Tuesday, 7 July 2020

6 Mistakes When Saving Money For Early Retirement

Who in the world wants to have to work until they are 70 plus years old? If you even make it to that point because you will probably be forced out of your job away before you hit that age. Over the past few years, I have made it a point to talk to people who are 20 or 30 plus years older than me to learn more about the things that they fear at their current age. And wow, wow, wow, did I get freaked out about what they were saying. One of the things that kept coming up is how they are extremely concerned about their employer, finding a way to remove them from the company to bring in younger, cheaper workers. Now to someone like me who's younger that sort of thing never crossed my mind but it totally makes sense. If this does not concern you now, then maybe it should. 

This is even more of a reason to pursue financial independence, well before the age of 70. That way, worrying about being forced out of your job isn't even something that crosses your mind but I bet there are things we are doing today that will prevent you from reaching financial independence or early retirement sooner rather than later. In an effort to help you make things easier on yourself, I am going to go through some ways that you could be sabotaging yourself, from ever reaching FI. My hope is that if I can get you thinking about these things now, you are going to be way better off going forward.

Financial independence is not just about giving you more time to do what you want, it is also about protecting yourself from outside influences, things that are outside of your control. You can keep pushing off thinking about what might happen in the future but I promise you, it's not going to stop coming. This should scare the out of you. 

Let's get into it right now. 

1. If You Watch The News

The first thing that will surely hold you back from reaching financial independence, is if your actions are based on what the news is saying. The news cycle is absolutely insane. When the stock market is up, we get flooded with news about how it's at an all-time high so the next month Market Crash is coming, you should be so scared. On the other hand, when it's down, news starts flooding in about how it's going down even further or that it's definitely going to go up so invest your money right now. I am confident you are a very intelligent person so I know that you are aware of this. But all it takes is one of those little seeds to get planted into your head about how the stock market is going down. Then you are either going to invest your money or you panic sell all of your investments. Look, the stock market is more emotional than a teenage girl in the short-term. 

  • If you are only focused on what the market is doing today, next month, next year or in three years, then you've already lost. Investing for financial independence takes someone to have a very long-term outlook when it comes to everything. It's about thinking how your actions today are going to impact your life later down the line. The fact that your portfolio is up 25%, over the past two years does not matter. Tell me what it looks like over a 10 or 20 year period. 

I like to compare financial independence to the L, word, love. Anyone part of the FI movement should be pursuing a long-term relationship, not a one night stand. I mean, I guess technically you could fall in love with a one night stand but it's a lot less likely. Quit watching the news and quit taking action based on what the news is saying. We have to remember that news outlets are incentivized by the eyeballs that they attract, the more eyeballs, the more advertising dollars that they receive, and what gets clicks and eyeballs? Bad news dominates the media, like nothing else. Yeah, sure, we love hearing a story about how a little girl saved the dog in a tree but we are more likely to gravitate towards news on how the world is on fire. 

I don't care about what websites are saying about the US government and how much they like peaches. I don't care about that book by Dr. Seuss, called "Brexit" and I sure don't care about the US and Chinese governments, putting bands on trading Pokemon cards. None of these things are going to stop me from investing on a consistent basis, nor are they going to make me want to sell all of my investments. 

2. You Don't Have A Plan

The next mistake that I see people make is that they think they are going to achieve something without any sort of plan. Sorry to break it to you people a vision board and reading that book, the Secret does not count as a plan. A guy I know was into that stuff and unfortunately, he's still not very close to achieving or I should say, manifesting his vision board. Listen up, your plan might not play out exactly how you thought and that is perfectly fine but at least you have some idea of what you are going to do. Things are going to change as time goes on and you will decide to adjust that plan which is perfectly normal. Kids will change the plan, getting married will change the plan and heck, for those millennials moving out of your mom's basement is definitely going to change your plan. Yes, I'm talking to you, my fellow millennials. 

Plan For Accumulation Phase

The first thing you need to have a plan to reach financial independence or early retirement is the accumulation phase of the process. This part is huge because it is going to help you gauge how quickly you will be able to hit your number. It's like digging a hole. The bigger shovel that you have, the more dirt you can scoop up at once. If you were only able to invest $500 in your 401k or IRA, then it is going to take you 38 years to hit that $1 million mark but if you quadruple that to invest $2,000 per month, then you will reach a million dollars in 21 years. Accumulating more money in this phase can be done in many different ways. Some of the more popular are making more money at your current job, getting a second or possibly a third job for the people who have the time and are not lazy. Starting a side hustle to make some extra cash or starting a side hustle that you intend to turn into a full-time business. 

Plan For Withdraw Phase

When are you going to need the money? How much are you going to need every single year to live off of? Answering these questions will help you decide what to do with your money in your accumulation phase. Once you have the money, you need to do something with it that will give it a chance to grow. You need to choose your investment vehicle or vehicles. One person might want to invest all of their money into the stock market, another might be investing in real estate, another could be starting a business that pays them a consistent income once they hit FI or someone could be doing a combination of all three. Once you choose how you will invest, you will be able to figure out the details of how you are going to get that money into your bank account every month. 

Post FI Plan

The last thing you need to think about when planning is what in the world are you going to do once you reach financial independence? You spent all of these years and countless hours pursuing this and now you are there so what is the plan? I know it sounds silly for you to even have to think about this but if you don't, then you will eventually end up feeling lost and depressed. Because work, whether you enjoy it or not, gives you a sense of purpose. Once that thing is gone, it'will free up a lot more time. 

What are you going to do to fill that time? And don't say just sit around and watch TV because that's not a fun life to lead. It could be some sort of volunteering or working out a lower-paying job just for fun or possibly even putting energy into a hobby that you've never had time for because your job was taking up so much of it. This part of the planning does not have to be at the top of your list of things to figure out as soon as possible because you will have time to think through it while you are in the process of pursuing financial independence. But it is something that you won't wanna push off until the very end. 

3. You Can't Procrastination

Procrastination is going to be your downfall. If you are pursuing FI, then you can't be someone that says that they will worry about it later. Now has to be your new normal, you can get away with not doing laundry until it piles up and you have nothing to wear because the washer and dryer are right in the other room. So you can just do a quick load at the last minute. The solution to your problem can be reached in a matter of hours. 

But what about if you procrastinate, getting your finances in order to help you reach financial independence or early retirement? You will be screwed. You need to figure out how to increase your savings rate now. You need to understand investing your money now, you need to start working towards, earning more money right now. I am being facetious when I say to do all of these things right now because it's a little bit overwhelming. I agree, but you should at least start the process of tackling them one at a time. Finances are one of those funny things where if you keep putting it off and putting it off, then everything becomes more difficult to do. Don't believe me, talk to those 55-year-olds who have $75,000 of consumer debt or talk to those 55-year-olds who only have $20,000 saved for retirement. They have a really hard road ahead of them. 

Always remember that the cost of our good habits is in the present. The cost of our bad habits is in the future. You did not get fat by drinking three sodas yesterday, you got fat from drinking three sodas every single day, for the past three years, just like a 60-year-old, did not miss his chance of becoming financially independent because he did not focus on it yesterday. He missed the opportunity because he didn't take the steps to pursue FI and do smart things with his money over the past 30 years.

4. Not Willing To Pursue More Money

If you are not willing to pursue making more money, then have fun retiring when you are 70 years old. Hope that works out for you. Achieving FI in a timely manner means increasing your income. Making money has to be your new hobby. Going out and getting hammered every weekend with your buddies or girlfriends, is not something you can do any longer. It can be from time to time but it's now going to be considered the exception as opposed to the rule for you. To pursue more money, you need to start thinking through the lens of a creator as opposed to a consumer. 

Consumers think about buying the iPhone or how they can buy the iPhone. Creators on the other hand and think about how they can take that money that would be spent on an iPhone and turn it into more money or take a small portion of that money buy an iPhone that's a couple generations old, then use the remaining money to invest it in something that will give them a return. Bonus points, if they use that iPhone to make more money.

5. You Are Afraid To Live Differently

You will never reach financial independence if you are not willing to do things differently. There is no way around it. If you are not willing to go against the grain on your path to FI then this just is not the life for you and that's okay. But in 20 years, you cannot whine about your financial situation or the fact that you are still working because you decided not to do things differently and live outside of the box today. The person who plans to retire on time or even later has settled in their current ways.

6. Your Mindset Is Trash

If your mindset is trash with a capital T then your FI results will be trash as well. The way you think about the things that happen in your life is everything. You can either take them at face value or put them through a filter that you've created for yourself. This filter is going to give you a chance to reframe the whole situation to help you process what's really going on. The unfiltered person thinks about how life is happening to them. 

The person who has created a filter for him or herself thinks about how life is happening for them. Here's an example, an unfiltered person would say, "I have a ton of debt and a negative net worth, "I won't be able "to reach financial independence for 20 years. "Why even bother pursuing it?" The filter person would say, "Dude, I'm going to be FI in 20 years, I will be 55 years old." That's 12 years sooner than the average person. Or I won't be able to reach financial independence for another 20 years when I am 55. What are some things that I can do to get there in 15 years? What can I do to get there in 10 years? Okay, I am going to take action to do that right now. 

Just like my grandpa always said, F your excuses because no one cares, so do something to change your outcome. 


Those are my 6 mistakes when saving money for retirement. Hopefully, you got some value from it.

No comments:

Post a comment