💧💧W.A.T.E.R: Way to Timely and Early Retirement (Financial
Freedom)💧💧
Retirement: In my previous blog I wrote about getting financial independence and retire early (FIRE). I am going to dig deep on the concept here. Retirement in everyone’s mind is retiring from work and lives a kind of relaxed life. Let’s look it from different angle.
Let’s divide retirement in two separate groups. I would never define it by age as I have seen 65+ years old very active and 50 year old no so much. So I would divide it into driven and easy going persons.
If I have to define it through my eyes, I would actually call it financial freedom where you do not have to work for the sake of earning money to run your house hold but where you can follow your passion and dreams. There is one life to live and sometimes we feel we want to do something, then the picture of kids come in front, how I will fund their education, don’t forget the nightmare face of the landlord asking for rent every month if you are late by a day 😃. At the same time there is so much to do and to be seen around in India and the world. The thought that used to come, am I living what I want to or I am living just another mechanical life, where I would wake up, work, come back, enjoy the weekend with friends or travel and then same cycle all over again. 3 weeks of vacation would be spent in meeting the family living in Punjab and here we are celebrating next New Year eve.
Humans and other creatures were made to go enjoy the nature and this beautiful planet. Humans created the work and now are finding themselves buried deep in it with no time to think about themselves.
All these feelings lead me to write FIRE, In real world water is used to put off the fire but in financial world I would prove it other way round. Today we will talk about simple yet so complex topic of way to timely and early retirement. (PS also see my blog on EARTH if you are planning to retire at full retirement age).
The road to retiring early isn't easy:
If you're planning to retire early, you should aim to have at least 25 to 30 times your estimated annual expenses saved or invested, though that number may be lower or higher depending on the lifestyle you envision.
- Depending on how
much you plan to spend annually, you'll generally fall into one of three FIRES (financial independence, retire early)
categories: FIRE,
lean FIRE,
and fat FIRE.
- To achieve your
target number, live below your means, increase your income, and max
out your retirement accounts.
- You should also
aim to pay off all high-interest debt before retiring, which may include paying
off your mortgage early. And don't forget to make a backup plan.
Retiring
early doesn't have to mean never earning a paycheck again — unless you want it
to. Many early retirees define it as not having to work to live — i.e. financial
independence — but maybe you want to leave your corporate job for
something more creative where you can make your own hours or focus on your
hobbies
The
first step on the path to early retirement is figuring out exactly what that
phrase means to you. Establishing your ideal day-to-day will make it easier to
plan for — but just so you know, it will probably evolve over time.
There are two things
you need to know in order to make a plan for the future
· First, you should calculate your net worth. This can be done in a matter of hours
· Second, you need to calculate is your annual spending. You may be able to guesstimate this based on credit-card statements and your checking account habits
3.
Establish your target number
After outlining
your version of early retirement, it's time to establish how much money you
need to make it a reality. This part may be difficult to calculate on your own,
especially when there are multiple scenarios to consider, like how a
possible recession would affect your investments. A good
financial planner can help you crunch the numbers and send you home with
an actionable plan to achieve your goal — and even hold you accountable, if you
want.
4.
Live below your means
It's very
difficult to build substantial, long-term wealth if you spend more than you
earn. When you're working toward early retirement, it's imperative to live below your means as it's the only way to save and invest
aggressively. It does not mean that you cut your required expenses and live in distress.
Depending on how
much you spend, you'll generally aim for one of three categories of early
retirement: FIRE, lean FIRE, and fat FIRE
.Lean FIRE is when someone has saved up 25 times their annual expenses and
lives on a "lean" budget, spending less than the average
American. By contrast, someone who achieves Fat FIRE spends more than the
average person.
5.
Leverage your income
It's crucial to
keep your spending in check, but you can only cut costs to a certain degree.
You can make an even bigger difference by increasing
your income, Cutting your
expenses and daily spending takes continued effort — it's a short-term solution
— whereas increasing your positive cash flow is a long-term solution may be by
generating passive income like real estate etc.
6. Plan out taxes well
7.
Invest the money that's left over
If you're maxing out your retirement accounts, move on to
a brokerage/ Investment account. This is money you can invest directly in the
stock market/Mutual funds and cash out when you need it.
Many early retirees
and self-made millionaires stick to billionaire Warren Buffett's favourite investment: low-cost index funds. Index funds
are all-in-one investments that track a specific financial market and are
designed to diversify your money and minimise risk.
8. Mortgage,
consider paying it off
In preparing for early retirement, eliminating consumer
debt with high interest rates is a no-brainier, but paying off a
mortgage early with good terms isn't so cut-and-dry. For some, the
peace of mind of being
liability-free is worth it, while others may argue that the money saved
in interest payments would pale in comparison to potential investment returns.So
much of our having a great retirement is mental. Being mortgage free certainly
adds another level of mental freedom.
9.
Get your health insurance
Leaving a
full-time employer also means bidding farewell to your employer's health
insurance. If you're waiting for Medicare/health plan to
kick in at 55/65, usually the most cost-effective option for health insurance — if
available to you — is joining a working spouse's employer-sponsored plan 😂. Remember my saying "when you are healthy you ignore, when you are ill insurers ignore".
10.
Make a backup plan
No matter how
foolproof your plan may seem, consider what could go wrong. You may find
you hate the unstructured days of early
retirement — would you go back to work? Or the economy crisis, taking your net worth with
it — would you have room to cut expenses? Running through potential worst-case
scenarios is essential when your livelihood is on the line.
11.
Put Plan A into action — but enjoy the present, too
Time and
discipline are all you need to execute your plan from here on out. Keep saving
and investing, but don't forget to live in the present while you can.
Sources referred: Business insider articles, interview excerpts from Kathriene Zeigler, Leif Dahleen, Grant Sabatier, Eric Roberge,
