How to Create a Budget for Early Retirement

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Save more, spend smarter, and make your money go further

Retirement is usually associated with older years. But the “certain age” link has a lot more to do with the time it takes to achieve goals than it does with the goals themselves. Financial fitness is the cue for early retirement, not how many years you’ve been in the workforce.

The early 50s is a reasonable age to aim for if you want to retire sooner than the majority. That’s not always possible, but every year that you can shave off your working life leaves more time for enjoying it without punching a time clock or attending board meetings.

Here are 3 budgeting tips to help make your “golden years” happen sooner than you might expect:

Build Retirement Savings

Retirement savings takes the place of steady income from a job. The younger you’ll retire, the more you need to save. If you’re starting in your 20s to save for retirement, CNN Money recommends consistently saving 10 – 15% of your income. The older you start, the more money you’ll need to set aside every month.

Social Security is no guarantee. Although some people with a very modest lifestyle and zero debt can sustain themselves on SS benefits alone, it’s not easy. There is no promise that benefits will even exist when you retire, and retiring early means you’d have to wait for them anyway.

Check out a retirement calculator to see how much you will need, based on your age, current income, and how much you’ve already set aside. Once you know what you need to save every month, you can account for it in your monthly budget.

Get Out of Debt

The less debt you have at retirement, the less money you’ll need to have the lifestyle you want. Getting out of debt doesn’t just mean paying off credit cards, either — your home might be the biggest debt you’ve got. Examine your current budget, and refocus it a bit, if necessary, to paying off debt as quickly as you can. For every payment you don’t make to someone else, you have more money to add to retirement savings.

If getting out of debt and saving for retirement at the same time make it seem like early retirement is an unattainable goal, you’ve discovered why so many people don’t do it. Without a generous income, it’s a real challenge. But every step you take toward eliminating debt makes retirement a little bit easier. And with real discipline, you could decrease the number of years that you’ll have to work to earn a living.

Max Out Your IRA and 401K Contributions

Add money into an IRA and your 401K, and be as generous with yourself as you can. These plans have limits on how much you can contribute, and CNN says your company might impose even lower limits.

If you’re already over 50, you can add more than younger workers are allowed. Take advantage of this “catch-up” opportunity, and stock up on your savings.

Many factors go into determining when you’re ready to retire. Your Social Security benefits might be substantial, and a company pension might also beef up your monthly income. On the flip side, you can’t count on Social Security, and many people don’t have the benefit of a pension. And neither might be available until you’re well into your early retirement.

The bottom line is that you will need a substantial amount of money to retire early, and the only person you can count on to provide it is you. Start making smart choices now, and you could carve out more and more time for retirement in the future.

Mint.com can help you create and maintain a budget for early retirement. With money in / money out in such a critical balance, you’ll want to stay on top of your earnings, savings, and even investments as much as possible. Mint makes it easy.

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