How to Retire By 40

Retirement planning can be tricky, but I want to start out by saying it’s entirely possible to have enough money to retire early. You don’t need to win the lottery or have a big inheritance or anything like that. You just have to be smart and disciplined with your money.

1. Live Below Your Means (For a Little While)

The first step you can take on the path to early retirement is living below your means.

It’s not enough to budget your money so that you’re not spending more than you’re making. You should take it a step further and spend below what you’re making. No matter if you’re currently living comfortably or have managed to increase your income, always buffer your budget. Live as if you’re not making that amount.

I worked in the Grand Canyon making $4,000 a year. At the time, what I had going for me was that I could live out of a duffel bag on that income, so it was pretty easy for me to just keep the belt tight and save money.

Keeping your belt tight means analyzing your income and expenses, then reducing your spending. Ask yourself, “What am I spending money on that isn’t essential?” And start making your cuts there.

Of course, when your spending goes down, your savings will go up. It’s best to first use that “surplus” money to pay off your debt. Debt is a significant burden and can prevent you from achieving your financial dreams. Interest on bad debt, like credit cards, is stealing your money from you.

The sooner you pay it off, the more you can save for an early retirement.

2. Start Saving as Early as You Can

That brings me to my next point — you should start saving early. The earlier you start, the more opportunities you have to grow your money. Every dollar you can get into that retirement account now is going ot make a huge difference for you down the road.

You don’t even have to start off putting away big amounts of money. If you have to, start small as long as you start NOW. Choose an amount of money to set aside that is comfortable for you, even it’s five dollars.

Then as you get more comfortable and you start getting more money from reducing your spend and paying off your debt, start to increase that amount.

In Rule #1 Investing, every little thing counts and will only grow if you continue to work at it.

3. Learn How to Invest

Lastly, learn how to invest. You don’t have to be a genius investor to be able to retire early, you just need to find a few wonderful businesses that can generate great returns for you. Most people think they can’t do it, but that’s all about fear and not knowing where to start.

If you’re already investing, you’re on the right track. However, if you have a financial advisor, you’re probably not making the returns that you could be making. The key to retiring early isn’t just about saving earlier, it’s about putting your money into investments that maximize its growth. You can start investing your money properly and taking advantage of your investment accounts, making 15% returns with Rule #1.

I have had many students who have doubled and tripled their retirement fund and actually retire early simply from using the Rule #1 strategy.

Now I’d love to hear from you. When would you like to retire? I teach a weekly webinar where I’ll teach you how to invest if you’re ready to learn.

identicon
Phil Town is an investment advisor, hedge fund manager, two-time NY Times best-selling author, ex-Grand Canyon river guide and a former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence. You can follow him on google+, facebook, and twitter.
  • Dave X

    Hey Phil and Rule #1 Investors,
    I have a lot of credit card debt and was wondering what you think about using one of these credit debt resolution agencies to resolve a portion of my debt. I am not sure how this works. I would not be concerned too much about a few points temporarily being shaved from my FICO score to reduce some of my debt owed. Does anyone have any experience with using one of these agencies? (i.e. National Credit Relief, Freedom Debt Relief, etc). I think my problem, which is not really a problem, is that I always pay my bills on time, so I am rarely ever late. I just need to stop using credit to pay for things. I’m sure that I am not the only one with this problem.
    Thanks Guys,
    Dave