In the last blog release we discussed how to work out the pot you need to retire, along with the date you would accumulate this wealth through your investing contributions. Following on from this we are going to look at today how we can change the date of retirement, and ultimately bring it closer.
To bring the date we can retire closer there are a number of things we can do:
1/ Spend less now
2/ Require less in the future
3/ Earn more from your main income
4/ Start bringing in extra income streams - Side Hustles
Let's go through each one now and see what we can do.
Spend Less Now
Nice and simple to start things off. If you spend less of your salary now, and use that savings to increase your monthly investment contributions, you will get to your retirement pot sooner.
This is all about the budget you created and looking at ways to squeeze out unnecessary spending.
Starting this now and thinking about each purchase, and revaluating what you spend money on and how much is a great habit to develop as it leads nicely into the second element.
This is probably the most straightforward of the tasks to do!
Require Less in the Future.
Remember when we worked out our retirement pot requirements by multiplying our annual expenses by 25 in the last blog? Well if we can get the monthly budget down, our annual expenses will be less. If we continue the lifestyle changes we have picked up in the first bit of advice, our overall annual expenses will be less.
The difference needing an extra £5,000 per year to live off, adds an extra need of £125,000 to our retirement pot.
How many more years would that take to build?
How many years of working are you adding to your life by not reducing your annual expenses?
Earn more from your main income
This would be where most people focus their attention, which is good as it will help, but be cautious of 'Lifestyle Inflation'.
Lifestyle inflation is the increase of our lifestyle spending as our income increases. Keeping up with the Jones's.
Here we match the salary increase with a car and wardrobe upgrade. When perhaps we don't need to. If you avoid lifestyle inflation and instead invest the extra income you are now earning, you will hit your retirement pot amount sooner.
So how do you get paid more?
Ramit Sethi explains some methods in his book I Will Teach You To Be Rich which are helpful, but are very much focused on staying with the same employer. I am going to do a full blog post on this but for now as it's a super complex topic.
These are some bullet points I will go through in the next post:
1/ Negotiate a raise with your Boss (Very hard - advice to follow soon!)
2/ Upskill/Retrade and change roles (long-term and potentially expensive)
3/ Promote to higher role within the company (a great option)
4/ Change companies but do the the same role (the most realistic)
5/ Change companies and promote to a higher role (the Holy Grail!)
Start bringing in extra income streams - Side Hustles
This is the one I have probably been more focused on over the past few months. Not only to increase the amount I have available to invest, but also to increase the avenues of income I have and ultimately diversify my salary risk.
If you solely rely on your income from one job, if they fire you, your salary has gone.
What do you do?
Get a new job and hope it doesn't happen again!?
Having extra income streams from side hustles offers you the potential that these side hustles could replace your current main job. It allows you that freedom, and FU money, that if your main job moves the goalposts, you can just leave. So much more freedom.
But no two side hustles are created equal. Recently on Instagram I shared these two pictures to showcase how they can be grouped.
On the left you have things that whatever money is generated generally correlates to the amount time you are able to do them.
So the amount you earn being a delivery driver is linked to how many hours you can commit and how many deliveries you make. Equally money made from surveys are linked to how many you do. As soon as you stop doing this side hustle the income stops - with the exception for blogging.
On the right with developing an app or affiliate marketing these will continue to generate you income even once you stop. The work on creating the 'product' means that it continues to function on it's own - a more passive way of income.
In social media right now there is a bit of glorification of passive income and it's a little rose tinted.
These side hustles on the right hand side are hard work and take a long time. Don't be fooled. But equally don't be put off.
Conclusion?
So which one should you focus on and which one have I been giving the most attention to?
Initially I focused on our budget and how we could improve it for the short-term. I also wanted to make sure we budgeted for the things we enjoyed and it wasn't too restrictive - thank you Sinking Funds. Once I felt that I was in a pretty good spot I have for the past 9-12 months slowly started to live a less expensive lifestyle. One way I do this by learning skills so I don't have to employ someone to do the work - such as DIY. I am trying to upcycle and recycle things for the house so we don't have to buy these products new. I feel these skills and this approach will give me good long-term savings. This was inspired by a few blog posts I read from Mr Money Moustache. Last year I changed the taps in our kitchen as they were a faulty. I was so proud when I managed this and really gave me the confidence to try more.
Prior to my FIRE journey I was on the quest to earn a higher salary and over the past year this hasn't changed. Moving speciality within my field has certainly helped and I am in a better position now, than if I had stayed within my old speciality. Over this 3 year period I don't feel there has been much lifestyle inflation either which is good.
Over the past 5 months I have been focused on some long-term side hustles. They are not generating any income, and do not expect them to anytime soon. I gave myself a year of slogging away on them before getting disheartened. I am enjoying the process and know I need to be patient. What are they? Soon to be revealed......
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