Expense are to high
This is main problem which will affect your early retirement plan. If you spend too much you can save only peanuts, which will be not enough for your retirement. The best thing is to calculate how much you have to save every month to create financial pillow for you.
Easy way how to calculated is showed here.
Let’s consider you want to have retirement income equal to 70% for you current salary (exact number please change by yourself) and we will use 4% rule for retirement plan. So your model would look like this. Current income x 0.7 x 12 x 25. For example $4,000 x 0.7 x 12 x 25 = You should be ready to save $840,000. If you will save only 30% of your salary it will take you 19.3 years to save this amount (we calculated with 10% investment rate). This doesn’t sounds nice, right?
Here are next options:
Save 40% of salary: 16.8 years
Save 50% of salary: 15.0 years
Save 60% of salary: 13.5 years
Save 70% of salary: 12.5 years
I expected no saved money from past for this calculation.
But let me expect you are long time financial responsible and you have some savings already.
Let me consider you have $100.000 on your account already. The situation for early retirement plan is much different than.
Here are next options:
Save 30% of salary: 14.3 years
Save 40% of salary: 12.8 years
Save 50% of salary: 11.7 years
Save 60% of salary: 10.5 years
Save 70% of salary: 10.0 years
As you can see there is huge difference if your SAVING percentage is low and you have no savings.
So main point of this is “Save as much as you can, the more it hurts no, the sooner you can retire and enjoy”. Target is to be higher than 60% in case of savings.
I created overview for early retirement plan where you can check your situation based on your data (Your inputs for calculation are income, retirement income plan, investment return, saving rate and other money). You can download this overview here.
Make no financial overview
Again this is problem that many people do. If you do not track your finance, how can you check your saving rate? Is it 10%, 20% or 60%? I followed my every spending for more than two years. Every single transaction. I made categories as Food, Petrol, Car, Clothes, Rent, Phone, Internet and some others.
Of course this is extreme, but it helped me to understand for what I spend my money and where I can save. Now I do just monthly overview. It means I check all my accounts at beginning of month and compare it with end of month.
This is much more simple way and I recommend to you if you already know what are unnecessary expense. By this you can simply check if you save more than 60% of your income or if you need some improvements. On the other hand if you never tracked you finance I recommend to you detail check of every transaction to understand where you can save some money. At least for 1-2 months.
So if you don’t make your financial overview you should start to make one just now.
Love to eat outside too much
You would be surprised how much you can save if you reduce restaurant’s visits. Making food home can be fun, if you do it with right people. Nobody is saying that you should never more go out. But you should consider about changing plans and eat & drink at home or parks or beach (you have many options) and there is huge saving potential.
Try to think about new place by yourself and check internet for some inspiration. For example we love to go to park after my work is done and have dinner over there, or sometimes we take our breakfast and visit our parents to have breakfast with them.
There is no limit and you will see difference in you pocket soon.
Compare yourself with others too much
Did you ever think about things what makes you really feel good? Is it your iPhone? New flat TV? Bigger house? New car?
Or course these things will make you feel better for some time, but soon you will feel different. After 1-2 month you already know those things well and the effect of new things is disappearing. Many times we buy something what we really don’t need just for our image.
We want to successful, modern, and rich (or at least we want other people to think this about us). For this reason we buy things we don’t need. I ask you for one thing.
Ask yourself what benefit will bring you every new ting you plan to buy. We waste so much money now and our retirement plan is far by every new thing we buy. Don’t care what other people think about you. You can keep your car for 10 years and buy the new one, when your early retirement time will come.
Do wrong job
Unfortunately I know many people who have low salary job and they have no will to change their job. You have to understand that we all have only one life and there is no reason for you to stay at low salary position. Somebody else can take this bad job instead you (most probably somebody who will never read this article).
You have only few years remaining in work and you have to earn as much as possible now. Otherwise your 10 Year For Retirement plan can be 15 or 20 years plan. Honestly speaking I don’t believe that most important is when you like your job.