Retiring early seems impossible for many of us.
Building enough wealth to retire takes time, but the concepts are not difficult.
Below, let’s take a look at the four money principles I am using to retire super young, and how you can take more control over your finances and make your money work for you.
You won’t need to be a gifted student or a highly-paid professional to start putting these money principles into action right away.
They are accessible to anyone.
Here are the top four ways that I am setting myself up to retire at 40.
1. I am 100% focused on the goal
It is tough to achieve amazing goals like early retirement without a keen focus. Financial freedom isn’t something that materializes out of thin air. It’s like getting into shape.
Most of us won’t lose weight or gain strength by refusing to change our habits and prioritize fitness and diet. It won’t happen.
Life doesn’t work that way. We need to want it bad enough to make it happen.
Once we set our minds to achieving a goal, we humans have a way of making decisions in support of that goal. For instance, we might go out to eat less and cut back on monthly subscriptions (like cable television).
We may even keep our cell phones longer than just a year before upgrading them.
2. I am doing more than just saving
Nobody ever got rich by saving money alone. Saving money is certainly better than spending it, but wealth is built by investing our money into appreciating assets. Examples include the stock market, real estate, businesses, and even precious metals.
I am putting my money to work by investing it in appreciating assets, and through the incredible power of compound interest, my money is growing in my sleep.
Compound interest means your assets build on themselves.
If you invest $1,000 and it appreciates 10% (or $100) in a year, then your new base starting point in year two is $1,100. Another 10% gain is $110, not just $100.
Add a couple of zeros to those numbers and we begin talking about quite a bit of money. Enough money on which to retire.
3. I am using the power of systems
Things get easier when we have automated systems to help us with the leg work. It’s a machine that keeps running by helping us save, invest and pay our bills.
For example, a lot of employers offer 401k or IRA retirement plans. And, many of those companies contribute straight from your paycheck into your investment accounts. Automatically.
Once it is set up, you’ll never have to worry about it again. It just happens, like clockwork.
No discipline. No remembering.
When we put our finances on autopilot, things happen through the magic of automation.
- Automatically contribute to our 401k and IRAs
- Automatically transfer money from checking into savings
- Automatically pay our credit card bills so we *never* run a balance
4. I am controlling (and eliminating) debt
Debts kill our chances of building wealth, and if you harbor dreams of retiring early, you cannot have a lot of consumer debt. Credit card debt is a good example of consumer debt.
Early retirement doesn’t necessarily mean that you have NO debt. Life isn’t that simple, and neither is retiring at 40.
Instead, it means that your debts haven’t put you into a position of weakness by spending money that you do not have on things that depreciate in value.
When it comes to debt, those who are financially free:
- Maintain a good financial position (ie: emergency fund, retirement savings, etc) before accepting debts – for the exception of student loan debt earlier in life for marketable degrees
- Accept smart debts that are calculated and purposeful
- Never take on a debt that you cannot payback
Use debt as a tool, not as a way to spend money that you don’t have. Smart debts are those that improve our future and support our longer-term goals. Smart debts are good debts.