So your financial autonomy goal is to retire early. For some that might mean retiring at age 35 and for others age 58. Often, especially for those looking to retire at the younger end of the spectrum, it will mean ceasing their current role, but still engaging in some income producing activities. So retiring early looks different for each of us.
We usually talk about what you should do to achieve your financial autonomy goal, but today I thought I’d flip it and instead look at what you should avoid.
Want to ensure your early retirement plans never come to fruition? A good place to start would be to have no handle on your cash flow. Achieving any sort of retirement goal is a dollars and cents equation. If you boil it down, you need to solve how you will have enough money to meet your living costs. Now if you don’t know what your living costs are, how can you possibly know whether retirement is possible, how much you need to save, and whether you have enough saved to last the rest of your life?
So to ensure failure, don’t have a budget, and don’t in any way monitor what you spend.
Next, since you aren’t paying any attention to what you spend, just put it all on the credit card. It’s easier now than ever before, just tap and go. Come on, you need those purple Converse runners. And why have last night’s left overs for lunch when you could have a burger bigger than your head, with fries on the side? Just keep slapping that credit card down and if the bank that gave it to you starts making life difficult by asking you to actually pay it off, well just go to the next bank and ask for another card – what could go wrong?
If only it was as easy to pay off a credit card as it was to build up a credit card debt!
The next thing you could do to help ensure your early retirement dream never becomes a reality is to not save. Spend every cent you earn. Saving? Isn’t that something my grandparents did?
So don’t put aside money in a bills account. Don’t put money aside for emergencies or a holiday. And certainly don’t even think about building up enough money to make any investments.
Which leads nicely into number 4 on the list of the worst things you can do to prepare for retiring early – don’t invest.
Compounding? That’s got something to do with chocolate hasn’t it? What a foolish idea it would be to have your money actually earn new money without you having to even get out of bed.
But let’s say you’ve overcome this mental barrier. The next thing you can do to help torpedo your chances of early retirement success would be to invest too conservatively. Just leave all of your savings in the bank, or maybe you really stretch yourself and take it up a notch with a term deposit.
To illustrate just how bad a decision that would be, if you had $20,000 saved and you left it in the bank at call earning 1.5% interest – which is actually a pretty good rate on at call money at the moment – in 20 years that $20,000 would grow to $26,937.
If instead you used that $20,000 to purchase a growth investment such as an exchange traded fund or managed fund, and it earned 8% per year, your $20,000 would become $93,219. So your decision to “play it safe”, cost you over $66,000.
Armed with this knowledge then another good way to lock in early retirement failure is to ignore your superannuation. Now it may be that in your mind super has nothing to do with early retirement because you can’t access it until you’re old anyway. If you think that way I can only assume you’re planning on dying before age 60. Because if your hope is to live long and prosper, then Australia’s superannuation system is too generous to ignore. Zero tax on earnings and drawings, plus enormous flexibility as to how much you take out, when you take it out, and how your savings are invested.
If you need convincing, click on the image below and download the Early Retirement for Australians – the multi-phase solution white paper that we’ve produced that maps out how superannuation fits into a viable early retirement plan.
An important part of ignoring your super relates back to investing too conservatively. If damaging your long term financial future is your aim, consider your time frame until age 60, and particularly if it’s more than 7 or 8 years away, don’t put it in the High Growth or Aggressive investment options. Who wants those extra returns anyway?
Having said that ignoring your super is a mistake, an alternate approach to sabotaging your financial well-being is to check your account balances every day or two. Even once a month is likely too frequent. This is because investment markets are volatile day to day, something often referred to as “noise”, like that static on a radio when it’s not quite on the channel. If you’re checking your balance too frequently you can get caught up in that noise and make knee jerk decisions that are not in your best interests in the long term. Most often this translates to selling investments when markets are down and buying only when markets are up – the exact opposite of what a sensible person would hope for.
The next thing you could do to help you never achieve early retirement is spend hours reading FIRE forums. For the uninitiated, the FIRE acronym stands for Financial Independence Retire Early. It’s an American idea and many Australians follow it too. The idea of FIRE is great and certainly aligns with what we’re exploring here at Financial Autonomy. But these forums can be like stepping into an alternate universe.
Now don’t get me wrong, self education is a good thing, and these forums can provide some good ideas. But realistically, spend an hour reading one and you’ve got all you need. It’s just the same story on repeat, with one person simply echoing another with perhaps the only differentiator being that the next person takes it a little more to the extreme – what retire at 30, no way! I’m retiring at 24 years of age. $20,000 per year of income is all I’ll ever need – yeah right! The other problem is that a lot of the discussion is US specific, and their retirement system is very different to ours, plus housing costs vary really widely.
On the home stretch now, the 9th worst thing you can do to prepare for retiring early has nothing to do with money. If your dream upon reaching early retirement is to sit in your lounge room and look at the wall, then certainly what you want to in the lead up to retiring early is to have absolutely no hobbies or interests outside of your paid employment. When people ask you about yourself, you explain you’re a CIRUS technical expert, or whatever it is that you do to earn a dollar, and the conversation is complete. There’s nothing else in your life.
And along very similar lines, the final thing you could do to ensure your early retirement is a disaster is to focus so much on retiring as early as possible, that you ignore your important relationships. It’s no good saying I’m going to work 6 and a half days a week for the next 7 years so that I can then retire, if during that 7 years your kids grow up without you, or your partner divorces you. Maybe both! You need some balance. Your children only grow up once – don’t miss it. So you have to stay in your job an extra year or two. Being involved and engaged with the people you love is far far more important.
So let’s summaries my 10 worst things you can do to prepare to retire early:
- No budget or sense of cash flows
- Live on a credit card
- Not save
- Don’t invest
- Invest too conservatively
- Ignore your superannuation
- Check your account balance every few days
- Spend hours reading FIRE forums
- Have no hobbies or interests outside of work
- Focus so much on retiring as early as possible that you ignore your important relationships.
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And of course, if you need any help achieving your early retirement dreams – that’s what we do! So check out the Work With Me page to learn how that works.