Reprinted from: Retirement Authority
By: Retire, Publisher in Retirement Authority
Money Equals Freedom
Early retirement is a common dream among investors. Many wish it, few achieve it. But why is that? Could be the result of what you tell yourself?
If you see something you want, do you even think twice about buying it? Do you stop to think about whether or not you can afford it? If not, you may be one of those wishers.
If you want to change that you need to change your thought process. You need to live an “I’m poor” lifestyle. You are what you tell yourself. If you convince yourself that you’re broke and can’t afford much, you will cut your spending. The less you spend, the less you will have to earn to afford early retirement.
How To Think Poor
1) Shrink Your List Of Needs
Do you really need that big house you currently live in? Can you get by with a smaller living space? Save money by downsizing your home. You will save money on mortgage payments, utility bills, maintenance costs and taxes.
With the price of gas can you afford to not buy a more fuel-efficient car? It seems like gas prices have hit a plateau, therefore will not be getting cheaper anytime soon. Fuel efficiency is the way of the future.
Can you make eating out special instead of standard operating procedure? Meal preparation can sometimes be a chore so it is easier to run through drive-thru on the way home from work. Even though it is more convenient, it is more expensive. Save money by preparing and then freezing a weeks worth of meals ahead of time. You can even make it family time by having the kids and spouse help.
Increase your deductibles on your insurance policies. Insurance premiums usually increase, rarely decrease. You can take control of those premiums by the coverages and deductibles you carry. Older cars generally no longer need collision coverage. If you have 2 cars at home, do you need towing and labor? Have your insurance agent run different quotes for you with different coverages.
Your family and friends will love you whether you buy lots of gifts on holidays or a few. Can you buy fewer, less expensive gifts on holidays? As old-fashioned as it may sound, it still is the thought that counts.
If you think that all of those cost saving moves do not add up you would be mistaken because they do. Change how you think about what you need. If you need less you will spend less and have more money to invest.
2) Live Within Your Means
Living on less than you earn may be a new way of life for you. To make the transition easier make it a rule of thumb that if you cannot pay for something up front, you cannot afford it.
Borrow only for items that would otherwise be unattainable, for example a home or schooling. Most people cannot afford to pay for a house or their education in one lump sum so need to take out a loan.
Avoid carrying credit card balances by paying off your credit card every month. Keeping your credit card purchases to a minimum will make that monthly pay off easier. It’s okay to borrow for a home or education but it’s a bad financial move to borrow for daily consumption items. When you live with a credit card balance you’re borrowing for daily consumption items.
Change your thought process about spending money. The less money you spend, the more money you will have to invest.
3) Save Smart
Instead of buying everything you want, only buy what you need then use that money you saved to get yourself ahead financially.
Make extra payments to your mortgage.
Increase your contributions to your retirement plans. Max-out your tax-deferred investments first, your retirement plan at work. Then invest in a Roth IRA, which grows tax-free just not tax-deferred