Advertising
Advertising

17 Practical Money Skills that Will Set You Up for Early Retirement

17 Practical Money Skills that Will Set You Up for Early Retirement

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.

Advertising

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.

Advertising

7. Don’t touch your social security

It is called social security for a reason. Stated simply, it is always easy to wash your hands in a running stream but not as easy when the water is stagnant.

The same applies to your earnings as well. No matter how large or important your need is, touching your social security should always be a last resort option.

Social security is meant to be used after your retirement, meaning that you may at the least, meet your daily expenses with the amount of your social security.

Hence, the longer you wait out to claim your social security, the better for your retirement.

Plan your expenses so that you may not need to meet your daily expenses out of your social security at present.

8. Focus on savings

While this may sound a very basic and obvious money skill, it is very hard to implement in reality.

The safest way to achieve this goal is to list down your average expenses for the month. You will be surprised at the quantum of your expenses when you undertake this exercise.

Having written them on paper, you will suddenly find the vision to analyse which expenses are wasteful and can be avoided.

9. Develop sources of passive income

It is always a good idea to develop multiple sources of income so that in case one dries up, others are still running and taking care of your financial upkeep.

Do you like to write? Then get yourself freelancing content projects or if you have a spare space, put it on AirBnB.

The idea is to create as many possible avenues to generate income. And once this extra income is generated, care must be taken to save it and invest it rather than spend it.

10. Plan your risks

As the saying goes, the higher the risk the higher are the returns. This however, does not mean that you blatantly enter the rat race and seek higher risk investments without giving them a second thought.

Based on your financial health, the risk that any person can afford to take is different. Hence, you need to evaluate your financial health and your ability to bear a loss, more importantly than the idea of earning a profit. This will perhaps give you a clear image of the risk that you can afford to take in the long run.

Advertising

Do remember when you are planning to retire early, capital preservation should be the top goal. Do access your risk profile first before investing in any financial instrument.

For example, cryptocurrency might be a suitable instrument to invest for those who have high risk appetite; whereas for those who are extremely risk averse, even equity seem to be a risky proposition.

11. Plan your taxes

While you juggle between your earnings, expenses and savings, there is one factor which is completely out of your hand but also stands as a compulsion, which is taxes.

As a resident of the country, you must be well aware about the taxation laws and how your earnings are taxed in one way or the other. This is where you need to use the scope of tax planning and try to save as many funds as you can.

Tax planning will also become relevant after retirement, when you will have to be very careful about your investments, which are also liable to be taxed.

12. Stay healthy

You might be wondering how health can take a centre stage when we are discussing about money skills. However, one needs to be healthy to enjoy the benefits of early retirement.

Besides, being healthy also ensures that out of pocket expenses (not covered by health insurance) on health care are at the minimum. Needless to say that you must have a decent health insurance.

13. Always prefer used cars

It’s a well known fact that cars usually lose around 20-30% of the value (depending on the make and the model) within first couple of years due to depreciation. It is a wise decision to always hunt for a used car since it has already taken the depreciation hit.

Besides, car is a liability that requires money for its annual maintenance and loses value with time.

If you are planning to retire early, you would want to invest in building assets rather than buying a liability.

14. Plan your mortgage

While the jury is still out on whether to rent a house or buy one, if at all you decide to buy one, make sure that you plan your mortgages carefully.

Taking a 30 year mortgage on your house will tie you up for the entire life. And with so many vagaries in professional life, chances are that you would find it difficult to maintain the financial discipline that is required for early retirement.

If you are planning to buy a house, try to repay the entire mortgage in 10-15 years. Start by taking a 30 years mortgage and try to increase your monthly payments every year.

Advertising

For example, if you are paying $2000 per month this year, try to do $2200 next year. And since this payment will be on auto-pilot, you will adjust to the new normal with time.

15. Vacation in off season

If you are one of those who like to travel, then this one is for you. You could save quite a fortune by vacationing in the off season.

Not only air tickets will be cheaper but also the hotels. And if you are looking for a short sojourn, then try to do it during weekdays rather than weekends.

These savings, over a period of time, would accumulate to become a sizeable portion of your entire savings bank.

16. Apply the 5% rule

This is not a proverbial rule but is practical and very effective. Stated simply, this means cutting down your expenses (by 5%) from top 3 expense categories every year.

To implement this skill, first of all list down your 3 top expense categories. Then break down expenses within those categories. This will show areas of improvement where money can be saved. Now to actually put savings into action, try to develop good habits that automatically do that for you.

For example, if your monthly expense on dining out is substantial and makes to the list, then try to find out reasons not to go outside; probably pack your lunch to office, or make a strict rule to eat only 2 times (say) a month.

A goal is pretty easy to achieve if it can be broken down into habits. Therefore cultivate good savings habits.

17. Track the progress

Last but not the least, track the progress:

Progress of savings, progress of investments and progress of how close you have reached to your goal.

Tracking the progress provides positive feedback to the tough financial discipline life you have been living. And that in turns provides more motivation to stay the course.

It also helps to benchmark the situation and take corrective measures if required.

The bottom line

Planning for early retirement is not that hard. All it requires is financial discipline (over long period of time); discipline to save as much as possible and invest wisely.

The path to (successful) early retirement lies not in the maths behind it (maths is easy) but cultivating good habits and the right mindset. So start now!

Featured photo credit: Unsplash via unsplash.com

More by this author

Ankit Garg

Serial entrepreneur and working towards Early Retirement

10 Ways to Build Positive And Effective Work Relationships How to Set Financial Goals and Actually Meet Them 10 Best Ted Talks About Procrastination That Will Ignite Your Motivation How to Work More Efficiently and Stop Rushing to Meet Deadlines 17 Practical Money Skills that Will Set You Up for Early Retirement

Trending in Smartcut

1 What are Goals? Achieve More By Changing Your Perspectives 2 7 Simple Brain Training Habits to Boost Your Brain Power 3 Is It Time for a Career Change? (And How to Make the Change) 4 6 Important Interview Questions for Employers to Ask 5 15 Best Interview Questions to Ask Employees

Read Next

Advertising
Advertising
Advertising

Published on January 17, 2020

How to Eat Healthy on a Budget (The Definitive Guide)

How to Eat Healthy on a Budget (The Definitive Guide)

Have you ever looked at health gurus and wondered how on earth they can afford all that health food? Or maybe you’ve tried multiple times to start eating healthy only to find the $600 monthly budget overwhelming?

If you’re anything like me, you know exactly what I’m talking about! I absolutely understand the sinking feeling of looking back over a grocery budget and finding you went way over what you intended. And besides that, it can be hard to justify buying a tiny $5 bag of carrot chips while a $1 mound of potato chips is sitting right next door.

My husband and I recently ran into that struggle. We got married this past year and soon found ourselves trying to balance 12 hour work-days with keeping our relationship strong and trying to keep our personal businesses afloat. Granted, our budget was the one thing that took a hit! After we started tracking our spending, we were shocked to see we were spending over $1000 a month just on food! A little planning cleared that right up.

So, how to eat healthy on a budget?

Here’re the top tips I learned that helped us shave over $600 monthly off of our food budget so we could reinvest that in the areas that really mattered to us![1]

1. Meal Plan

You’ve probably heard the saying “Fail to Plan, Plan to Fail” right? Well, this saying couldn’t be any more true than in the area of healthy budgeting! The fact is, most healthy foods don’t actually cost that much… the pre-made time saving ones do!

If you go about creating a healthy meal plan within your budget, you could easily cut costs down to around the same price you are paying for junk food.

Meal planning is as simple as working in foods you already have in your fridge/freezer, adding in several meals with simple ingredients and seasonal veggies, and breaking it down into a shopping list.

Often, finding a few meals to make in big batches will save you the most money in the long run, which leads me to my next point.

2. Cook in Bulk

Not only will cooking in bulk save you a whole lot of time, it will save you a whole lot of money too! Believe it or not, if you find meals to make with similar ingredients, you can easily save more money than when you were eating unhealthy.

Don’t believe me? Just look at a $4 frozen pasta dinner. Now, sub that with a veggie pasta dinner. 5 zuchinni ($3), Pasta sauce ($2.50), and chicken ($5) could last you a full 5 meals which adds up to a whopping total of just over $1 per meal!

Advertising

That’s not even digging in to all the money you will save from fast-food. Trust me, a little $10 spent here and there add up! You’ll be saving a whopping amount from all the meal prep you will do!

3. Cook all Your Meals in One Day

The science behind this is 2-fold.

Number one, if you have lots of meals to grab and go, you will be far less likely to binge on pricier food when you get hungry. Let’s be real, you’re not going to spend 1 hour cooking when hub-n’-grub is at your bekon-call!

Number 2, meal prepping ahead of time will help you stick to your meal plan better when you’re not in the mood. Let’s face it, we’re all going to have days when protein and veggies doesn’t exactly sound appealing. But, if you have a full meal that’s quick to grab in the fridge, it will be easier for you to fill up on the good stuff rather than spending money on what you don’t really need.

4. Cut Back on Snacks and Specialty Items

I can almost hear you from across the screen. “But, I thought snacks were good for me!” Here’s the deal: Snacks are expensive! And healthy snacks, oh my goodness, say goodbye to your paycheck!

Look, I’m definitely not saying that healthy snacks are bad. Quite frankly, I would much rather you chow down on Halo Top than a triple-butterfinger-fudge sundae. It’s just that… healthy snacks are why eating healthy gets a bad rap for being expensive.

Look at it this way: You could either buy a week’s worth of groceries full of chicken, fish, beans, veggies, and fruits for $30. Or, you can spend that $30 on six snacks that will leave you hungry for more.

What’s more, the ingredients for gluten-free baked goods, sugar free substitutes, or protein powders alone will add up to you eating a full week’s budget in one sitting. By all means, if you want to work some yummy items into your budget, do it! But don’t confuse that extra monthly $300 of delicacies as a necessity. Your body and budget will thank you!

5. Satisfy Yourself with Your Favorite Subs

We all have an emotional tie to food. Maybe pasta reminds you of home! Or maybe a fresh-baked pizza is what gives you a feeling of comfort. Whatever you favorite food, find a way to work it into your budget in the best way.

We’re only human, and depriving ourselves of what we love will never end well. More often than not actually, it ends in take-out or a pricey-premade substitute.

Instead of finding yourself in this situation, find a way to make your favorite foods fit your budget. Zuchinni noodle pasta might just give you that feeling of home without breaking the bank. Or maybe you could google a healthy pizza alternative you would like that you could make at home. Often, something similar to your craving will be enough to give you a sense of satisfaction.

Advertising

Or, just buy your cheat meal and save it for a special day. That’s okay too!

6. Stick to the Cheaper Proteins

Okay, I know we all love steak. Unfortunately, buying pre-cooked or expensive cuts of meat are one of the easiest ways to drain a budget.

Instead of purchasing those, try buying frozen chicken or eggs. A 5 lb bag of frozen chicken can be as cheap as $5, and you can buy a whole weeks worth of eggs for just over $1. You could even try going vegetarian for a few meals if you really want to cut down on costs!

7. Buy Frozen Fruits and Veggies

I know, we all love our fresh fruits and veggies! However, sometimes frozen might be the way to go if you’re looking to cut costs!

Fruits and veggies are easiest to ship when frozen, making them a much cheaper option. Contrary to popular belief, scientists have actually found that frozen might be better for you too![2]

The reason is, frozen produce is picked at its prime and shipped immediately. Fresh fruit tends to be picked much earlier so it will ripen while being shipped. Not only does this make it less nutrient dense, but sometimes the fruits are actually pumped with artificial flavors to make up for the lack of real nutrients.

While I’m all for fresh fruits and veggies, don’t feel guilty if you opt for frozen foods due to a budget.

8. Bump up the Calories with Rice and Beans

The problem some people find when trying to eat healthy is that it can be hard to get the amount of calories you need without relying on expensive “specialty” items. Instead of stocking up on pricey gluten-free breads and pasta, I say stick to simple rice and beans as the bulk of your meals.

Brown Rice is very cheap and easy to use as a base for bowls and dishes. Likewise, beans can add a bit of fiber making you feel full and satisfied without having to spend a lot of money.

If you are trying to cut on body fat, use extra veggies as the bulk of your meal and add in rice and beans as a filler.

9. Try Acai Bowls

Acai Bowls can be a really cheap and satisfying meal as long as you do it right.

Advertising

You can find cheap fruits at most stores or just freeze your fresh fruits before it goes bad.

Making your own granola can save you a lot of money as well. The total cost for this delicious meal should only add up to a few dollars compared to triple that price if you were to buy one pre-made.

10. Make Your Own Meal Kits

Do you like your meals freshly cooked? Sending meal kits to your doorstep is an easy way to drain your budget. Instead, try making your meal kit at home! Not only is it fun, you will easily get a delicious taste.

Simply find a few simple meal cards or print some out and fill a ziplock with the ingredients for each specific day. Don’t know what recipe to make? Another option is to order one month of meal kits and recycle the recipe into ingredients for the upcoming months with ingredients you picked up from the store.

11. Don’t Drink Your Calories

A few dollars spent here and there can really add up! Just as with specialty items, healthy drinks can be a blackhole for you. An energy drink and kombucha and coffee each day could easily have you spending and extra $300 each month!

I you really need a special drink fix, try making your favorites at home. Bring a coffee in, make kombucha, or even try making lemonade with stevia or a healthy soda. You’ll be surprised w hat a big difference such a small change can make on your budget!

12. Buy Cheap Online

Just like anything else, it pays to be prepared. Buying foods from online retailers can be a really affordable way to save money as long as you’re prepared.

Plan ahead for those more expensive specialty items you can’t live without. It will save you tons of money compared to having to buy food from a specialty store.

13. Don’t Fret about the Clean Fifteen

One of the huge things that can mess with a person’s budget is eating organic. For the record, I am 110% all for eating organic whenever you can. However, for some people, it can be hard to make organic food fit into a budget.

Instead of scratching healthy eating for a smaller budget, try to buy meat and the dirty dozen organic, and don’t go crazy about the rest. The clean fifteen are the fifteen safest foods to buy that aren’t organic! Meanwhile, the dirty dozen is the most worthwhile avoiding. According to Produce Retailer, these are the dirty dozens:[3]

  1. Strawberries
  2. Spinach
  3. Kale
  4. Nectarines
  5. Apples
  6. Grapes
  7. Peaches
  8. Cherries
  9. Pears
  10. Tomatoes
  11. Celery
  12. Potatoes

14. Pay Attention to Storage

Keeping the food you have is just as important as how much food is in the first place. Try to stay on top of how much produce you can actually use before it goes bad. It might not be a bad idea to pencil an extra shopping trip in the middle of the week to keep food fresh.

Advertising

Investing in good food storage containers could go a long way in saving you in the long run as well.

15. Freeze Food Before it Goes Bad

Instead of getting mad at yourself at the end of the week for all the wilted produce you need to throw out, try freezing it before you get to that point.

Most frozen veggies will taste delicious in stir fries and soups. You can freeze fruits to make sorbet or smoothies. Frozen greens can be chopped up and tossed into just about anything for a nutrient boost!

16. Consider Ditching Most Supplements and Powders

I have nothing against superfood powders and supplements. However, if your budget is tight, it can be hard to fit supplements and powders in.

Instead of adding in powders, add extra nutrients to you food. Add lots of greens and veggies to all your meals to meet your nutrient needs. If you need a specific supplement, you can find great deals online as well!

17. Use Budget App

There are so many great apps you can download for free. One of my current favorite is HoneyDue because you can track your budget easily with your spouse. There are many options available, just find the one that you’re most likely to use. The ones that download your spendings automatically are often the easiest and will give you a more accurate number.

My husband and I use the same app, but have a separate budget for each of our weekly food plan and for our additional snacks. Keeping things separate can often be helpful to know exactly where your money is going. Plus, it can help hold you accountable if you have a significant other you are sharing money with.

18. Use What you Have

Most people have unused protein powders lying around in their cabinets. Instead of letting that go to waste, work them into your meal plan. Protein powders can make amazing doughnuts, pastries, or pancakes!

19. Enjoy the Process!

Finding ways to enjoy your new lifestyle will be helpful in sticking to it long term. Find fun in seeing how much you can save each month. Make a competition with someone to see who can stick to the lowest budget and create something fun to do for the winner with some of the money saved! Blast some music in the kitchen while cooking your new recipes.

Budgeting and health doesn’t have to be a drag. Make it fun and you’ll enjoy your new lifestyle long-term!

Featured photo credit: kevin laminto via unsplash.com

Reference

Read Next