Would you like to work hard, retire early and have more than £1m in the bank? If you’re here, the answer is probably yes. The good news is that achieving this goal could be easier than you expect.
The bad news is that you’ll need to do new things and behave differently to most other people. In this article I’ll share my simple four-step strategy for building a £1m retirement fund and retiring early.
1. Pay yourself first
If you want to save successfully, you must spend less than you earn, and save religiously. The best way to do this is to pay yourself first.
What this means is that you should set up automatic payments to transfer cash from your bank account to your investments as soon as you get paid each month. If you do this, you won’t miss the money and will get used to spending less each month.
If you wait to see what’s left in your account at the end of the month, my guess is you’ll find there’s nothing left.
2. Avoid this trap
Pay rises, promotions and new qualifications all help to increase our earning power. Asking for a pay rise can be difficult, but receiving one makes it worth the effort, in my experience.
However, bringing home more cash each month is only half the battle. The secret to true success is to avoid a trap that financial independence geeks call lifestyle inflation.
When our income rises, most of us spend more. Bigger houses, nicer cars, expensive clothes and luxury holidays. But unless cash is really tight to start with, spending more is a choice, not a necessity.
If you can keep your lifestyle the same while earning more, your monthly savings rate will go through the roof. This makes it a lot easier — and quicker — to retire as a millionaire.
3. How to invest your cash
Are you an investment professional? Does your day job leave you lots of spare time for in-depth company research? If the answer to these questions is no, then in my view you want to keep your investment strategy as simple as possible.
Unless you’re already an expert investor, you are likely to make more money by focusing on your day job than by trying to become the next Warren Buffett.
Making money in the stock market can be very simple. All I’d do is open a stocks and shares ISA, and put my spare cash into a low-cost FTSE 100 tracker fund each month. I’d automate the payments and never stop investing, especially during market downturns.
4. Sweat your assets
Do you have a large house with lots of unused rooms? Vehicles, boats and ‘toys’ that are rarely used? A holiday home that sits empty for most of the year?
All of these things are making you poorer. They’re slowing down your journey to retiring as a millionaire.
Consider buying a smaller house or taking in a lodger. Sell your holiday home, or convert it into a rental. Empty your garage of ‘toys’ you don’t use.
Don’t forget
To succeed, you’ll need to be patient, stick to your plan and ignore peer pressure to be more conventional. Be determined, but don’t lose sight of the things that really matter in life, like your health and your family.
