What do you want to be in life?’ Everyone answers this question at some point in their life. Some people harbour big dreams. They want to open their own restaurant or travel the world. Some want to settle down in the tranquillity of the mountains. And some want to go mountaineering or buy a race car. But most people think the only way to achieve their dreams is by retiring before they turn 60. But that means they need to accumulate enough capital. After all, they have to maintain their lifestyle once they retire.
Is that really possible?
Unlike retirement, early retirement knows no age. It depends on how financially independent you are. Can you take care of your present and your future self? If you have dependents, you would need to factor in their needs and wants as well. The earlier you think of retiring, the costlier it will be. But you can start by cutting corners. Cut out daily expenses that are unnecessary. These small savings can help you build a large corpus in the long run. You just have to invest it right. Leverage the power of compounding to support your dreams. Say, you wish to retire at 50 years of age. You should start saving for it when you turn 35. This would give you 15 years of wealth creation. Then you could make the most of your investments. Also, try to account for inflation, financial liabilities and health-related expenses. These can involve a significant amount of cost.
Efficient planning, brilliant execution
Retiring early is not just about saving. It is about smart investing too. Right investment choices and efficient financial planning are the keys here. They can help you lead a happy and comfortable life even after retirement. People who make a success of their early retirement planning have some things in common. They always have a diversified source of income. This acts as a fall-back option in case of sudden financial crises. They can also be your support during difficult times. You should also pay close attention to your taxes. Efficient tax planning would help you save the extra funds. You could then invest this amount.
How you can do it as well
You might have got crazy ideas by watching a movie or reading a book. That may have convinced you to retire early. But your dreams may also stem from unfulfilled wishes over the years. If you have such plans, just saving or preparing a budget will not do. You need to do comprehensive early retirement planning. This means planning your finances planning from the time you start earning. Avoid unnecessary costs and indulgences whenever you can. Choose an investment advisor who can guide you. Ask the advisor to suggest some investment options.
How mutual funds can help
Mutual funds are a good choice when it comes to wealth creation. Suppose you start investing Rs 25,000 in a systematic investment plan (SIP) at 40 years of age. Let us say you wish to retire at 50. Now, consider an interest rate of 15% for the term of 10 years. At the end of 10 years, your accumulated corpus would be Rs 65.75 lakh. At this point, you could increase the investment amount or the tenure to get better returns. You could also avail a systematic transfer plan (STP). Using the STP, you could reinvest your corpus. This would give you an opportunity to increase your corpus further.
In a nutshell
Start by contemplating what you need to do to retire early. Once you have a plan in place, it might not seem as crazy. All you need is some disciplined investing. Before you know it, you too could be on your way to Europe in a car.