Differing Methods, Similar Steps
There are so many different ways of saving money and planning for retirement that it can be overwhelming to start your plan. Different methods work for different people. Click on the turquoise steps below to review five solid steps you can work with until you find the best techniques for you.
Five Solid Steps to Getting Started
Step 1: Identify Your Goals and Values
It is important to understand what you want out of your life. Do you want to retire by 40? 50? What will you do once you reach financial independence? What aspects of your life will help you reach these goals? What aspects of your life are keeping you from achieving your dreams?
Step 2: Come Up with a Number
Come up with a dollar amount you think you will need to reach in order to achieve your retirement goal. This dollar amount should include all of your living expenses such as groceries, medical bills, housing, emergency funds, and any other for a year. Once you have that, you can multiply the number by the number of years you expect to be in retirement. There are even online calculators that can take inflation and investments into account.
Step 3: Maximize Saving plus Minimize Debt and Expenses
It is a common suggestion in the FIRE Movement to save upwards of 70% of your income. To do this, focus not only on making more money but also on cutting back on expenses and aggressively paying off debts.
Think of it this way; imagine how much extra you could save by cutting back on eating out a few times a month. For example, if you were to eat out even just one less time per week, you could save an average of an extra $40 a month – that’s nearly $500 extra per year or $10,000 over 20 years.
Paying more than the minimum payment towards debts will also be incredibly beneficial. It will save hundreds to thousands on interest payments and allow you to spend less time living with debt. In cases of larger debts like house, car, or student loans, paying those loans off early will also provide the added benefit of lower monthly expenses. This means that you will have the luxury of not having your savings drained from a monthly mortgage payment and other costly loans once you retire.
Step 4: Don’t Put All Your Eggs in One Basket
Make it a goal to create as many income streams as possible. If one or more income streams dry up, this will give you added financial security. This point applies to both before and after retiring.
Have a small business idea or other money-making schemes? Don’t be afraid to pursue it and turn it into something that can steadily add to your savings.
Step 5: Hold Yourself Accountable
Periodically remind yourself of your goals and reflect on the areas you have succeeded or failed in, and how you can improve.