When you think of retirement, you might picture yourself being financially independent sometime in your 60s. However, there are a few ways to achieve financial independence earlier in life if you are willing to make sacrifices. The goal is to be more frugal during your earning years so you can save a large portion of your income. Then you won’t have to work so late in life.
Increasing Income Sources
Increasing your income now means you will have more to invest, which can help you reach your retirement goals even sooner. Perhaps you will take on more work outside your current position. Or you might do some freelance work on the weekends or after work. Another way to get more money to put into your retirement portfolio is by selling your current life insurance policy through a life settlement. This is especially helpful if you feel you no longer need the coverage. You can review a guide that explains how to sell your life insurance policy for a cash payout to make liquidating a life insurance policy easier.
Cut Your Expenses
If you have debt, start with these expenses. Try cutting out student loans, credit card debt, and anything else you might owe. A mortgage is a lower cost loan, so this can take the back burner for now. Once you have taken care of the debt that will cost you the most, you can then focus on paying off your home. Look over your expenses and cut out anything you feel you don’t need. Your level of frugality will depend on your family. Some are ready to become a financial minimalist and cut out all dining out and subscriptions, and others still leave a little room to splurge.
Determining How Much to Save
Earning more income is a great starting point, but if you don’t have a plan in place, you are unlikely to reach your goals. It’s not always easy determining how much money you need, especially since living expenses and the market can change over time. However, it’s a good idea to consider your current yearly expenses and save about 25 times this number. Still, this requires your portfolio to grow each year. Over a longer period of time, the market has averaged out and made it possible for a portfolio to grow enough. However, there have also been plenty of times where the market has not done very well, preventing significant growth.
Planning for Retirement and Beyond
Planning for financial independence during retirement is not a one-time process. The market, taxes, cost of living, and lifestyle can all change, forcing you to change your plan over time. Even if you are a little late to saving, you can catch up by managing your expenses. For instance, being able to cut expenses even more can make your plan more feasible. It’s a good idea to monitor the plan each year. And if you are planning a longer retirement that can last three decades or longer, you should still review the plan, even after you have quit working.