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How to Retire Early | The $50 a Day Early Retirement Strategy

How to retire early

A good early retirement strategy is built on maximizing three aspects: Income, expenses, and savings.

To build your early retirement strategy, you need to determine your retire early or financial independence (FI) number. It is the amount of money you need for work to become optional. Be aware that the number will (and should) change as you change, and your desired lifestyle evolves.

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How to Retire Early | The $50 a Day Early Retirement Strategy

How to Retire Early | The $50 a Day Early Retirement Strategy

https://millennialmoney.com/early-retirement-strategy/

millennialmoney.com

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Key Ideas

What early retirement means

Early retirement is not defined as when you stop working forever, but as having the freedom and flexibility that saving up enough money can give you if you want to leave a job.

The idea that when you retire, you are done working is an old school idea. Working is actually good for you. People that altogether quit working start losing their mental faculties and may die sooner.

How to retire early

A good early retirement strategy is built on maximizing three aspects: Income, expenses, and savings.

To build your early retirement strategy, you need to determine your retire early or financial independence (FI) number. It is the amount of money you need for work to become optional. Be aware that the number will (and should) change as you change, and your desired lifestyle evolves.

The money you need for early retirement

Based on a series of papers known as the Trinity Studies, you need to save 25-30 times your expected annual expenses to have enough money to last you for the rest of your life.

This multiple is based on the percentage of your investment growth that you would be able to withdraw per year. A safe early retirement withdrawal percentage is between 3%-4%.

Cut back on your expenses

Cut back on your three biggest expenses.

  • Housing: The easiest way to do this is by house hacking, where you rent or buy a 2 or 3 bedroom apartment and rent out the extra rooms to offset or make money on your rent or mortgage.
  • Transportation: Don't buy a car if you don't need one. Or buy a used car.
  • Food: Make food at home. Buy in bulk. Eat less meat.

Increase and diversify your income streams

Go out and try to make more money. Start by optimizing your full-time job and starting a side hustle.

  • Optimize your 9 to 5: Negotiate a raise and work remotely, so you have more control over your time and more time to make money on the side. Ensure you are maximizing all of your employee benefits.
  • Start a side hustle: Profitable side hustling is about the money/time tradeoff. It is a lot easier to make money doing something you love.

Set daily, weekly, monthly, and annual savings goals

Most of the retirement calculators come out with a number you will need to "retire" based on your inputs and current progression. The numbers are so large that they seem impossible to reach and consequently discourage saving.

However, a daily goal is much easier to consider. If you need to get to $1,250,000 over a 30 year period, you can wrap your mind around saving $50 a day with an expected 5% annual compounding rate.

Create a simple investing strategy

A good early retirement investing strategy should be simple, focused on stocks, bonds, and real estate, and be executed consistently.

  • Ensure to have both a short- and long term investing strategy.
  • Only invest in what you understand.
  • Stick with asset classes that have performed well historically.
  • Ensure your money is working as hard as it can for you by investing in a tax-efficient way.

Fast track your early retirement

Deposit as much money as possible into your investment accounts every day, even if it is only $5. If you get a bonus, invest it. If you make extra money on a side hustle, invest it.

Try to deposit $5/day and then increase it $1/week. You will probably not miss the extra dollar.

The most important numbers to track

The two most important numbers to track your early retirement strategy are:

  • Your savings rate: This is the percentage of your income that you're saving either before or after taxes in all of your accounts
  • Your net-worth: This is the most important metric to track. Net-worth = your assets - your liabilities.

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Myth vs. Reality in Retirement Planning
  • I’m not that old:  It’s not about NOW but saving for your old days when you can no longer work full time. 
  • I’ll wait for a lump sum is just an excuse to postpone planning or procrastinate.
  • Assumed Family/External Support: It’s better to be prepared for eventualities and have contingency funds in hand.
  • Financial Requirements Decrease: Medical costs increase with age. Inflation and other factors might also come into play.
  • I will not live that long or I won’t retire: People tend to live longer, but they will suffer from medical ailments.
Retirement Goals

To have a secure and financially independent retired life during your golden years with regular post retirement income, a corpus of savings/investments and a safe shelter or home.

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Next Level Money
Next Level Money

Our desire to achieve next-level money or to master, control and optimize it, can only be fulfilled by us, and it goes beyond just earning, saving and investing money.

...

Automation Of Money

Automation of money will lead to a ‘coasting’ life, but it won’t get one to the next level. While we already know that the goal is to make money work for us, instead of slogging ourselves for earning it, it is not enough to simply save and let the money grow in banks.

One has to be aware of the pitfalls of wastage of money, be able to shun mindless consumerism, and embrace minimalism to move towards that level.

Pushing The Boundaries Of Security and Comfort

One cannot be complacent and run after security and comfort. Longing for a default, peaceful life of status quo will not put one on the track of next-level money.

One has to get to work, piercing the comfort zone bubble and the man-made boundaries that are around us.

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Financial planning

 ...is the process which provides you a framework for achieving your life goals in a systematic and planned way by avoiding shocks and surprises.

Try making a budget
  • Create a full inventory of expenses in front of you: Categorize them into fixed and variable; urgent and non-urgent; necessities and luxury; avoidable and unavoidable.
  • You can create a hierarchy of needs and decide which one’s to address first. It’s all about prioritizing. 
  • Accept that you have limited resources and unlimited wants. But you have to manage your resources. The sooner you accept this fact, the better you can control your impulses towards avoidable expenditures.
Maintain a personal balance sheet

It’s a statement wherein you can jot down your assets and liabilities.

  • Pull together your bank statements and other proofs of the liabilities
  • List down your assets like the bank balance, all investments, home value, and value of other assets.
  • Take a sum of all the assets to arrive at the total value of your assets.
  • List down your liabilities the (car loan, home loan, credit card balances etc.)
  • The sum of all the liabilities will show the value of the money you owe.
  • When you subtract the value of liabilities from assets, you get your Net Worth.

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