This article was written by Timothy Ng who is a regular personal finance writer and part of the team at Credit Card Finder a 100% free Australian credit card comparison and application service. Visit the Credit Card Finder website for more information on how to compare credit cards.
Retirement planning is something that everyone needs to think about early in life, especially if you want to retire at a young age. Just imagine how much travel or golf you could get in if you were able to retire five, ten, or even fifteen years earlier then everyone else. Taking an early retirement allows you to get started doing the things that you love while you are still young enough to really enjoy them. Too many people are forced, because of finances, to wait until they hit age 65 to retire. By then, many find that their bodies simply will not let them travel around the world or play golf or tennis five days a week.
If you start planning for your retirement now and make great choices in your investments you can be way ahead of the curve. Not only will you be able to start enjoying your retirement early but you will be able to do it with enough money to feel secure throughout your golden years. It might be hard to imagine this, especially in the midst of raising a family, working, and just trying to get through day to day life, but it is an absolute necessity.
You probably think that there is no way to add retirement investments to your list of bills each month, but you can. All you have to do is decide that your retirement is important an make the sacrifices now to make it happen. A few small concessions, like driving an older car or taking a less extravagant vacation will allow you to have your dream retirement earlier then you ever imagined.
5 Steps To Early Retirement:
1. Set up a household safety net
If you have a safety net in place for household emergencies you will be less likely to give in to the temptation to dip into your retirement savings or not to pay into it in a given month. Most households can start out with $1,000 in an emergency fund that is either held in an easily accessible savings account or in cash at your home. This money is not for paying off regular bills, but for real emergencies like unexpected car repairs or veterinary bills.
2. Pay off your debts
Aside from your mortgage, you should come up with a plan to get completely out of debt. To do this you should add up the total of all of your debts including any student loans, car loans, credit card debt, and any other debts. Then, come up with a plan to pay them all off by making extra payments on the smallest debt first. Once you have paid off one debt use the extra cash to pay off the next debt. Continue to do this until all the debts are cleared.
3. Make extra money
This might be the hardest thing for many people to do, but making extra money allows you to pay off your debt. That does not mean working loads of overtime at your job, but if that option is available take it whenever you can. You can also sell items you do not need or want or getting a second job. Also, use any extra money like birthday gifts or inheritances to pay off your debt.
4. Save more money
In reality, $1,000 is probably not enough money to save you in the event of a real disaster like being injured or laid off from your job. Once you have cleared your debts you can begin working to save enough to get you through three to six months of lost wages. This money can be kept in a money market account that does not charge penalty fees if you access it but does pay a bit of interest. It is not a true investment account, so try not to think of it that way.
5. Invest smart
Once your debts are clear and you have enough emergency savings to feel comfortable it is time to begin investing your money. It is wise to invest at least 15% of your income into retirement savings accounts. One of the best options is a 401K account through your employer. You should maximize this account by investing as much as your company matches, so if they match up to 3% then you invest 3% of your 15% into the 401K.
After a 401K consider investing in a Roth IRA. You should put as much money into this account each year until you meet the maximum contribution amount. Roth IRA’s are excellent investments because you pay the taxes up front. So, when it comes time to withdraw your money at retirement you will not have to set aside a chunk of it for taxes.
If you still have money left over you can consider other individual retirement accounts. Although they do not offer the tax breaks that the previous accounts do they still earn money at a good rate and eventually convert them to your Roth IRA, thereby taking advantage of the tax breaks.
After you have set aside your monthly retirement fund money, paid your debt, and built an emergency fund you can think about other contributions. Your children will probably need college savings accounts opened for them. These are great, but only after you have saved for retirement. Remember that there are many ways to finance a college education, but very few to finance retirement. You might also want to work on paying your mortgage off early, just be sure to consider the fees associated with doing so. You may be better off investing more money toward your early retirement instead of paying off the mortgage early.
If you have done all of these things and still have some money to spare a charitable donation is a great way to spend your extra cash. It will make you feel good, help others, and provide a money saving tax break. By following these steps you can retire early and enjoy the good life without any financial worries at all. Having no financial worries is perhaps the best retirement there is.
The summer is a great time to have fun. Most people look at it as a time for vacations and travel. With money still being tight in many places, it can be hard to find the money needed for a vacation. Here are some ways you can save money and still go on your vacation.
