For most individuals who are working, the goal is to someday be in a position to no longer have to work for their income. Most people would like to retire early if they possibly can. However, if they actually sit down and calculate out what it would take to retire early, they will see that their goals are either too lofty, or their savings are not nearly enough. In order to retire early, you have to have a plan and make sure you follow it carefully.
Those who are financially savvy know what it takes to live within your means. Even people who do not do it will tell you that living within your means is just spending less than you earn. That way at the end of each month there is money left over. However, if you want to retire early, living within your means includes more than that. Your means is not your take home pay. But rather, your means is what you have left over after you save and invest. By gauging your income on the amount you have after you have paid yourself, you will have a much clearer picture of what you can spend.
How does that actually measure up? We are all taught to start young and save as much as possible. However, some people feel that saving 10% of their income is enough. Others will feel that they need to save 20%. Unfortunately, most people just arbitrarily throw out a number and they hope that it will work for them in the long run. Really, the math is quite simple if you want to determine when you will really be able to retire. MrMoneyMustache.com has a great table that shows savings rates and the time it will take to will allow you to retire on your current income. Let it suffice to say that if you are 30 years old and starting from nothing, you will need to save 30% of your income to retire by age 60 (see Mr. Money Mustache’s page for assumptions).
Many people want to retire early, but if you actually look at how much you need to save in order to do so, the numbers are probably quite a bit higher than you expect. Most people do very little financial planning throughout their lives, in fact the average is less than an hour per year. This is great if you have an excellent financial plan in place. But if you want to retire early, you will have to adjust your means down to accommodate your after savings income.
You can retire early. It will take planning and sacrifice to get there. Of course retirement means different things to different people. Some may quit working full time and just do what they love instead. Social security, inheritances, and pensions will make it easier to retire early. If you want to retire by a certain age, do the math and figure out what you need to save out of every paycheck. Make your goal in 2015 to get to that savings level so you can eventually do what you love.
What kind of plan do you have in place in order to retire early?