Never Do These 10 Things If You Want to Retire Early
Many of us dream of an early retirement, and for many it will remain a dream unless we are consciously working toward that goal. To retire early means to enjoy life and free to pursue our own interests. It’s not an impossible dream, but we need to realize that every financial decision we make will subsequently make an impact.
I’m sure we never intentionally waste money or make bad money decisions; but relatively minimal expenses and little fees can add up to big costs in the long term. I’ve rounded up my top 10 things to never do if you want to retire early. These are some rules that I think everyone needs to live by in order to be smart with your finances.
1. Never pay ATM or overdraft fees
According to an analysis from SNL Financial and CNN Money in 2016, America’s three biggest banks – JP Morgan Chase, Bank of America and Wells Fargo – earned more than $6 billion just from ATM and overdraft fees in 2015.
I was shocked by the mind boggling amount! These fees can be easily avoided with careful planning. Know ahead of time how much cash you need so you can use the ATM of your primary bank to avoid ATM fees. Know the balance in your checking account at all times by keeping up to date with your checking ledger.
2. Never pay late fees
Whether it is late fees on property tax payments, utility bills, or credit card bills, etc., by being organized you will never need to pay those fees. I use my iPhone calendar and make notes of the various payments I need to make and by which day. By setting up an alert each time I receive an invoice, I never miss a deadline. I set up recurring alerts for items that require repeated attention.
Setting up auto-pay is another option for those of us who just don’t have the time to deal with multiple alerts. For some people this is the best way to avoid those insidious fees.
Remember, it’s better to be a little early than late. Make a habit of paying credit card or utility bills as soon as they arrive, and don’t wait until it’s almost due.
3. Never pay for active mutual fund management
If you look at the historical performance of active money management (people who pick which stocks to buy and which ones to sell) vs. passive money management (buying a basket of stocks based on an index or set criteria), it should be an easy choice.
Active mutual funds have generally under performed passive mutual funds over the past few decades after accounting for management fees. So if you’re paying for active mutual fund management, essentially you are paying somebody to do a job that yields you a negative return.
4. Never lease or finance a Car
If you’re leasing a car because you can’t afford to buy it, then don’t think about leasing it. Don’t buy a car unless you can pay all cash for it. Living beyond your means may cause you to fall into the vicious cycle of living paycheck to paycheck.
Consider a gently used car. Since many cars depreciate 40% after only 2-3 years of use, you’re getting a good car and a great deal. By the way, a more expensive car will cost more to insure and to maintain. Always consider the total cost of ownership.
5. Never buy things on impulse
One main reason I see budgets breakdown for a family is when there are too many impulse buys. Even when we have a budget, some people just make too many exceptions and deviate from the plan.
When we see something we may not need on sale, we need to learn to walk away and resist the temptation. Remember, every penny taken from your pockets will set you further away from your early retirement dreams.
6. Never pay interest on credit card balance
Pay credit card balances in full every month so you won’t ever carry a balance. If you don’t spend what you can’t afford, then you wouldn’t have issues with paying your balance in full every month.
Don’t get tempted by credit card introductory rate offers. According to industry research firm R.K. Hammer, interest income total $63.4 billion in 2016 for all the credit card companies. If you start to carry a balance because interest rates are low, then you may develop a habit of leaving a balance every so often and don’t think it’s a big deal.
7. Never leave 401k company match on the table
You should always contribute as much as you can to the 401k plan offered by your company. Many companies match a portion of your contribution — meaning that the company will put money into your 401k account because you are making the responsible choice of saving for retirement.
I am always appalled by the number of people who don’t take full advantage of company match. It’s free money!
8. Never Borrow from your 401k account
Even though you’re able to take a loan from your 401k account, I definitely do not recommend it! Understandably, there are very extreme circumstances where borrowing from your 401k is necessary. Most of the time it is a terrible idea to borrow money from your 401k account.
Borrowing from a 401k plan carries a big opportunity cost and really can set you back financially. Since your money is not being invested in the stock market, you lose out on the compound return of your portfolio.
There is also double taxation for the amount borrowed from a 401k. Typical contributions to a 401k plan are made with pre-tax dollars, which means it helps to lower your income tax liability. Loan repayments, on the other hand, are made with after-tax dollars. When you eventually withdraw from your 401k during retirement, your money is taxed again.
9. Never waste money on useless subscriptions
Whether it is cable TV, monthly beauty box, gym membership, wine club or magazines – there are so many opportunities for you to waste money. A good question to ask yourself is whether or not these subscriptions add real value to your life and if there are cheaper alternatives. With the Internet at our fingertips, many of these subscriptions can be replaced digitally at no cost.
Over the past few years, many businesses have stepped up the marketing of monthly subscriptions of products and services because they know that consumers can tolerate a small monthly fee and overlook the real cost in the long run. As consumers, we forget that these monthly fees add up quickly and end up costing us more than we think.
10. Never try to keep up with others
Last but not least, I think this is potentially the most important factor in determining whether you can retire early or not — keeping up with appearances!
In our current social media driven society, it’s easy to feel the pressure of consumerism. This is one bad habit that will surely doom your finances. As we see our neighbors and friends flaunt their possessions, we inevitably feel the need to do the same to prove our own self worth.
Remind yourself what your goal is — you want to retire early! Making small changes in your lifestyle and being conscious of your every decision will help you achieve your early retirement dreams.