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How Anyone Can Retire at 32

How Anyone Can Retire at 32

While this may sound like an outlandish statement, this goal remains more than achievable in 2014.

“Sure,” I can hear you say, “you could win the lottery, for example, or inherit a financial windfall from a beloved and wealthy relative.” Each of these eventualities may enable you to retire immediately, while also negating the need for you to ever work again.

While this is true, such a goal can also be accomplished through hard work, frugal living and sound financial planning. This is why early retirement is an option that remains accessible to everyone, although whether you not you choose to chase such a dream is entirely up to you.

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Retirement Age

    Leading by Example: A Template for Early Retirement

    In order to illustrate how this is possible, I will be using the example set by a close family friend of mine. He is now 33 and officially retired last year, although he still likes to invest some of his hard-earned income into profitable ventures and schemes. He no longer works for others, however, and nor does he operate full-time as a freelancer or independent contractor. This is a dream that he pursued relentlessly and strategically from the time when he was studying at university, as he decide at the age of nineteen that he had no desire to work full-time within a soulless corporation.

    The exact inspiration for this life goal is unclear, although he was obviously influenced by the experience of his parents. They toiled hard for an entire generation; retired in ill-health at 65 and barely had enough money to live the comfortable life that they deserved. He drew great inspiration from this, and vowed not to give so much of his life in pursuit of such intangible returns. Instead, he developed a clearly defined and fast-tracked plan for financial independence, which would begin in earnest at the age of 22 and ideally end with his official retirement a decade later.

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    As he was studying marketing, he initially decided to combine his studies with freelancing as a content writer and online consultant. He started during his second year at university, and spent 9 months or so developing his reputation and working for relatively low levels of remuneration. In year 3 he increased his client range and fees, however, and set out to earn £48,000 per annum after taxes during this 12 month period and repeat this throughout the following decade. While this figure was conservative, he would at least be able to avoid VAT liability and higher tax rates in the process.

    Execution and the Importance of Frugality

    In real terms, this plan translated into spendable income of roughly £4,000 per month. This is where the execution of the plan came into play, as he deemed it realistic to save an estimated 70% of this monthly income into a high-yield savings or investment account. The remaining 30%, or £1200 in simple terms, would be used to live on and settle all outstanding bills. This worked seamlessly during his final year of studying, and by the end of this, he had managed to save an annual total of £33,600 at a generous interest rate of 8%.

    Once he had left university, he found it far more challenging as he faced a constant struggle to keep living costs down. Although having just under £15,000 per annum to live on is far from ideal, he felt that his ability to adopt a frugal lifestyle would ultimately determine whether or not this could be done successfully. So he quickly began to minimize costs, initially by moving back in with his parents temporarily and accessing real-time promotions to cut everyday costs, such as food, beverages and those associated with energy consumption.

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    As the years progressed and he continued to hit his savings targets, so too he developed even more frugal living measures. These included embracing the thrift market, and investing in second-hand clothing and accessories. He also decided to travel exclusively on public transport, even cycling or walking where routes and distances permitted. Over time, his seemingly far-fetched dream became an actionable and strategic plan, which quickly evolved thanks to patience, discipline and an ability focus on a single-minded goal.

    How to Use This Lesson to Fund Your Own Retirement

    By the age of 32, my close friend had managed to save £33,600 at a fixed interest rate of 8% for 11 consecutive years. This had created cumulative savings of more than £520,000, which could then be used to fund his retirement and achieve life-long financial goals. Almost immediately, he plowed £150,000 into a modest but functional home of his own, and distributed £300,000 across various investment savings accounts with interest rates with variable risk and interest rates of between 6 and 8%. He then used the remaining £70,000 to create an investment portfolio that included shares and other derivatives, and strived to turn this into incremental profit over time

    He is now enjoying the fruits of his labor, and lives comfortably while having the power to determine when and how he invests. This is a template that can easily be followed by anyone, although each individual must apply their own interpretation and translate this into a retirement plan that suits you. It is imperative that you visualize your retirement and determine exactly what you want from it, before implementing a viable time frame and actionable strategy. You may not wish to invest your capital once you have officially retired from work, for example, which means that you may need to save for longer and create a large fund to live on.

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    Another key lesson to learn is the importance of frugality, which is crucial if you are to turn a seemingly fanciful vision into a realistic and achievable goal. As this example proves, early retirement of any description is only possible if you remain focused and are willing to make significant sacrifices with regard to your lifestyle, as otherwise you will be unable to save the requisite amount for the required period of time. Without a commitment to frugal living, you will be forced to work longer and delay your individual retirement plans.

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    Last Updated on September 2, 2020

    How to Set Financial Goals and Actually Meet Them

    How to Set Financial Goals and Actually Meet Them

    Personal finances can push anyone to the point of extreme anxiety and worry. Easier said than done, planning finances is not an egg meant for everyone’s basket. That’s why most of us are often living pay check to pay check. But did anyone tell you that it is actually not a tough task to meet your financial goals?

    In this article, we will explore ways to set financial goals and actually meet them with ease.

    4 Steps to Setting Financial Goals

    Though setting financial goals might seem to be a daunting task, if one has the will and clarity of thought, it is rather easy. Try using these steps to get you started.

    1. Be Clear About the Objectives

    Any goal without a clear objective is nothing more than a pipe dream, and this couldn’t be more true for financial matters.

    It is often said that savings is nothing but deferred consumption. Therefore, if you are saving today, then you should be crystal clear about what it’s for. It could be anything, including your child’s education, retirement, marriage, that dream vacation, fancy car, etc.

    Once the objective is clear, put a monetary value to that objective and the time frame. The important point at this step of goal setting is to list all the objectives that you foresee in the future and put a value to each.

    2. Keep Goals Realistic

    It’s good to be an optimistic person but being a Pollyanna is not desirable. Similarly, while it might be a good thing to keep your financial goals a bit aggressive, going beyond what you can realistically achieve will definitely hurt your chances of making meaningful progress.

    It’s important that you keep your goals realistic, as it will help you stay the course and keep you motivated throughout the journey.

    3. Account for Inflation

    Ronald Reagan once said: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman.” This quote sums up what inflation could do your financial goals.

    Therefore, account for inflation[1] whenever you are putting a monetary value to a financial objective that is far into the future.

    For example, if one of your financial goal is your son’s college education, which is 15 years from now, then inflation would increase the monetary burden by more than 50% if inflation is a mere 3%. Always account for this to avoid falling short of your goals.

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    4. Short Term Vs Long Term

    Just like every calorie is not the same, the approach to achieving every financial goal will not be the same. It’s important to bifurcate goals into short-term and long-term.

    As a rule of thumb, any financial goal that is due in next 3 years should be termed as a short-term goal. Any longer duration goals are to be classified as long-term goals. This bifurcation of goals into short-term vs long-term will help in choosing the right investment instrument to achieve them.

    By now, you should be ready with your list of financial goals. Now, it’s time to go all out and achieve them.

    How to Achieve Your Financial Goals

    Whenever we talk about chasing any financial goal, it is usually a two-step process:

    • Ensuring healthy savings
    • Making smart investments

    You will need to save enough and invest those savings wisely so that they grow over a period of time to help you achieve goals.

    Ensuring Healthy Savings

    Self-realization is the best form of realization, and unless you decide what your current financial position is, you aren’t heading anywhere.

    This is the focal point from where you start your journey of achieving financial goals.

    1. Track Expenses

    The first and the foremost thing to be done is to track your spending. Use any of the expense tracking mobile apps to record your expenses. Once you start doing it diligently, you will be surprised by how small expenses add up to a sizable amount.

    Also categorize those expenses into different buckets so that you know which bucket is eating most of your pay check. This record keeping will pave the way for cutting down on un-wanted expenses and pumping up your savings rate.

    If you’re not sure where to start when tracking expenses, this article may be able to help.

    2. Pay Yourself First

    Generally, savings come after all the expenses have been taken care of. This is a classic mistake when setting financial goals. We pay ourselves last!

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    Ideally, this should be planned upside down. We should be paying ourselves first and then to the world, i.e. we should be taking out the planned saving amount first and manage all the expenses from the rest.

    The best way to actually implement this is to put the savings on automatic mode, i.e. money flowing automatically into different financial instruments (mutual funds, retirement accounts, etc) every month.

    Taking the automatic route will help release some control and compel us to manage what’s left, increasing the savings rate.

    3. Make a Plan and Vow to Stick With It

    Learning to create a budget is the best way to get around the uncertainty that financial plans always pose. Decide in advance how spending has to be organized

    Nowadays, several money management apps can help you do this automatically.

    At first, you may not be able to stick to your plans completely, but don’t let that become a reason why you stop budgeting entirely.

    Make use of technology solutions you like. Explore options and alternatives that let you make use of the available wallet options, and choose the one that suits you the most. In time, you will get accustomed to making use of these solutions.

    You will find that they make it simpler for you to follow your plan, which would have been difficult otherwise.

    4. Make Savings a Habit and Not a Goal

    In the book Nudge, authors Richard Thaler and Cass Sunstein advocate that, in order to achieve any goal, it should be broken down into habits since habits are more intuitive for people to adapt to.

    Make savings a habit rather than a goal. While it might seem to be counterintuitive to many, there are some deft ways of doing it. For example:

    • Always eat out (if at all) during weekdays rather than weekends. Weekends are more expensive.
    • If you are a travel buff, try to travel during off-season. You’ll spend significantly less.
    • If you go shopping, always look out for coupons and see where can you get the best deal.

    The key point is to imbibe the action that results in savings rather than on the savings itself, which is the outcome. Focusing on the outcome will bring out the feeling of sacrifice, which will be harder to sustain over a period of time.

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    5. Talk About It

    Sticking to the saving schedule (to achieve financial goals) is not an easy journey. There will be many distractions from those who are not aligned with your mission.

    Therefore, in order to stay the course, surround yourself with people who are also on the same bandwagon. Daily discussions with them will keep you motivated to move forward.

    6. Maintain a Journal

    For some people, writing helps a great deal in making sure that they achieve what they plan.

    If you are one of them, maintain a proper journal, where you write down your goals and also jot down the extent to which you managed to meet them. This will help you in reviewing how far you have come and which goals you have met.

    When you have a written commitment on paper, you are going to feel more energized to follow the plan and stick to it. Moreover, it is going to be a lot easier for you to track your progress.

    Making Smart Investments

    Savings by themselves don’t take anyone too far. However, savings, when invested wisely, can do wonders.

    1. Consult a Financial Advisor

    Investment doesn’t come naturally to most of us, so it’s wise to consult a financial advisor.

    Talk to him/her about your financial goals and savings, and then seek advice for the best investment instruments to achieve your goals.

    2. Choose Your Investment Instrument Wisely

    Though your financial advisor will suggest the best investment instruments, it doesn’t hurt to know a bit about the common ones, like a savings account, Roth IRA, and others.

    Just like “no one is born a criminal,” no investment instrument is bad or good. It is the application of that instrument that makes all the difference[2].

    As a general rule, for all your short-term financial goals, choose an investment instrument that has debt nature, for example fixed deposits, debt mutual funds, etc. The reason for going for debt instruments is that chances of capital loss is less compared to equity instruments.

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    3. Compounding Is the Eighth Wonder

    Einstein once remarked about compounding:

    “Compound interest is the eighth wonder of the world. He who understands it, earns it… He who doesn’t… Pays it.”

    Use compound interest when setting financial goals

      Make friends with this wonder kid. The sooner you become friends with it, the quicker you will reach closer to your financial goals.

      Start saving early so that time is on your side to help you bear the fruits of compounding.

      4. Measure, Measure, Measure

      All of us do good when it comes to earning more per month but fail miserably when it comes to measuring the investments and taking stock of how our investments are doing.

      If we don’t measure progress at the right times, we are shooting in the dark. We won’t know if our saving rate is appropriate or not, whether the financial advisor is doing a decent job, or whether we are moving closer to our target.

      Measure everything. If you can’t measure it all yourself, ask your financial advisor to do it for you. But do it!

      The Bottom Line

      Managing your extra money to achieve your short and long-term financial goals

      and live a debt-free life is doable for anyone who is willing to put in the time and effort. Use the tips above to get you started on your path to setting financial goals.

      More Tips on Financial Goals

      Featured photo credit: Micheile Henderson via unsplash.com

      Reference

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