5 Money Management Tips for an Early Retirement

 In Finance

Many Germans are experiencing what Deutsche Welle describes as a lifetime of work and a retirement of poverty. In fact, the German Institute for Economic Research found that around 17% of pensioners are likely to struggle financially, which is why many will have to keep on working past the average retirement age. It’s an unfortunate fact, but one you can avoid if you manage wisely the money you’re earning now. These money management tips can help you have a fulfilling early retirement without money woes:

1. Give money lots of respect

Young retiree Dylin Redling shared this advice to CNBC, which he learned after some admonishment from fellow young retiree Allison Tom. “I shoved all my cash in my pocket one day,” Redling recalled. That’s when Tom rebuked him, pointing out: “You worked very hard for that money. Put it in your wallet, and put it in order.” The incident helped Redling realise the value of money, and its relationship to work. You must have that same mindset. Think of how hard you work for it in the first place. Once you start giving the value of money that high respect, you’re much more likely to spend money wisely and save and invest it.

2. Create a budget

Budgeting is one of the biggest keys to managing money, as it will keep you from overspending and help you reach your financial goals in the process. And as Petal Card notes in a blog post on money milestones, anyone can create an effective budget. After all, it’s as simple as writing down your everyday expenses for a week, then categorising them to get a rough estimate of how much you spend per week. The challenge, though, is sticking with this budget. It’ll take lots of discipline to meet this challenge. And in case you start faltering, remind yourself of your ultimate goal: to retire early, and with enough money to not have any financial worries.

3. Make the hard money decisions

Early retiree Steve Adcock details how making tough money decisions is important for people who want to retire early. “Spending is an addiction,” he points out, “and people’s minds keep planting the seeds of comfort within the decision-making process.” That being said, Adcock recommends getting out of your comfort zone so you can make such uncomfortable decisions, like cutting back on some expenses and saving more. In other words, you must make decisions that will let you achieve your ultimate goal: to FIRE (Financial Independence, Retire Early) away. Some of these decisions, again, will be tough and uncomfortable. But you’ll need to keep making them, regardless of what others tell you.

4. Save!

The Forbes Finance Council explains how saving properly is the key to an early retirement. Put simply, you’ll need to allot a percentage of your take-home pay to savings. Your core concern here is to maximise that savings percentage, so you’ll have more saved by the time you reach your preferred early retirement age. The important point here is to just begin saving. You can start small, and maybe save 3–5% of your salary. Then, as you follow the other tips on this list, you’ll be able to increase that percentage to, say, 10–15% (or even higher).

5. Invest your money

This is similar to the tip our Michael Bart Mathews gave previously: create multiple streams of income that don’t depend on you physically going to work. An example is income-producing property. Another option is investing in the stock market, or in exchange-traded funds (consider First Trust Germany and Wisdom Tree Germany). And while you’re saving (see tip # 4), you might as well put some of your money in a Festgeld (fixed savings account). Not only will you get more interest (0.10–0.60 % in CreditPlus AG, 0.05–0.75% in IKB Deutsche Industriebank), but you won’t be able to withdraw until the account’s term ends. With that said, the earlier you start investing, the better. So, start now!

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