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5 Steps to Reclaim Your Personal Freedom

5 Steps to Reclaim Your Personal Freedom

One of the best things that happened to me was that the economy went into the tank.

Before economic times got tough, I enjoyed all that life, easy loans, and low-interest rates had to offer. And this was a natural state for most people I am acquainted with. After all, people naturally want to improve their circumstances, enjoy the best life has to offer, and “shoot the moon” when possible.

Without balance and moderation, though, we have no limits to our wants. That’s what happened to me when times were good.

Some of my friends (and my wife, for that matter) have fewer desires than others. They have spent years developing an attitude of frugality and restraint. It’s not that they lack ambition or even money, they are simply wise.  

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I, however, had to learn it all the hard way.

It was only when the economy went south that I faced the fact that I was riddled in debt, and I wanted freedom. I have learned that true “freedom” comes with imposing (healthy) restraints on myself. That means delaying gratification, settling for less, and even doing without — behaviors I did not have when I lived my life with credit.

Restraint is not easy in our consumerist society. Our media glamorizes the material lifestyle; advertisers are all over the place, and even our neighbors are living high, even though they may be one paycheck from the edge. I was like that, too.

We can overcome this. I finally did. It begins with our mindset.

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If you are constantly battling the urge to spend, here are a couple of steps that may help hold you back:

1.  Realize that it is in our genes to feel dissatisfied with our circumstances. As Alexander Green explains in his book Beyond Wealth:

An early human who was content with what he had — who spent his days lazing on the African savannah admiring the clouds and thinking “Ahh, life is good” — was far less likely to survive and reproduce than his neighbor who spent every waking hour trying to gain some advantage.

2.  Think back to a large purchase you made. Did you originally want it badly, only to find out after you bought it that you didn’t appreciate it that much? Think about how that purchase didn’t quite do it for you. Why will it be any different this time? The psychology of desire is an important thing to try to understand in ourselves.

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3.  Stop giving a crap what anyone thinks about you. Stop caring about the Joneses. Life isn’t a competition for social status (besides, there will always be someone else who has it “better”, anyway). Quit the game, even if your friends are still playing it, and you will quickly stop caring what others think of you. Do work you love, even if it doesn’t pay as much. Stop collecting “stuff”, and start creating incredible memories.

4.  Appreciate what you have and stop focusing on what you want. This took me some time, and I still battle with it. But the thought of losing my wife, my kids, my health — as dark as that sounds, it always “brings me back”.

5.  Stop daydreaming about living the life someone else is living.

Sound easy? It only took me 40 years to figure out, and I still have ways to go.

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We have been programmed by our culture to want everything, spend unconditionally, and consume ruthlessly to keep up with the Joneses. At the end of the day, however, our reactions and actions are our own. We can make the choice to defy consumerism and balance our lifestyle to live simply and happily.

It’s worth a shot, right?

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Published on September 14, 2018

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.

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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.

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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.

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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.

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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

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