There are some things that you simply can’t miss out on if your goal is to retire early. These are things that really should be taught in fucking school but most people, the ones that need to know it the most, don’t know about or don’t realise how important they are to increase your retirement savings.
Always contribute enough to get your employers 401k/pension match
This is literally free fucking money that a lot of people leave on the table. You will never have an investment opportunity this fucking good when you want to retire early. Not only are these contributions on your pre-tax salary, which already makes them insanely good, but doubling them with employer contribution is the real beauty.
Lets put some numbers on this:
Imagine you make $45000/£45000 a year yeah, and your employer offers a pension match for 10%. So they’d take $4500/£4500 out of your pre-tax yearly pay check total.
But, because Tax takes 22% in the US, 24% in the UK (with NI), if you did the match you’d receive £3510/$3420 less in your yearly packet but you’d have $9k/£9k in your account!
That is almost 3x on your money, and it only becomes more and more advantageous the higher tax bracket you are in – not to mention it grows tax free! It’s a fucking no-brainer, always do this, there is nothing that can match this level of return. This is the most efficient way to increase your retirement savings.
(For this example, I assumed you live in a state with no income tax – but if you do live in one that has state income tax, that just makes it even more valuable for you!)
Pay off your highest interest debt first
Alright imagine you have 3 credit cards,
- Card 1: $100 usd outstanding – 10% APR
- Card 2: $500 usd outstanding – 12% APR
- Card 3: $2300 usd outstanding – 20% APR
If you can only pay $100 each month towards these, what would you do? Would you pay off card 1 in the first month and 2 in the upcoming 5 months and then work on card 3? Let’s see how much each $100 costs you monthly for each card.
Card 1 costs you $0.83 per month per 100 usd borrowed.
Card 2 costs you $1 per month per 100 usd borrowed.
Card 3 costs you $1.7 per month per 100 usd borrowed.
Compound interest is fucking insane, but it works both ways, and it’s ALWAYS way more efficient to pay off your highest debt interest first and make minimum payments on the rest – this is one of they keys to ensuring you can increase your savings quickly.
In this scenario, its more than 2x better to pay off the 3rd card off! I know you’re thinking, yeah it’s only 80 fucking cents a month mate come on, but if you scale this up to thousands of dollars over years and years since you’ll have a credit card for the majority of your life regardless of if you retire early, It will make a MASSIVE fucking difference.
Invest your money in an ISA/IRA
The worst thing about about investing money is having to pay fucking taxes on it. You already fucking paid taxes on your salary, then you pay fucking sales tax on anything you buy, but damn you also got to pay taxes if what little money you manage to invest post tax gives you a decent return?
Well – fuck.
Luckily, if you plan for it beforehand this can be avoided. If you invest your money using a tax-free wrapper, you don’t have to pay ANY tax on gains from those amounts invested – ever and you can access it whenever to retire early unlike a 401k or pension.
Fucking great right? Yet very few people seem to know about this and even fewer take advantage of this.
Traditional IRA’s in the US and ISAs in the UK are tax wrappers that allow you to invest your post tax earnings (up to $6k annually for US, £20k for UK) tax free. Each fucking year!
The best part is that you can invest in stocks/ETFs/bonds, whatever you want within these wrappers, making them very very attractive when you know you will be investing for the long run.
The problem of course, is that if you miss your annual limit, you can’t contribute towards it next year – so it’s very important that you use your limit for each tax year since once it’s gone, it’s gone.
Also, investing earlier is the best way to maximise your savings, the earlier you can start taking advantage of the compounding returns, so if you can, start investing in these accounts as close to the start of the tax year as possible.
The problem is that humans as a collective aren’t very good at making decisions that will benefit us in the far future, and it’s so easy to think about the here and now.
But try and imagine you invested just £15 a week (approx 20 USD) into this wrapper since you were 18, how much money you reckon you’d have by the time you’re 65? Say it out loud
You’d have £705,000/$1,000,000
So, just fucking do it, increase your retirement savings now and you’ll thank yourself down the road when you can quit your job while your colleagues toil away.