The ever-changing theories about how much money is enough to last throughout retirement can make preparation overwhelming. Retirement may also be decades away, and most people shut out thoughts of planning and don't start saving until they are within sight of retirement. Of course, the irony is the sooner you start on the right path, the less work you need to do in order to accumulate enough money. Here is a list of what you can do now that will help you to reach financial independence sooner:
Get a retirement plan together. Don't wait until you have done extensive calculations before you start saving, because retirement planning is filled with assumptions and general rules of thumb. Start with an overview if you have to, and tweak the details as you go. Determine how much income you will need, and set up a saving and investment strategy that will take you there. By establishing set rules while you are calm and collected, it will help remind you why you are saving when times are stressed and also gives you guidance when markets are volatile.
Start tracking your expenses. If you don't already know how much you spend regularly, create an accurate picture of where your money is going. Once you understand how much your current standard of living costs, you will be able to predict how much retirement is going to cost much more easily. Armed with this new information, you will no longer need to guess how much you need to save. For some people this will be a huge wake up call because they are behind in saving for retirement. Others will find comfort in knowing that they're on track. A select few investors may even find that their disciplined approach will allow them to retire early. But if you don’t know where your money is going, there’s no way to know if you are on track for retirement.
Think of what really makes you happy. And stop spending money on what doesn't. Try to optimize your spending to make you happier. Few people will find that every dollar they are spending helps to increase their happiness. And even those people may find that shifting some money into other areas of life is a simple way to up their joy factor without spending more.
Since I started looking at my expenses more closely, I've continually called my Internet provider to get better promotional deals, canceled my cable TV and started riding a bike more instead of driving. The extra few hundred dollars that I'm saving every month is going toward savings for my future self, but it could just as easily have gone into an entertainment fund that I could spend freely. And the extra energy that I now have because I exercise more during the bike rides, I consider that a freebie.
Get a grip on the best way to invest your financial assets. I'm glad more people are coming around to the beauty of passive investing. It's not that I don't think active investing works, because many people outperform the market. But the odds of finding someone who can help you outperform the market is slim to none, and the chances of being the person who can beat the market is even slimmer. And the worst part of going the active route is that even if your portfolio is outperforming, the outperformance is small once you factor in the extra tax costs and all the extra time and stress of managing such a portfolio.
Make it a point to be happy now. One of the most effective ways of feeling miserable is to continually believe life will be better in the future once you reach a certain milestone. Thinking you will suddenly be happy when you get a promotion or nicer house just doesn't work. The future is important. After all, preparing for retirement is about the days to come. But the present is critical too. Commit yourself to living a happy and fulfilling life today, and you'll easily carry that comfort well into retirement.
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