Do you like the idea of retiring early, being somewhere on the beach in Bali or Hawaii and sipping one of those umbrella drinks?
Just thinking about it gets me so excited!!!
I’ve been talking about retiring early for as long as I’ve been working, but that is just it–all talk. It sure sounds great, but is it even feasible?
I shouldn’t put the cart before the horse. Before I can even worry about retiring early, I need to see if I can even retire comfortably when it is my time to retire.
By the time I’m at the retirement age, I might not even receive the small monthly paychecks from the government that my dad is currently receiving.
I’ve been contributing ever since I started working at my first professional job, a very healthy amount if I must say so myself. To most people, I am doing really good. But according to Fidelity, I’m in the red zone.
My score is only 52 out of 150? But I thought I’ve been doing really well all these years. How is it possible?
There should be a mandatory class in high school or college to teach people about saving for retirement and investing. Most of us don’t even know what we’re doing. Sure…we all know that we must contribute, save for retirement, but do we really know how or the best way to maximize our money?
An article I read recently on Yahoo! about a couple that started investing in index funds and in less than 10 years, were able to quit their jobs to travel the world. They started investing with just a little bit over $30k first year and ended up with $1 million in their porfolio by the time they decided to quit their jobs in their early 30’s.
It inspired me to start this blog, to actively look into investing and to have a concrete plan.
As the saying goes better late than never.
That couple spent less than 10 years to accomplish their goal. If they can do it, I can do i too!!! I started looking at my Fidelity more carefully, opened an account with Vanguard, invested my HSA money that’s been sitting idly for years and even dabbled with day trading.
In less than 3 months after I first read their story, I’ve managed to earn:
Grand Total: $1413.94
I’m so just amazed when I look at the number. Maybe it is possible after all.
But before we can even start investing, we need to have our ducks in a row.
1. Have an emergency fund
This seems like my favorite thing to include in all my posts about money related. This fund should be able to cover about 3-6 months’ worth of income and is specifically for an emergency (I prefer at least 9 months to a year). Can’t save for “tomorrow” if you don’t have your “today” covered. Although I’m investing most of my money now, I still keep some money in the bank for emergency situations.
2. Pay off debt before you retire
This is a must!!! Whatever debt you have whether it’s student loan debt or a mortage or credit card, it must be paid off because you can even start thinking about retiring. Let’s say you’re 40 years old and you’re buying your first house with 30-year mortgage, you won’t even be done until you’re 70. That’s not something you want.
Related article: How I paid off $130,000 student loan debt in less than 5 years.
3. Invest outside of retirement plans
Most of us know about retirement plans such was 401k. This is the bare minimum. At least contribue to the amount that your employer would watch. In addition, there’s also property investment, managed funds and many more. You must learn about investing and keep your portfolio diversified and in line with your personal tolerance to risk. As you approach retirement, your risk will become more conservative so ensure that you make the necessary changes.
4. Invest your extra money
This only applies if you are done with debts. If you still have debts, use that extra money to pay it off. But if you have no debts, then invest whatever extra money you receive whether it’s a yearly bonus or an increase in pay.
5. Retirement plan with employer matching contribution (401K)
Must take advantage of employer matching contribution. This is literally free money. At least contribute to the minimum that your employer would match. The 401k may be subject to vesting rules which means you must serve a certain number of years to retain the matching funds. I was shocked to learn that one of my co-workers in her 50’s had never had a 401k account, despite working for the same company for almost 20 years. It’s a shame that most people don’t even know or think about it.