perspective, statistics from the US Census Bureau show that the average retirement age is just shy of 60 (though the most common age to retire is 62). While this figure has dropped slightly in recent years, the sad fact is that most millennials aren’t saving enough even to reach this horizon. In fact, most Americans in their 30s have less than half the amount saved that will allow them to retire in their 60s.
So, based on your current age and life goals, you need to start by deciding what “early” means for you. Only then can you figure out what changes you need to make and how drastic they need to be.
2. Get calculating
Once you have your desired end date set, you have the parameters to calculate your path to getting there. This is where your accounting and math skills come in. If the idea of figuring out all the details doesn’t get you excited, consider enlisting the help of a friend, accountant, or financial planner who can keep you motivated and aid you in making everything clear.
While it’s up to you to work out your income, expenditures, and projections for the years to come, we can give you a bit of an outline to work with: your early exit from the workforce becomes a distinct possibility once you’ve got around 25 to 30 times your yearly expenses safely squared away in your retirement fund.
3. Take action: saving and expense shaving
Once you’ve done the math, you’ll know exactly how much you need to be saving each week, month, and year to reach your goal. If your current financial situation sees you greatly off-track, don’t despair. This is a blessing in disguise because now you know exactly where you stand, and knowledge is power.
Whatever the gap is between what you can currently save and what you need to be saving, it’s time to get creative and resourceful in filling it. This can come in the form of starting a side hustle, putting in the upfront work in to establish passive income streams, educating yourself and diving into the world of investment, cutting back on expenses, or any number of other tactics. Get researching and find some money-making strategies that work for you.
While these steps are your foundation for getting there, early retirement will take a lot of dedication. But the good news is, every dollar earned and saved is another step closer to the freedom you crave.
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