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By Darren Wilson
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Financial independence and early retirement: almost everyone dreams of achieving this. Most won’t succeed. And most of those will think it’s because they can’t
The truth is financial independence and early retirement are not concepts similar to a utopia and a belief in Avalon. Being knowledgable about your finances, where your money is coming and going, and financial planning is half the battle. The rest is discipline.
If you’re armed with the discipline, motivation, and desire to become financially independent, then check out these tips for early retirement today!
Income vs Wealth
One of the first things to understand right out the gate is the difference between income and wealth. Many people believe how much money they make is how much they are worth.
However, think of celebrities and athletes who run into financial problems because they spend more money than they make. And there are opposite stories about lower class shift workers retiring as millionaires.
This is because of spending. Wealth is usually viewed as a person’s total net worth. In this way, wealth is made up of your assets minus your liabilities. What’s left is your equity or, wealth.
Plan for the Long Term
It’s important to plan for as long term as possible. This means thinking beyond conventional means of income. While working several jobs or longer hours to increase your income may seem like the best idea for saving, it’s not.
Instead of focusing on longer hours and multiple jobs, begin looking into investing: long-term investments such as a traditional IRA or a Roth IRA for your retirement (in the United States; the Canadian equivalents would be RRSPs and TFSAs.)
Investments don’t have to be retirement accounts only: it would also be wise to start a different portfolio for personal investments. This portfolio could consist of private businesses, car washes, mutual funds, and real estate. These are great cash generators for after you retire and some of the best stocks to buy today.
While wealth may not be made up of just income, some income will be necessary for retirement. Investments are a great way to achieve that.
Taxes
Understanding your taxes and how they can affect you will help you to ensure you build your wealth rather than spend your income.
Here’s an example of why this is important. As mentioned, income is not your wealth. Your wealth is made up of your equity or the difference between your assets and liabilities.
Your income is heavily taxed every paycheck and sometimes again at the end of the year. This happens when you owe the IRS or (in Canada), the CRA. However, not all wealth is taxed.
For instance, if you earn over $200,000 in a year you can expect to pay around $90,000 in taxes at the end of the year. However, if your IRA earns $200,000 it isn’t taxed. Meaning, the $90,000 you spent on taxes from your income can be thought of as being in your IRA. Waiting for you to retire.
Look for business and investment opportunities
These investments aren’t the same as those in your IRA or personal portfolio. These investments are businesses you either started yourself or have invested in to help the startup. Nothing to do with the best stocks to buy today.
When looking for these opportunities try to stick to niche markets. While not the most spectacular they are quite lucrative. Small niche businesses find an unrepresented market and create a product or service for them. Thus giving them a competitive advantage. Usually, because they are the only name in town.
Sometimes these pay off big and turn into billion dollar companies, but usually, they are sold to a competitor. Either option can be quite beneficial for you, and in the meantime, you will see a return based on revenue and profits.
Financial Independence and Early Retirement
These are not mythical creatures only discussed in hushed tones in the back of dark rooms. With careful planning, patience, dedication, and motivation, these can be attained. Remember to plan for the long term and the future, open a retirement account and build up your portfolio. Try to choose the investments that will yield the most in dividends.
It’s also a good idea to invest in local and small business startups.These tend to be niche markets, and while not glamorous, they can be quite lucrative.
Achieving financial independence and early retirement with the right mindset and careful planning can be achieved. Don’t quit your job just yet, but it’s never too late to shift gears and start setting yourself up for success.
Darren Wilson is an Outreach specialist who loves to read and travel, writing on various blogs irrespective of their sizes. Reading by night and writing by day keeps him continually updated.
