Work means different things to different people. This usually depends on the job, personal values, status, personal circumstances and life outside of work. So, while there are some who might choose to never retire, for the majority it’s probably fair to say the allure of an early retirement is something that appeals.
For those of us who might want to retire early strategies and a solid plan are crucial. And the sooner a plan is put together the more likely its success.
Setting your early retirement goals
Setting your early retirement goals is the first step. This step involves envisioning what your ideal retirement looks like, both in terms of lifestyle and financial stability. You need to be realistic here. Consider what makes you happy and envisage having the freedom to do more of whatever this is. For instance, an interest in gardening and golf or other hobbies and sports, spending time with friends and family, etc. Or it may be that you want to travel the world. Whatever it is, start tallying up how much income you will need in retirement to fund your lifestyle.
When it comes to the financial side of things, begin by assessing your current situation and the age you would realistically like to retire at. This would involve looking at your current financial circumstances and how much you could realistically save. There are always ways to save, even if your current financial obligations make it seem as if this is not possible. More about this below. At this stage you are simply setting goals and target dates. This stage is all about creating a savings plan.
Strategies for budgeting
Next you need to consider how you would like to budget for retirement. Budgeting is a cornerstone of any successful saving plan. Budgeting means tracking your income and expenses to identify where your money is going each month. There are budgeting apps such as Emma or HyperJar or simple spreadsheets that can be used to categorise your spending. Typical categories are mortgage/rent, utilities, groceries, entertainment, and savings. This is a useful way to see where you could save money, such as getting competitor quotes for insurances and utilities or even remorgaging if a better deal can be found elsewhere.
Once you have a handle on your spending habits, set realistic financial goals that align with your early retirement aspirations. Determine how much you need to save annually to reach your retirement target. Then break this down into manageable monthly contributions.
- A popular budgeting strategy is the “50/30/20” rule, where 50% of your income goes to necessities, 30% to discretionary spending, and 20% to savings and debt repayment. However, if your goal is early retirement, you might consider adjusting these percentages to prioritise savings even further.
- Another effective budgeting strategy is the envelope system, where you allocate cash for specific categories of spending.
Strategies for saving
- Automate savings with a direct debit. This option will depend on personal circumstances but if possible represents the most effective way to save.
You could challenge yourself to set up a payment direct from your account to your retirement or investment accounts each payday. This would help you to ensure that saving becomes a non negotiable part of your financial management.
- Alternative methods if conventional saving is difficult. If you’ve budgeted and reviewed your accounts but still fall short of your goals there are options offered by financial institutions like banks. For instance, the Royal Bank of Scotland offer the ‘Round Up’ strategy for saving. This allows the bank to round up transactions carried out on your debit card to the nearest pound. The pennies are then added to your savings account. Its possibly the least painful way to save if your budget is tight. Other banks may have similar or other strategies. Talk to your bank and explore the options.
- If all else fails explore the viability of an additional job designed just to meet the savings target. This will depend on availability of opportunities and your time but may offer a solution if saving is difficult.
Regularly review and adjust your budget as necessary. Life changes, from a new job to unexpected expenses, can impact your financial commitments. By staying flexible and proactive, you can make informed adjustments that keep you on track towards your goal of early retirement. Remember, successful budgeting isn’t just about cutting costs, it’s about making intentional choices that align with your values and long term aspirations.
Make your money work for you
Saving money will bring limited rewards if you haven’t considered where to place your hard earned cash for maximum return.
- Personal private pensions, in addition to any you may have with your employer, are still the most effective and safe way to save for retirement.
- If you are looking for a savings account, always look for tax free options such as ISAs.
- Depending on how much you save you may be able to invest your money in a diverse portfolio of options with varying risk levels and possible returns. An independent financial advisor would be able to provide professional advice on investments. Options may include property investment, bonds, peer to peer investing or even stocks and shares.
And finally…
An early retirement is within the reach of us all if we strategise and plan early enough. However, it can only be achieved if the goals and strategy are realistic. This means you’ll need to continually review your financial goals and timelines against your changing circumstances.
Life has a habit of throwing us curve balls, no matter how much we try to mitigate the unexpected. Review, revise and get back on track and your early retirement dreams will remain within reach.