Millennials may be lucky enough to be hooked on their smartphones, but this generation may be on to something about retirement planning. There is a movement that is gaining momentum among the younger set called FIRE, or financial independence, retiring early. FIRE involves saving high percentages of your income today to create a work-free tomorrow.
Savings do not come naturally to many American households. A 2018 study by Northwestern indicates that one in three Americans has saved less than $ 5,000. Even more concerning, about a third of Americans have no retirement savings at all. Low savings balances, along with uncertainty surrounding social security and health services, have many who plan to postpone retirement as long as possible.
But not everyone accepts that reality. Some millennials use the concept of extreme downsizing to enable early retirement. By living frugally and saving half or more of their income, these hopeful retirees build up savings of $ 1
Can you implement extreme downsizing in your life? It takes time and discipline. To save $ 1 million, you must invest $ 1,234 each month with a return of 7% for 25 years. It only takes 15 years if you can save $ 3,155. Read on for five ways to reduce your household spending so you can afford to save on financial independence.
1. Swap ranch house for a small home
Retirees often consider downsizing as a money-saving strategy. Replacing a large home with a smaller one frees up cash, eliminates mortgage payments and lowers the property tax bill. But why wait for retirement to do this? Say you reduce the size today and it saves you $ 12,000 a year in mortgage payments and property taxes. Tuck the money away for 10 years and they grow to $ 120,000 plus interest. If your savings goal is $ 1 million, you're more than 10% of the way there.
2. Drive on two wheels instead of four
You can also create a stream of savings by reassessing your transport strategy. Cars, especially new ones, are expensive. You buy insurance and you pay for gas and oil change. And then there is depreciation. Replacing your new car (and car payment) for a used vehicle will eliminate payment and reduce insurance. And if you can rely on bicycle and public transport, you will get rid of maintenance and registration expenses as well.
3. Clean your closet
How many pairs of shoes do you really need? Most people can manage with three or four couples to get them to the office, the gym and everything in between. You are likely to have gathered some extras over the years, along with extra pants, sweaters, coats and watches.
All of these items are candidates for resale. Take them to a thrift store for fast cash or try to sell your old stuff at Poshmark or ThredUP. Whatever funds you raise should go directly to your savings account.
4. Cleaning the garage, basement and attic
Garages, basements and attics tend to collect things you are not ready to throw. Old furniture, home furnishings and sentimental knick-knacks do not serve you well when hidden away in storage. If you have items that someone else will use and enjoy, you can schedule a garage sale or list them on a resale app like LetGo or OfferUp. You can sell old books and textbooks from your college years on Amazon or to used bookstores.
5. Reducing Expenses
You may know the usual savings strikes by canceling cable and exercise memberships. Maybe you make your own lattes, and you have also reduced your eating budget by learning how to cook. On top of that, you have reduced your heating bill by 10% because your thermostat is turned down to 62 degrees in winter.
You are already a thrifty living guru. Are there still opportunities to cut spending even further? You can bet that. Here are five strategies to consider.
Disconnect internet and cable at home
You can rely on free Wi-Fi at the library or even at the nearest McDonald's to keep an eye on your email. Switch to reading books, from the library of course, or playing card games for hours when you would normally watch TV. Replace cable for one or two low-cost power services, if you haven't already.
Switch to a Cheap Mobile Phone Plan
Republic Wireless has an unlimited voice and text plan for $ 15 per month, with no contract required. For $ 5 more you can add 5 GB of 4G LTE data.
Disconnect all unused devices
Toasters and coffee pots use power even when not turned on. Duke Energy estimates connected devices account for up to 20% of your electricity bill.
Switch to tea and reuse the tea bags
By and large, tea costs less than coffee – especially when using reusable tea bags. .
Take the cold water from your shower
Do not throw away the first blast of cold water coming out of the shower. Either jump right in and carry the cold or hold a bucket to collect the water. You can use it for plants and pets.
Small Steps to Big Savings
Reducing your home is a great benefit, but being in compliance with minor lifestyle changes is also effective over time. The next time you see millennials bring their own snacks to the trivia night at the bar, give them a nod. After all, they are probably hunting FIRE.