5 Golden Rules To Achieve Early Retirement
With the rise of TikTok and other social media outlets the art of looking after your money is quickly becoming a habit for many of us in the UK. For many years we have set our money to autopilot and allowed it to go in and out of our bank accounts without utilising it in a way that grows our net worth. In fact, I would argue that most people in the UK couldn’t tell you what their net worth is, can you? Do you know your projected retirement age? These are questions we aren’t taught the answers to at school but perhaps ones that are vital to get your head around if you are to retire early. So, without further ado, here are the 5 rules I swear to live by in order to retire early.
Take Home Pay – Know Your Monthly Figure
Before spending money, you must know your ‘starting point’. Once you are paid, see what you have. Then, work out what your necessity spends are until you next receive income. Now, with just a few minutes sitting down looking at your finances, you know how much you’re starting with, what you must spend and what you can spend; this is the value of knowing your take home pay. It’s the foundation on which you will build your future. Remember, if you are to retire early, the difference between what you start with and what you have to spend is best off being invested or saved. The gap between income and expenses is the one thing that will allow you to reach your financial goals. Conveniently, this leads me onto my next rule…
Pay Yourself First
This rule refers to what I call ‘me money’. This, as explained with the first rule, is the difference between my income and my spend. The bigger this gap, the sooner I can retire. Ask anybody you know who retired early. They will tell you that this ‘me money’ needs to be utilised before you spend money on life’s necessities (bills and groceries etc). Pay yourself first or else you won’t pay yourself at all! A saying I came across recently on twitter advises you to be ‘broke in the current account, rich in the savings account’. Now don’t take this too literally, you obviously want some money in your current account, but what it is essentially saying is that minus a few extra pennies you should really be breaking even in the current account each month; any ‘excess’ money should be saved or invested before you begin paying for your bills and for your lifestyle. If you require any extra money in the month for emergencies then dip into your emergency fund.
Set Yourself A Budget… Without One, The Spending Never Ends!
Once again, this next rule ties in with the previous one. If you fail to start the month with a budget in place, then how can you track your spending? What are you tracking it against? Chances are, without a budget or plan in place, you will spend more money than necessary in all areas. Whether it be transport and petrol/diesel, groceries and essentials, or even leisure and hobbies… without a budget, your spending will spin out of control. Work out what you currently spend on each ‘category’, then work out what you want to spend on each category – try and find a reasonable limit using these two figures. If you can keep to these limits each month whilst continuing to grow your income, then the amount of ‘me money’ you have each month will only increase. A frequently used but nonetheless valuable piece of advice in the world of personal finance is to make sure not to live above your means!
Don’t Borrow What You Can’t Repay
This rule is simple. It shouldn’t really require a lot of explanation. These days there are multiple credit options on offer to the British public. Often, you will be approved for these flexible credit options despite having a poor credit score. This can be tempting and can promise to pull you out of a sticky financial situation, but this is not always the reality. If you can’t afford something right now, and intend to use credit, then ask yourself what will be different in the future? What will be different in 6 months from now that means you will be able to pay off the debt? If you aren’t certain that you will be able to pay off the debt, then don’t borrow that money!
Think Before You Buy… Will Future You Regret This Purchase?
Again, self-explanatory, temptation here is the enemy. Try to avoid buying things that you will regret buying a few months down the line. Of course, this is easier said than done. So, I pass down a rule of thumb I was told a while back… open the notes app in your phone or if you’re old school, get out a notepad and pen. Now, write down that one thing you really want to buy, that thing which (right now) you’re sure you can’t live without. Okay, now, the hard bit… don’t buy it. Allow 3 months to pass. Do you still want it? Have you even remembered that you wanted it in the first place? Do you even know where that notepad and pen is? If the answer to these questions is no, then you would have saved yourself some money. Money that would have been spent on something which you wouldn’t use, something that would only depreciate in value. Instead, you will now have some more ‘me money’ which can be invested in your future! And by the way, if the answer to those questions was yes and you do still desperately want to make that purchase then good for you! You’re all set and ready to buy something you actually need and desire. Just make sure you aren’t buying things to keep up with the Jones’.
I can only hope that these rules stick with you and that you implement them in your life. I truly believe that in the world of personal finance, these are rules to live by. They are principles. Foundations of a financial philosophy. When it comes to planning for your financial future, now is always the best time to start…
Until next time,