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- I finally got serious about retirement planning in my 30s and opened a SEP IRA.
- But I realized I needed a better plan to reach my goal of retiring early as a millionaire.
- Now, I strictly follow my budget, diversify my investments, and create new sources of income.
For most of my twenties, my eyes were drawn to the idea of saving money for retirement. I was mismanaging my finances, spending more money than I was making, so thinking about setting aside money for the distant future was something I totally didn’t want to do.
When I turned 30, I realized I didn’t want to suffer financially anymore. But to change that, I have to make some important tweaks.
I Emergency fund startedI stuck to a strict budget, started investing, and for the first time in my life, I took retirement savings seriously by opening a SEP IRA.
But as I saw more and more adults in my life unable to retire at 65, I knew I didn’t want to follow in their footsteps and still work hard at a full-time job at that age. That’s why I set a big goal for myself: to retire (ideally in my fifties) as a millionaire. To achieve this, I am taking five steps now.
Use the Insider Calculator to see if you’re on your way to a comfortable retirement by answering a few questions about yourself, your savings, and how long you expect to keep working.
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*Based on the need to cover 70% of your annual pre-retirement income and a life expectancy of 100 years.
1. I keep a close eye on my money
Although retirement as a millionaire is my future goal, in order to take any steps at present to make it happen, I must make sure that I am in complete control of my finances now.
Last year, I set a strict monthly budget that I usually stick to (or am about to stick to) to limit any overspending. I try to save between 20 and 25% of income each year and use that cash to fund my emergency or retirement fund, or contribute some of it to my investment portfolio.
To make sure I’m staying on track, I check my finances regularly.
On a daily basis, I make sure I account for all of the day’s purchases and keep track of these numbers in my budget.
On a weekly basis, I check my credit card statements to stay alert about my spending and to make sure there are no errors.
At the end of the month, I spend an hour self-reporting my entire net worth, keeping track of how much my investment accounts have gone up or down during the month, how much I’ve been able to save, and determine how much extra money I can contribute to my retirement fund that month (plus the minimum monthly contribution that I contribute).
2. Make recurring contributions to my pension fund
Before I turned 30, I had a small 401(k) to which I contributed several times over the years and nothing else to show for my retirement savings.
after, after Opening a SEP IRAYou decide to contribute a certain minimum at the end of each month. By contributing to a SEP IRA monthly, the cash in that account can become tax-deferred until retirement, which means I don’t have to worry about paying taxes on that money, or growing it, until later. At the time of retirement, any money I take out of this account will then be taxed as income.
3. Increase Income Flows
When I ask financial experts how people retire as millionaires, I often hear them say that the average millionaire has multiple streams of income. I realized, after being laid off from my full-time job in 2015, that relying on a single source of income is dangerous and limiting. Instead, I try to be between Five and seven sources of income in time.
Currently, I have income that comes from my business and several side activities, which include freelancing, selling online courses and products, offering my services for hire (be it babysitting or pet sitting), and monetizing my social media audience. I hope to continue adding more passive income streams in the near future by investing in real estate and rental property.
4. Stay out of debt
While getting into debt is something I want to try to avoid completely, things happen in life and I may find myself having to finance a major purchase or pay emergency costs without warning.
In order to plan for the unknown, so I can get away from credit card debt, I’ve spent the past four years building my own emergency fund.
Since I am self employed, at least some financial experts recommend me six months of the expenses saved in the emergency fund. But since I’m very focused on making sure I can stick to my spending and saving strategy, to meet my future retirement goal, I’ve decided to save at least eight to 10 months in my emergency fund to cover any unplanned expenses.
5. Diversify my investments
When I started investing a few years ago, I put money into individual stocks and cryptocurrencies without having much of a plan. I realized that I wasn’t strategic in my investments and decided that in order to help increase the chances of my money growing in the market, I needed to diversify my investments.
I did this by investing in index And the investment funds Across many different sectors (rather than just buying individual technology stocks, as I used to do) and invested in funds that included both US and foreign companies.
By doing this, I can avoid risking my money in the market and instead undertake a long-term growth plan.