Retirement might seem like something that’s far away, something for the future. However, if you are in your 30s, it’s time to start to get your dream into shape to become a reality. Why wait until the last minute to make your money count when you could be setting yourself up to retire early? That way, when you are old, you can enjoy your golden years without the daily grind of a 9 to 5 job. Getting there involves more than just having good intentions — it means smart financial moves today before it’s too late.
Unfortunately, many of us don’t realize that we are falling into the common money traps, which could really cost you in the long run. If you’re in your 30s, this is a list of money mistakes you should avoid if you want to retire early. This is a road map to financial freedom, without the detours and potholes.
Not Contributing Enough to Retirement Accounts
Many in their 30s believe retirement is so far in the future they can ignore it. The truth is, the sooner you begin saving, the better. If you can contribute regularly to retirement accounts like a 401k or IRA, you’ll be well on your way to a stress free retirement. Compounding is the most powerful force in the universe and the longer your money has to grow, the more it will compound. Don’t wait for the right time, start now and thank your future self.
Financial Education Procrastination
The financial world can be scary, but the more you try to escape it, the scarier it gets. There is absolutely no excuse for you not to take the time to educate yourself about investing, saving, and retirement planning. Find books, videos, or courses that will teach you the knowledge to make wise decisions. By putting in a little effort and focus, you will be better prepared to manage your money and plan for your future.
Not Skipping Employer Match Contributions
If your employer will match your contributions to your retirement account, you’re essentially leaving money on the table by not taking advantage of it. Basically, it’s free money, so you’re leaving money on the table if you don’t save enough to get the match to grow your retirement savings. Even if you can only contribute a little, try to give the employer match (or more). That’s one of the easiest ways to supercharge your retirement savings without much effort.
Not Automating Savings
Life gets busy and it’s easy to forget saving. When you automate your savings, you’re saving for your future without even knowing it. Set up automatic transfers of money from your checking to your savings or retirement fund and let the magic happen. This is a simple trick that will keep you going down the right path without having to rely on willpower. The more consistent you are with saving, the less you have to think about it, and the more consistent you’ll be, and consistency is the key to building wealth.
Forgetting Tax Advantage Accounts
Your money can grow tax free or tax deferred in tax advantaged accounts like Roth IRAs and 401(k)s. If you’re not contributing to these accounts, then you’re missing out on a very large potential to build wealth much more efficiently. While tax laws change, these accounts are one of the best ways to save for retirement. If you ever wanted to give back to them, now is your chance, and you can save yourself thousands of dollars in taxes down the road, which means you can retire earlier with more money in your pocket.
Neglecting Health Insurance
The road to early retirement can be a costly one. Unforeseen medical expenses could easily wipe out years of savings without proper health insurance. If you have health benefits on your job, use them. If not it is important to explore other options such as an individual health insurance plan. In fact, medical costs are one of the top retirement concerns for people who are planning for retirement. In other words, protect yourself now, so as not to have a major setback later.
Living Beyond Your Means
The consumerism culture is easy to get sucked into, always buying the latest gadgets or going on vacations you can’t afford. No matter how much you make, living paycheck to paycheck is a surefire way to delay retirement. If you aren’t saving more than you’re spending, you’re digging yourself into a financial hole that will take years to climb out of. The trick to early retirement is to control your expenses and save a lot of your income. Imagine this: If you cut back on unnecessary spending and put that money into savings, you don’t need to be a millionaire to accumulate a small fortune.
Not Having an Emergency Fund
You’ve probably heard it a thousand times, but there’s a reason people keep saying it: you need an emergency fund. Without it, one unanticipated car repair or medical bill can send you back years to get to the point you are currently at. An emergency fund is your safety net that helps you pay for life’s curve balls without dipping into your retirement savings or taking on debt. While it’s considered the bare minimum, saving at least three to six months’ worth of living expenses is advised, and more is always better. It’s peace of mind in your back pocket, knowing you can be prepared for whatever life throws your way.
Failing to Diversify Investments
If you only have one investment, you’re putting all your eggs in one basket. You may be doing great when that investment is going great, but what happens when the market falls? Spreading your money across different types of investments is called diversifying your portfolio and can help you manage risk and keep your financial future stable. The last thing you want is for your hard earned money to disappear when just one investment goes south.
Ignoring Debt
Your financial freedom can die quietly by debt. One way to eat away at your wealth is to carry high interest debt, like credit card balances. If you want to retire early, you should pay off debt. The longer you let debt sit around, the harder it is to get out of. You start by paying off the low interest debt first, and then work your way up. When you’re debt free, you’ll have a lot more ease in saving and investing.
Relying Too Much on Social Security
Social Security wasn’t designed to be a full replacement for your income in retirement, so don’t bank on it. In fact, Social Security usually pays out about 40 percent of your pre-retirement income. If it’s your main income, you’re setting yourself up for a rude awakening. Social Security is not a lifeline, it is a supplement. You’ll need to set aside money to build savings and investments so Social Security can play a smaller, supporting role in achieving your retirement plan.
Overlooking the Importance of Passive Income
One way to speed up your retirement savings is to build passive income streams. Money you make without working, whether it’s rental income, dividends from stocks, or royalties from a side project, is called passive income. It also means you can funnel that extra cash into your retirement fund faster. The reason I love passive income is because it works for you even when you’re not working. So, start thinking about how you can have multiple income streams working for you when you retire.
Lacking a Solid Financial Plan of Action
If you want to retire early, you need to have a plan. Flying by the seat of your pants when it comes to money might work for a while, but not if you want to retire early. This means knowing how much you have to save each month, knowing your investment strategy and keeping it up. According to Charles Schwab’s survey, only 36 percent of Americans have a written financial plan, and those who do are more successful in meeting their financial goals. Don’t shoot for a nebulous goal, instead, set concrete, measurable goals and work to achieve them.
Disclaimer: This list is solely the author’s opinion based on research and publicly available information.
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