Most of us want an early retirement but very few have the motivation, discipline and the know-how to achieve it. Retiring early requires the right planning and saving as well as strategic investing. To enjoy a good retirement life, you will need to invest in more than the traditional investment methods such as IRA and 401K. This is because these clubs can penalize you severally for taking out funds before the required 59 and half years.
When looking forward to retiring early, here are a couple of things you need to get right.
Up your saving rate
Saving is a core component of any successful early retirement. Even if you have the best investment strategy in the world, you will not realize a big percentage of profits if you only have $10 in your saving. To up your saving rate, you need to focus on two of the biggest sectors that consume your money, and that is housing and food. You need to cut back on these components and aim at making a 20 to 30 percent saving on these items. You need to cut on any underutilized memberships and cut back on impulse purchases.
Increase your income
The basic principle is this; if you can earn more, you can save and invest more as well. This will help you in achieving your financial independence sooner. To boost your income, you can ask for a pay rise or ask to get promoted. Alternatively, you can start a side hustle or work extra hours. If you have at least three years of experience with you, you can be a good asset for many employers as they will all be looking to give you an offer and get the best out of you.
Put your money to work for you
Once you have worked towards upping your savings rate, you can maximize your income and turn your attention on all efforts that contribute towards growing your money. You need to understand that saving money alone won’t get you rich, but investing will. You need to focus on all the ways that can help you earn passively with little or no effort.
Lastly, you can focus on optimizing your taxes. As your income sources become bigger, you can focus on ways that will promote tax efficiency. You need to focus on what type of investments go into your taxable income and work on ways that can help you avoid paying some basic taxes. You can also focus on tax efficient investments such as pensions, tax-exempt bonds, us treasuries and bonds.