One might get excited about the idea of an early retirement, but to actually make it happen requires careful financial planning and some practical money skills.
In this article, I will list down 17 practical money skills that will set you up on path for early retirement and financial independence.
1. Make a written plan
Making a plan only in mind is not the best way to go about retirement planning.
Whether you believe it or not, you cannot simply tread on an unplanned road and expect to reach the right destination. It would just be akin to playing your luck rather than “planning”.
You must remember that financial success is a choice. Each financial decision that you make every single day will determine closer or farther you are going from your goal.
Invest time in writing down your financial goals so that they can materialize over time.
Remember that you are not simply aiming to jot down some words of motivation through this plan. Instead, the aim is to define each and every aspect of your financial goals and give them a shape with exact written words and figures. This includes defining the timeline and quantum of money management to meet the financial goals.
2. Ask yourself: Did you invest in financial literacy?
We slog hours to earn a living but when it comes to managing that money, we fair rather poorly. And it does happen because we are not financial literate.
Therefore the first and foremost thing one needs to do is to invest enough time and resources to become financially educated.
Becoming financially educated doesn’t mean getting a degree but becoming aware of the first principles of money like compounding, ROI, NPV, inflation.
3. Income over lifestyle
In the contemporary era, most people are running after showing off the illusion of being wealthy, instead of actually being wealthy.
Being wealthy is a long term goal, something which materializes only at the later stage of life. This clearly implies that you will have to forego your present day luxuries if you wish to realise financial success in the long run.
Spending money never made anyone rich. This is as simple as anything can ever get. This is also where the importance of written financial goals manifests itself.
Choose your expenses wisely so that you are able to meet your lifestyle needs but limit your wants which are discretionary expenses in nature.
4. Start right away
Compounding is that Eight wonder of the wonder that stands at the base of the first step that you can possibly take towards financial success. Added to the principal and rate of interest, the element of time can significantly impact how your investment grows.
The earlier you start with your savings, the earlier you are going to be able to meet financial success and plan your early retirement.
Don’t wait out to become a financial genius or seek the advice of a financial guru. Start as quickly as you can. Starting early will also allow you to ample time to grow your savings rate.
5. Wealth building on auto-pilot mode
You cannot possibly expect yourself to be able to manage each and every thing on a daily basis, can you? You can only divert some part of your attention and resources towards your retirement goals but what about the present?
This is where your auto pilot mode should be enabled.
You need to take certain financial decisions which will not only accrue a number of assets in your hand but also make sure that they grow over a period of time; so that your life can sail on smoothly.
The idea here is to allocate monthly income towards paying off money which builds equity assets for you in the long run.
Saving plans and investment clubs ensure that you are forced to invest and save your funds, whether you like it or not. So even if out of compulsion, you still manage to save your funds and build wealth in the process. Remember 401(k), IRAs?
6. Make your money hard to reach
Quite literally, just put your money somewhere so that you have to think twice before you reach out to get it back.
Imagine how different it’d be if you had cash lying in your wallet and if the same cash was stacked and shut closed behind the door of a locker. Which one would be the easiest to reach out to?
Similarly, once your money is invested in some retirement plan or investment scheme, you will have to go through some policies and possibly some penalties as well, before you can lay your hands on that money.
Therefore, define your financial plans to make it hard for you to reach your own money, so that you can resist the temptation to spend it.
7. Don’t touch your social security
It is called social…
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