To realize early retirement dreams, it is necessary to analyze spending patterns that affect savings amounts. Retirement without a nest egg is an unhappy experience. That doesn’t have to happen when careful money management practices are implemented and sound financial decisions are made. It’s possible to change spending habits without giving up dreams of a good life and a steadily increasing net worth. Five questions need to be answered to determine whether or not someone is on the right path to early retirement. Affirmative answers mean that the secrets to a happy early retirement are understood.
Is Bad Debt Getting Paid Down?
All debt is not created equally. A Retirement Plan Consulting agent walks people through plans to reduce debt. Carrying expensive credit card debt from month to month destroys the chances of early retirement. Tighten your belt and get rid of it. Those high-interest rates impair the ability to increase savings. Look at all the debt you carry. Old student loans should be cleared and wiped from the list of payables each month. Mortgages should be paid down so mortgage insurance fees disappear. Adding a few extra payments each year should do the trick. Small debts or charges eat up disposable income and reduce the amount of money available for retirement investments.
Are Expensive Cars Killing the Budget?
Cars are a depreciating asset that ultimately cost extra money each month due to maintenance and repairs. Instead of buying a new car with a large loan attached, why not buy a used one in good condition? Careful shoppers know there are good cars available at affordable cash prices. Instead of making interest payments on a car loan, that money should go directly into a retirement account. However, never skimp on vehicle maintenance. Extension of a vehicle’s life reduces the total cost of operating your vehicle over time. Most auto shop owners shoot for a max of $1,000 a year, including payments.
Can You Really Afford That Home Mortgage Payment?
Overspending on a home is common. However, there are ways to turn a residence into a place that adds income. Many homeowners add accessory dwelling units or mother-in-law apartments that can be rented out for cash. These units can be rented on a long-term basis to tenants or occasionally to travelers through online apps. Even if moving isn’t an option in the near future, make sure to maintain the home properly. That way, it can be resold when retirement time arrives for a good price. The best choice is to avoid temptation and buy a home at a price less than what you can afford.
Are the Little Extras That Make Life Worth Living Written Into the Budget?
Confirmed stoics don’t have a problem with sacrifice. But most people aren’t stoics and need to enjoy their lives even as they work towards retirement. Take time to think about what types of activities and purchases bring joy and create a budget that regularly includes them. Travel often tops that list. Change the way you travel. Instead of one big vacation every year, consider splurging once every two years and exploring locally during the off-year. Creatively reconsider where you stay and what you see. There are affordable and quaint destinations all around.
Are You Overspending After Your Retirement?
There is one last major obstacle to having enough money to last you through your retirement. Many new retirees have sacrificed for years and splurge once they are finally free of work responsibilities. Flush with funds withdrawn from their 401K, they are ready to spend. Be wary. This practice will rapidly decimate your account. Make a budget and schedule withdrawals. Keep expenses low (which you can do because you have paid off your debt and you already know how to have fun without spending a lot of money) and enjoy yourself responsibly.
Early retirements are possible when debt has been paid down, cash is used instead of credit for most purchases, the credit card gets paid off every month, and an affordable mortgage means extra cash is on hand for emergencies. With a well-defined budget, there is room to enjoy your life and still retire early.