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- I finally got serious about retirement planning in my 30s and opened up a SEP IRA.
- But I realized I needed a better plan to reach my goal of retiring early as a millionaire.
- Now, I’m keeping strict track of my budget, diversifying my investments, and building new income streams.
For most of my 20s, I rolled my eyes at the thought of saving money for retirement. I was mismanaging my finances, spending more money than I was making, so the thought of putting away cash for the distant future was something I was completely unwilling to do.
When I turned 30, I realized that I didn’t want to struggle financially anymore. But to change that, I’d have to make some significant adjustments.
I started an emergency fund, stuck to a strict budget, began investing, and, for the first time in my life, took saving for retirement seriously by opening a SEP IRA.
But as I saw more and more adults in my life not be able to retire at age 65, I knew that I didn’t want to follow in their footsteps and still be working hard at a full-time job at that age. That’s why I set a hefty goal for myself: to retire (ideally in my 50s) as a millionaire. To make that happen, I’m taking five steps right now.
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1. Keeping a close eye on my money
Even though retiring as a millionaire is my future goal, in order to take any steps in the present to make that happen, I have to make sure I’m in complete control of my finances now.
For the past year, I’ve set a strict monthly budget that I usually stick to (or am very close to sticking to) in order to limit any overspending. I try to save between 20 and 25% of my income every year and use that cash to fund my emergency or retirement fund, or contribute some of it to my investment portfolio.
To make sure I’m staying on track, I check my finances regularly.
On a daily basis, I make sure I’m accounting for all the purchases of the day and tracking those numbers in my budget.
On a weekly basis, I check my credit card statements to stay mindful about my spending and make sure there aren’t any mistakes.
At the end of the month, I spend an hour doing a self-report of my entire net worth, tracking how much my investment accounts went up or down for the month, how much I was able to save, and decide how much additional money I can contribute to my retirement fund that month (in addition to my monthly minimum that I contribute).
2. Making recurring contributions to my retirement fund
Before I turned 30, I had a small 401(k) that I had contributed to a few times over the years and nothing else to show for my retirement savings.
After opening up a SEP IRA, I decided to contribute a minimum set amount at the end of every month. By contributing to a SEP IRA monthly, the cash in that account can grow tax-deferred until retirement, which means I don’t have to worry about paying taxes on that money, or its growth, until later. At the time of retirement, any money I take out of that account will then be taxed as income.
3. Increasing my income streams
When I ask financial experts how people retire as millionaires, I often hear them say that the average millionaire has multiple streams of income. I realized, after getting laid off from my full-time job in 2015, that relying on one stream of income is dangerous and limiting. Instead, I try to have between five and seven streams of income at a time.
Currently, I have income coming in from my business and multiple side hustles, which include freelancing, selling online courses and products, offering my services for hire (whether pet sitting or babysitting), and monetizing my social media audience. I hope to continue to add more passive income streams in the near future by investing in real estate and renting out the property.
4. Staying out of debt
While going into debt is something I want to completely try to avoid, things happen in life and I might find myself having to fund a large purchase or pay for an emergency without much notice.
In order to plan for the unknown, so I can stay away from credit card debt, I’ve spent the past four years building my emergency fund.
Since I’m self-employed, some financial experts recommend that I have at least six months of expenses saved in an emergency fund. But because I’m hyper-focused on making sure I can stick to my spending and saving strategy, to meet my future retirement goal, I’ve decided to save at least eight to 10 months in my emergency fund to cover any unplanned expenses.
5. Diversifying my investments
When I started investing a few years ago, I put money into individual stocks and cryptocurrency without having much of a plan. I realized that I wasn’t being strategic with my investments and decided that, in order to help increase the chances of my money growing in the market, I needed to diversify my investments.
I did this by investing in index and mutual funds across many different verticals (instead of just buying individual technology stocks, as I had been) and invested in funds that included both US and foreign companies.
By doing this, I can avoid taking too much of a risk with my money in the market and go for a more long-term growth plan instead.