5 STEPS TO PLAN AN EARLY RETIREMENT

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Almost a decade ago, retirement referred to living a relaxed and comfortable life by the time one turns 60 years of age. However, things have changed now. Today, investors don’t shy from hanging their boots in their early 50s, or even as early as late 40s. This change is caused by two main reasons. Number one being millennials embracing the FIRE concept (financial independence, retire early) with open hands. And the other being choosing hobbies and their mental peace and happiness over simply slogging their ass off in the later years of their life. Your hobbies could be anything – from taking a world tour to developing a new hobby to just spending your time reading books. While retirement planning is a methodical approach, if you wish to retire early you must create a firm financial plan and follow it thoroughly. Let’s understand the five steps to plan for an early retirement.

Step 1 – Plan early
If you wish to retire early, you must start planning early, preferably right from your first salary. Unlike others, who wish to retire in their late 50s or sixties, you don’t have the flexibility to even postpone your planning even by an year or two. Every year lost would be accounted by additional burden on you to build a significant retirement corpus. This will help you to sail through your expenses post your retirement.

Step 2 – Save as much as you can
Savings is one of the most important cornerstones of personal finance. This mantra should be exhaustively followed to plan for an early retirement. Remember that every penny you end up saving would help you earn in the future. You can do this by ensuring that you do the following points:

  • As much as possible, carry your food to your workplace
  • Commute to your office via public transport or consider car pooling
  • Avoid high interest rates personal loans and debt
  • Avoid unnecessary impulsive purchases

Step 3 – Invest in instruments that cater to your needs
Investing is very important to help you meet your future needs and requirements. If you are new to the investing world, mutual funds are a good investment option. You can compare mutual funds and understand which type of mutual funds cater best to your investment portfolio. As a general rule, debt funds are a good investment option for investors who have a conservative approach to their investments. On the other hand, if you are someone who is comfortable with exposing their investments to risk to earn higher returns, then equity funds might be a more viable option for you.

Step 4 – Curb debt

It is a good idea to get rid of your debts especially high-interest rate loans such as personal loans and credit card debt. Carrying debt to your retirement is definitely a no no. Work with getting rid of debts whose interest rates take a huge chunk of your salaries, and try to be completely debt-free over a span of few years.

Step 5 – Planning for emergencies

You must be always prepared for emergencies. Emergencies do not come knocking at your doors. Being prepared for a contingency will ensure that you do not dip into your investments and delay your financial goals. An emergency could be anything right from home repair to medical bills to sudden loss of job or death of a close member. It’s a good idea to invest at least three to six months’ of your living expenses towards this emergency funds. You should invest this corpus in investment options that are highly liquid such as ultra short-term debt funds or liquid funds.

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