How to Start Your Retirement Journey
What does being Wealthy mean to you?
Is it a Mindset, a Target Number or a certain perceived Value (like Freedom, Independence, Prestige) that it holds for you?
And then, what does being rich mean? — Looking like a million bucks?
These are just some of the thoughts that have been running through my mind in the last few months as I started planning for my retirement.
Yes I understand I’m in my late 30s only, but due to being burnt out early on in my career, I’ve had to reconsider my whole work-life balance, which lead me on a 2 year journey travelling and nomading with other expats around the world (that’s another story for another time).
It did however spark a motivation to find a different way of living while working in this modern age. While everyone was progressing and competing in the rat race, my purpose was on opting out. For me, I hated competing, wasn’t driven by any kind of monetary gains and discovered that what I really enjoyed doing (writing and the arts) wasn’t about to pay me the big bucks.
But one thing I realised along the way was that I’m good at is ORGANISING things, especially organising my finances. I never did make a huge salary, but by golly I was good at Saving and Being Frugal. And when I finally started doing my own financial planning, I realised that I was really good at investing and accumulating money as well.
After reading books like The Millionaire Next Door and Quit Like A Millionaire, I discovered that there are other ways to retire and live comfortably, without making the whole process of retirement seemingly unattainable and impossible to reach.
Here are some tips:
1. Know Yourself
If there’s one piece of evergreen advice if I could give anyone — it’s to know thyself. Being self-aware gives you the depth to understand the decisions that you make in life and some of these can be beneficial or deeply detrimental for your finances.
Knowing yourself can help determine:
The course of your career and income levels— which career suits your strengths and personality, how you can leverage your skills and assets to earn more money
Your lifestyle and habits — what you spend on and prioritize in life to make it a happy one
Your work-life balance — which style and type of lifestyle suits you: a 9-to-5 job, freelancing or even being your own boss etc.
All these factors can improve or reduce your wealth. The most important thing is not to lose sight of what you’re doing all this for. Remember that money is ultimately just a tool that can be used for or against us to achieve our goals in life.
2. Live within your means
I’m lucky because I had this instilled in me when I was young. I didn’t have the newest toys or gadgets growing up, and even a credit card until I was in my late 20s. I didn’t have the means to go to a university overseas, so I got a full scholarship that paid for my way.
When it comes to amassing wealth, it’s important to live within your means. It’s really not about your income, but how much you save from it.
In The Millionaire Next Door, the authors found that most millionaires in the United States bought US-branded cars, shopped at mid-priced department stores and didn’t spend more than $360 on average for a suit. They lived very frugally, unlike the high-consumption lifestyles that most people think millionaires have.
In fact, the whole book is based on the concept of Prodigious Accumulators of Wealth (PAW) versus Under Accumulators of Wealth (UAW). One can have a high income, but live a high consumption lifestyle, become a poor accumulator of wealth and thus have a low net worth. Being financially independent (aka wealthy in terms of net worth) versus being a high income earner are two separate things.
Another huge no-no is Debt. Living a high-consumption lifestyle often means the individual takes on debt and higher expenses to pay for their cars, boats, houses and other items, just to keep up with the Joneses. For example, although owning a house is considered an asset, owning a mortgage is a liability. Being able to lower your debt (or have none) and your expenses can help you get on the journey towards retirement faster.
3. Be strategic in your Educational and Career choices
Not all jobs and careers pay the same. An investment banker and a retail sales manager likely earn very different incomes, no matter which country you are from. And while earning a high income may not necessarily make you wealthy, it can give you more options and opportunities if you are strategic about your choice of education and career.
Obviously, if you are high income earner, you have the possibility to accumulate more wealth if you are disciplined. This may also shorten the time frame needed for retirement if you have a solid financial plan to get there.
Therefore, even though you are a high income earner, it’s important to have a good budgeting plan and investment strategy to grow your savings.
4. Have a plan
Not everyone is born to be good at organising and planning their finances — that’s what financial planners are for, but it’s crucial to have an understanding of where your hard-earned money goes.
Setting a monthly budget for your expenses is key. By tracking what you spend on each month, you have a good idea of where your money is going and how you can tweak this to adjust your budget and lifestyle where needed.
Some people enjoy using a concept of a Bucket or Jar system, where your income is allocated into different buckets like savings, fixed expenses, travel/fun, taxes, investments and so on. By planning out ahead on how to allocate your monthly income, you can steadily contribute to each bucket, and thereby utilise your salary in the most optimal way. Not only do you ensure that all essential bills are taken care of, you are also saving and investing for the future and still having some leftover for fun.
Similar to budgeting, having an investment strategy can ensure that you break down your investment contributions into different asset allocations for diversification. Plus you become very clear on what each investment is doing for you — is it providing dividend income or capital appreciation? Am I fully diversified in different asset classes? Having a plan ensures that you can get clear on your goals and then also strategize on how to achieve them.
5. Be disciplined
What’s the good of having a plan and not following through?
In actual fact, the financial plan is there to help you take your emotions out of the whole process and make you more disciplined in saving, budgeting and investing.
Especially when it comes to investing, the ability to have a Regular Savings Plan (RSP) by automatically contributing a fixed percentage of your income each month forces you to invest regularly and build up your nest egg.
It also helps to average out your investment contribution even though prices of investments may go up and down over time, reducing your risk and chance of trying to time the market.
Furthermore, by contributing regularly, you get to reap the benefits of compounding interest so that your investments grow over time.
6. Understand your WHY of retiring
The point of retiring is likely not to do laze around and do anything.
Sure, maybe in the beginning, it will feel like freedom to not have to work anymore, but we all still need to have other activities to occupy ourselves with.
If you would like to be productive and fulfilled during your retirement, it’s likely that you should have a purpose that’s not driven by money. Maybe it can be something like a hobby, travelling, volunteering and mentoring.
The prospect of having this future can be your motivation for retirement. For me, retirement is about freedom and the opportunity to indulge in hobbies like the arts and painting that I would never do as a job. It’s also about the freedom to travel and live elsewhere in overseas properties situated on tropical islands near the beach.
This WHY gives me great impetus to continue on my path towards early retirement and to keep me going even when the goals may seem so far away. It pushes, motivates and inspires me for a dream of a more relaxing lifestyle that is independet of having to constantly work for more income on hand.
If all the finance books and blogs have taught me, it’s this one thing — early retirement is possible! There are plenty of people who have retired early in their 20s, 30s and 40s, and have opted for a different lifestyle beyond that of the rat race. And they have all followed some of the tips I mentioned above to help them get there.
I hope that you also get started on yours — it’s never to late to start. I’ll continue to post about my own financial planning and retirement journey as it happens and do hope that you’ll share yours too.