You’ve almost certainly found this page because you want to have financial independence or freedom. You want to stop working 9-5, or longer. That long commute is now dragging you down. You want to start living on your terms. The only trouble is that from the outset you know its going to be really difficult to achieve. Therefore the first step is to know why you want financial independence now.
Don’t wait until your retire – know why you want financial independence now
Don’t simply retire from something; have something to retire to.
Harry Emerson Fosdick
If you are serious about retiring early then start planning now. Not just planning for how to save, and how to invest.
But start planning now for your actual retirement. What will you actually do with your time?
What will you do with all of that time?
A mistake many people make is to assume that retiring early will be the answer to all of their problems.
That their stresses will disappear… that all will be right in the world.
Retire to something
Harry Emerson Fosdick said “Don’t simply retire from something; have something to retire to.”. This is something I completely relate to. After much thought about my plans for financial independence I knew my plan wasn’t just to stop.
It was to do something else. To do something better.
To do something useful… and fun.
What is your goal in retirement?
My aim is to retire (or gain financial independence) in ten years. But I know that on the way there will be some big challenges and struggles to achieve my dream. There will be things I’d like to do that I will have to say no to. Or things that I will have to do that knock me slightly off my target. As soon as that happens it so easy to get discouraged and give up, or simply never make the progress you need to to retire early.
Therefore the first question you need to ask yourself is “Why do I want financial independence?”
- Is it to just get out of the daily grind of life and have financial freedom to live how you want to?
- Do you want to go on loads of holidays throughout the year and never work again? Maybe a trip to Amsterdam (see picture to the right)
- Do you want to leave where you live and move to your favourite coastal town?
- Or do you want to just be free to do something different? To do things that can really help others around you.
There is no right or wrong answer here. This is about what your plans are.
What is the whole point of you wanting to have financial independence?
You will also need to regularly assess what you want to retire to (not from). Partly this is because our circumstances will change. What was a great idea today might not be so wise in ten years time. Maybe that Llama farm in Peru at the bottom of Machu Picchu won’t be such a money spinner if access to the ancient city is limited, and tourism drops*?
Or maybe you’ve just realised you want something very different from your financial independence. As you approach your final day in the office you realise, work isn’t that bad. You realise you want to do something other than just relaxing and improving your crossword completion ratio.
* Why does no one think of the llamas?
What was my goal?
You can find out a bit more about why I decided to start my journey to early retirement in my first post The penny dropped – when I realised I needed to retire early! I also explain why I started this early retirement blog in the about page.
Once I started to look around I found lots of people where looking to gain financial freedom as soon as possible. The FIRE movement (Financial Independence Retire Early) was something I’d never heard of before. And yet interestingly I stumbled upon it in my own head when working out what I wanted from my life.
Why will this help me gain financial freedom?
Knowing why you want early retirement now will help you know how much you need saved when you are financially independent.
Knowing what we want from our “retirement” is vital to help us work out how much we need to have saved. If your retirement expenses will be relatively frugal you can plan around that. If you could live off $40k/£30k then you can start to plan around that.
But if you plan on buying a second home… and going on regular cruises… you’re going to need a lot more.
Either way you can only work how much you need if you know what you’re likely to spend. And don’t forget this should include covering for contingencies.
Knowing why you want early retirement now will help keep you motivated over the coming years.
But more than that it will help motivate us when we start to struggle. It’s really difficult to get anywhere if you don’t have a clear idea of where you are going and why you want to get there.
When we are motivated we have more energy.
- We can push through more walls.
- We can dust ourselves down when we’ve taken a battering.
In many ways this should be one of the easiest steps to take, it is certainly easier than trying to start saving 50% of your income!
As we noted earlier though, you may well find your desires and goals change over time. I know mine continually shift. So knowing why you want an early retirement now is not a one-off step.
- What would you change if your side business was flourishing faster than you expected?
- Or if it wasn’t earning anywhere near as much as you hoped/needed? What would change then in your outlook?
This may be a comparatively easy first step. But it is a vital one if you want to keep on track and successfully retire early. So don’t wait until you hand in your resignation at work…
Know why you want your early retirement now.
But knowing why you want to retire early… that’s just one step. That won’t guarantee you success.
Will knowing your goal be enough?
If you asked 10 athletes that were about to start a 100m race what their goal was, what would it be? To win. Yet only one runner will win. The others will miss their goal.
And some of you that have read this will not achieve your dream of early retirement. Maybe your efforts will wane after a couple of months/years. Or you just can’t break your spending habits, and so never save enough. Or perhaps something out of your control changes that just makes it impossible. Who knows, I could be one of those people…
So we need to stack everything in our favour as much as possible. The rest of the five steps will do exactly that
The next step for us is to know how much much money you need to be able to be able reach financial independence and have the option of retiring early..