Here’s the Distilled Dollar Blueprint on How to Buy Retirement, so to speak.
Where it made sense, I included hyperlinks if you want to read or listen more on a specific topic. Think of it as a mad libs version of DD where I included all the best links over the past few months. Enjoy!
How to Buy Retirement
As mentioned last week, the snowballing liability of our retirement expenses can be fully funded years before we reach retirement.
By avoiding the cost of not utilizing compound interest early in our lives, the amount of money needed for retirement begins to decline.
From this perspective, I will tackle how to effectively “buy” retirement as early as possible.
The first 2 steps are relatively fast, followed by 3 key principles
1st Step – Test
The first step involves 6 months in my life where I learned this step the hard way.
The first three months involved a negative rate of investing, where I sold shares in a post tax investing account to pay for credit card bills. Part of my mistake was not maxing out my 401k, but that mistake ended up allowing me to avoid credit card debt. Either way, I had not developed the habits to invest early.
For the next quarter, I decided to focus on investing as much as possible from my paycheck. The following 90 days I managed to carve off 30% of my income and invested* $4,182.
If we assume 6% growth with 2% dividends and 2% inflation, then my $4,182 could turn into $51,231 by age 65.
2nd Step – Don’t Turn Back
We’ve never turned back since, having only further increased our resolve to execute on our life strategy to reach FI.
Our total investments in Q1 of this year, in comparison, will amount to ~$225K.
Or another view: The last 90 days may pay for more than half a decade of retirement.
The $4,182 amount has already produced a remarkable return, having grown to $6,740 as of writing this near the end of Q1 ‘17. This growth may well push the earlier projection up more than $10K to $61,700 by 65.
Or another way to view it: 90 days of investing at 30% of my 2013 income may possibly pay for 18 months of retirement at 65.
To help keep track of investments and if you don’t want to use a paper and pencil or excel, then I recommend PC as they track spend and analyze investments.
The next three sections will cover how we invest, frugality as a lifesaver, and maximizing income.
How We Invest
This section is likely the easiest as I have followed my own advice as written about here and discussed here: I buy slices of nearly all publicly traded companies in the U.S., giving me an exposure to the Economic Machine.
Are stocks too expensive?
Frugality As A Lifesaver
Paraphrasing an old almanac, “Do you love life, then do not waste time, for that’s the stuff life is made of.”
By being frugal, or economical with our time, we are being efficient and effective. We are giving into our biology to maximize results while minimizing effort.
The opposite may be spending impulsively, using more income than we would prefer towards items we don’t care for.
This is why I view frugality as a lifesaver.
We effectively avoid trading our time for money.
For more on minimalism, listen here.
Once we establish a baseline of frugality and channel our extra cash into investments, we then want to maximize our income.
Side hustles have been the rage lately. I’ll be detailing this more in my upcoming net worth report, out next week. For now, you can read how to start a side hustle, tips for a sustainable side hustle, and a two person take of side hustles.
Another method I applied was being as smart as we can in our careers. Maximizing our value to the firm may mean looking at things through the lense of others more often.
Moving forward, we are utilizing our push for maximizing value, while focusing on two other key elements in 2017 to save even more.
But, there will be more on 2017 in our upcoming net worth report.
This article attempted to address our solution to cover the cost of retirement early in life. It represents our blueprint today. Naturally, or dare I say expectantly, our blueprint will evolve over time as all things continue to change. We feel more assured walking into that future now that we are not missing the advantages of compound interest.
Are you covering the cost of retirement?
P.S. Check out the newly launched course page and be a part of the early sign up crew!