So you would like to retire early? Achieving financial independence and retire early is a great financial goal. To get started, you want to make sure you have a good financial foundation in place — for example, if you’re in debt, you have to get rid of your debt first. Debt is like a big ball and chain that slow you down for achieving any type of financial success. If you are still working on your debt, check out our 12 Steps to Financial Freedom and Personal Finance Success Plan to get you started.
Early Retirement Plan
1. Determine How Much You Need
The first step is to determine what you need to live your desired lifestyle. Is it $100k a year or $50k a year? All things being equal, it is much easier to retire early if you only need $50k compared to someone who needs $100k.
2. Cut Your Expenses
Reducing your expenses has two purposes: (1) it trains you to live on less which means it is easier for you to retire early, and (2) the money you saved can be used toward your income generation activities. To help you get started with expense reduction, take a look at 40+ Ways to Save Money, Lower Your Bills, and Cut Expenses.
3. Increase Your Income
The ultimate goal of early retirement is to get to the point where your passive income is consistently more than your living expenses. Right now you want to earn more in your job, as well as start to build your passive income. More money from your job means that you can invest more, but you want to see your passive income increases relative to your job income. To help you get started with passive income and earning more, take a look at 40+ Passive Income Ideas and Ways to Make Money.
4. Grow Your Passive Income
Each year you want to grow your passive income. May be your goal is to increase your passive income 10% a year and be able to retire in 10 years. For example:
- Year 1: Passive Income = 10% of your living expenses
- Year 2: Passive Income = 20% of your living expenses
- Year 10: Passive Income = 100% of your living expenses
If you stay on track for 10 years, you will reach the point where it exceeds your living expenses — this is your Crossover Point…
Congratulations! You just reached financial independence and you can retire early!
What to Do Next
At this point, you have enough passive income to cover all of your living expenses, so you could quit your job if you really want to.
The key to success is having a sustainable source (or sources) of passive income. You should evaluate all your income sources and figure out what is the likelihood of losing that passive income stream. If thee are high-risk income sources, you should probably keep working and growing your passive income to the point where you feel it will be fully sustainable.
Pinyo is the owner of Moolanomy Personal Finance and a Realtor® licensed in Virginia and Maryland. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, financial literacy author, and Realtor®.