The traditional path to retirement is fairly simple, you start working in your early 20s and put money into a retirement plan consistently and retire around 65. That’s how it has been for decades, although in recent years, many have found that they need to keep working into their late 60s and even their 70s because they didn’t save enough money for retirement.
Some people are deciding to retire much sooner. By aggressively saving as much as possible, people have built accounts with enough money that they can live on the interest they earn. Some have even retired in their 30s. Even if you don’t retire that young, you could retire much sooner if you cut back on the right expenses.
Key Expenses to Cut
Your Home
Housing is by the biggest expense for the average household in the United States and it’s an area where you can save quite a bit of money, if you’re willing to make sacrifices.
The recommended guideline is that you should pay 30 percent or less of what you make, before taxes on rent or your mortgage payment. It’s in your best interest to keep this as low as possible, within reason. Early retirement isn’t worth becoming homeless or sharing a room with four other people.
As far as saving money on your home, there are two things to keep in mind. Get a home that’s big enough (but not more than you need) and choose a home in an affordable neighborhood. It’s nice to have a large home or a place in the hottest neighborhood in town, but you’ll pay an unnecessary premium.
If you’re currently renting an expensive place, try looking around for smaller homes or a home in a more affordable neighborhood that’s safe. Consider selling your home to find a cheaper place or rent out part of your home to bring in extra money every month.
Transportation Costs
The most common transportation expenses are car payments, auto insurance and gas. Depending on where you live and work, you could also have to pay for parking. Transportation is another area where it’s tempting to get more than you need. You could find yourself eyeing that new luxury sedan when a used car would suit your needs just fine.
The best approach with cars is to keep yours for as long as you can and get the most life out of it. When you need a new car, look for a reliable used vehicle that gets good mileage. Find a car that you can pay for it upfront and avoid a car payment. Remember you don’t need to buy a new car to get a vehicle that runs well. Used cars cost less are cheaper to insure.
If you want to really cut your transportation costs, switch to public transportation. Most major cities offer adequate public transportation and you can also get around by bike. You’ll be glad to no longer pay all the costs that come with owning a car.
Food and Dining
Food is another significant expense for most households. Luckily, this expense is easy to reduce with simple lifestyle changes. Finding a new home and getting rid of your car are both big commitments however; you can spend less on food without turning your whole life upside-down.
The first way to save on food costs is to stop going out for meals and drinks, or keep it to a minimum. You pay a huge markup whenever you go to a restaurant or a bar. It’s great if you can avoid going out entirely, but if not, try to cut back from going out every weekend to only going out once per month. Find other activities to do with friends and family that don’t cost much. For example, instead of meeting friends for happy hour, suggest going for a hike or having a game night.
Another way to save on food costs is by finding low-cost meals that you can make in bulk. This will provide enough food for several meals and separate it into individual portions. You will save money because you won’t need to buy lunches and dinners, since you have everything premade. You will also save time because you will be preparing meals less often.
The Key to Early Retirement
There are many ways that you can spend less money and put away more each month, but it all boils down to making sacrifices. If you want to retire early, resist the desire to spend money on things that will gratify you in the short term, instead focus on your long-term goals.
The reality is that most Americans can live on far less than they spend. Even in expensive cities, there are plenty of low-income residents who find ways to get by. There’s always the temptation to spend more simply because you have the money. If you lead a frugal life even when you have plenty of disposable income, you’ll save more and start building a nest egg.
