It is hard to frugal your way to early retirement
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It is hard to frugal your way to early retirement
Because a couple hundred bucks isn’t a life-changing amount. Household savings — or whatever income people have left after their spending — has little effect on boosting wealth:
- You get bored.
- You get lonely.
- Living arrangements become uncomfortable.
- You miss out on real estate gains. Since renting a place is initially cheaper than buying, you talk yourself into doing the former. But this ultimately means missing out on homeowner advantages like fixed-rate mortgages, tax incentives, equity buildup and profits after selling. While real estate isn’t for everyone and doesn’t always guarantee wealth, the return on rent is always zero.
- You make less money.
- You miss the window for having kids.
- You can’t afford to have kids.
The smarter early retirement strategy
- First and foremost, adopt an abundance mindset. Know that there is plenty of wealth to go around. Stop putting all your energy into “not spending money” — and start seeking and taking advantage of bigger opportunities:
- Prioritize your career. Your full-time job is your winning ticket to early retirement, so find something you enjoy doing and devote as much time to it as possible. Grow your skills, impress your boss and build a strong professional network. Become the best in your field so you can get that raise or, even better, land a higher-paying job at another company.
- Aim to max out your retirement savings accounts. This is one of the easiest ways for Americans to build wealth, so focus on maxing out your 401(k), IRA, and Roth IRA. If your employer matches 401(k) contributions, at least contribute that amount. Remember, 401(k)s are pre-tax dollars, which means not only is your company handing you free money, but you’re also lowering your tax burden by a dollar-for-dollar contribution into your account.
- Invest your savings. Once you’ve taken full advantage of all your tax-advantageous retirement vehicles, it’s time to build your taxable investment portfolio. In my opinion, the two most common asset classes that will really help you build wealth are real estate and the S&P 500. The goal is to make prudent investments that will end up generating money for you on its own, so that you don’t have to.
- Stay on top of your finances. It’s vital that you know where your money is going each month. Try to maintain a fixed budget. Check your bank statements. Use a free wealth management tool to track your net worth, analyze your cash flow and manage your investment portfolio.
- All these things will help you progress toward early retirement — at least, at a much faster rate than any budget trimming will do.