Many people have a countdown to the official retirement age of 65 — or whatever age you might be targeting. However, many of us are looking for ways to retire even earlier. Here are a few good ways to reduce your spending in such a way that you can knock a few years off your expected retirement age.
The golden rule for accumulating wealth is to ‘spend less, save more,’ notes David Ning, who runs a personal finance blog.
“In the heat of the moment, you don’t think too much about the impact of a seemingly small purchase,” he writes for U.S. News. “But how much are you really giving up when you give in to small purchases?”
Here are a few of his reasons to spend less now so you can achieve your goal of retiring a little earlier.
1. Cut back on unnecessary spending, work fewer years
That $5 for Starbucks or $10 for a movie ticket may not seem like a lot. But if you’re consistently buying pricey coffees when you could make some at home for a fraction of the cost, or seeing a movie right when it comes out rather than waiting for it to come out on Redbox for $1, you could save a lot of money in the long run.
That’s not to say you can never treat yourself—an occasional Starbucks afternoon pick-me-up or blockbuster movie that you just can’t wait for are totally fine. But rather than making specialty coffees a daily habit, look for ways to cut out unnecessary spending.
In Ning’s example, that $5-a-day coffee habit adds up to $1,825 a year, and $54,750 over a 30-year career. For someone who makes $50,000-$55,000 a year, that translates to an additional year he or she would need to work just to fund that that one area of discretionary spending. People who have multiple unnecessary expenses—an expensive hobby, maybe, or a penchant for designer clothes—have to work even longer to afford those items.
If you eliminate or greatly reduce those expenses, you’re looking at being able to retire a year (or more!) early.
2. The less you spend, the more you can invest
This one’s pretty simple: spending less gives you more room in your budget to allot toward saving and investing.
“Saving just $5 per day in a 401(k) will grow to $178,856 over 30 years, assuming 7 percent annual returns,” writes Ning for U.S. News.
In other words, diverting the cash you used to spend on coffee each day into your retirement portfolio could net you the big bucks over the long-term—enabling you to retire a few years early.
3. Living on less now allows you to save less for retirement
A top financial concern among Americans is whether they’ll be able to maintain their current, comfortable standard of living in retirement, according to Gallup’s annual Economy and Personal Finance poll.
One way to assuage that fear, according to Ning, is to learn to live on a smaller budget while you’re still working.
“If you learn to live on $40,000 a year, even if you earn much more than that, you only need to save up enough to cover the $40,000 per year in retirement, not enough to replace your current salary,” says Ning. “In fact, living on $40,000 per year, working hard to earn more than that and saving the difference is one of the fastest ways to retire early.”
Are you still figuring out when you’ll be able to retire? Use our automated online retirement calculator to get a personalized, secure assessment of your retirement situation.
