Expert Interview with My Money Design on Tips for Retiring Early for NewRetirement.com
If there’s one conventional idea about retirement that the anonymous personal finance blogger behind My Money Design wishes people would re-examine, it’s that they don’t have to wait until they’re 59 ½ to retire.
“There are plenty of other ways you could retire early and bridge the gap between now and then,” he says, adding that you could build up a regular brokerage account, take out a 72t, or take advantage of any number of passive income opportunities.
MMD recently checked in with us to share his money management philosophy, offer ideas for passive income and share smart steps everyone can take to retire early. Read on:
Tell us about My Money Design…when and why did you start your site?
MyMoneyDesign.com is the website I started back in the summer of 2011. The idea behind it is that there are millions of ways to save and get rich – so how do you want to do it? That’s what we call a “money design.” It’s all about the things you do to build your wealth and find financial freedom.
I became really inspired to start blogging after I stumbled upon the book ProBlogger while looking for some good reads about how to make money. I was really taken back by this whole idea that writing and running a blog could actually lead to real money in the bank.
As it turns out, it was true! You really can make a decent amount of side income using the Internet.
How do you approach money management for your own life…what kind of goals have you set? How have you worked toward them?
Everything my wife and I do with our money must first answer the question: Is this helping us get closer to reaching financial freedom?
Now, as extreme as that may sound, we actually live pretty reasonable and modest lives. We buy what we want to and simply try not to indulge too much. Every year we set a healthy budget for ourselves and work to stay within it.
The goal of our budget is to help us save for our ultimate goal of early retirement. You can see the entire details of our plan for financial freedom here.
What is passive income, and what are some of your favorite passive income options?
Passive income is the money you make without being directly involved with the day-to-day process. Any time you’re making money while you work, sleep, relax or whatever it is that is not directly related to the activity that is producing revenue, that’s passive income.
I love this idea of passive income so much that I actually wrote an entire website about it called GreatPassiveIncomeIdeas.com. The site goes into great detail about different ideas for how everyday folks like you and me could make decent money on the side.
One should never interpret passive income to mean no work whatsoever. Every income-generating activity you ever do will always require some amount of work in the beginning. But over time these activities can be cultivated to the point where they make money all on their own in auto-pilot with very little maintenance from you.
Blogging is of course one of my favorite passive income ventures. From the advertisements and affiliate relationships I have, I’m able to do very little with the websites I run and still produce some very handsome side income. If you’re interested in starting your own blog, I’ve got a phenomenal tutorial here that covers everything from coming up with the website name to marketing it on the web.
Dividend stocks are another one of my favorite passive income streams. A high-quality dividend stock will pay you quarterly payments just for simply being the owner of that stock – no other involvement from you is needed.
What passive income opportunities would you recommend people avoid?
Avoid schemes where you have to pay a lot of money up front for nothing more than hope and promises. I’ve heard of a lot of get-rich-quick conferences and multi-level marketing programs where the only people getting rich are the people hosting the events. Almost everything you need to either learn about investing or start your own side business can be found on the Internet for free or for very low cost in an eBook on Amazon. When it comes to your money, it’s OK to be skeptical!
What is your definition of financial freedom? Why is it important to you to strive for financial freedom?
Financial freedom to me means rising above the need to labor for your money. It’s the point where your assets become all you ever need to support your lifestyle and you can simply live off of the income they generate.
There are many reasons why someone would want to achieve financial freedom. But I think the most important reason by far is so they don’t have to live in fear. All too often people live in fear of losing their jobs, losing their homes and no longer being able to support their families. By focusing on creating your own income rather than constantly living paycheck to paycheck, you take the power back in your hands.
What steps should we take now for early retirement? What are good habits to develop in order to reach this goal?
Honestly, my best advice for anyone looking to achieve early retirement is to:
1. Max out your retirement savings every year. The sooner you can start maxing out your 401(k), IRA, and any other investment account you can get your hands on, the more time you’ll be giving compound interest to work its magic and build up more wealth than you can imagine. As a matter of fact, I’m such an advocate of saving vigorously for retirement that I created an entire website on the subject called IRA vs. 401k Central.
2. Figure out how you can live off of less. Learning to live off of less is just smart strategy if you really want to make your early retirement work. It sure is a lot easier to save $500,000 dollars then it is to save $1 million. So if you could figure out how to live off an income from a savings of $500K, then it will take you a lot less time to get there. By the way, if you’re interested in finding out how one could make a retirement with $500K work, check out my post here.
What are some of your favorite unconventional or under-the-radar methods for saving for retirement?
The SEP IRA.
I just found out last year that I qualified for a SEP IRA, meaning that I got to save a significant portion of my blogging income in a totally separate IRA from my regular Roth IRA and 401(k). That’s a LOT of tax-advantaged saving!
The good news is that if you make any kind of side income yourself, you could potentially be doing the same thing.
What personal finance books, blogs or sites have had the biggest impact on how you view money?
I’ve always felt that Rich Dad Poor Dad was a very influential book for me. The 4 Hour Workweek was another one that really challenged my ideas of what passive income and early retirement really are (or could be). Your Money Ratios is one of my favorite books to recommend for anyone just starting out learning about money. As I already mentioned, ProBlogger was very a encouraging read for me when I first getting started blogging.
What are the biggest personal finance headlines that people aiming for financial independence should be paying attention to?
Headlines about saving money or starting a 401(k) are good, but they can start to become old news once you’ve been at it for a while.
Do you want to know what I pay attention to the most? Taxes.
Knowing how our tax system works and how to leverage the laws will be some of the most useful facts you’ll ever learn when it come to money. I once wrote a post where I challenged myself to come up with a strategy for how to live a completely tax-free retirement while still taking in over $100K in income – and I was successful at it, too!
Sometimes simply knowing the rules to the game is half the battle to playing it well.
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