Many people ask the question, “How can I get rich?” The answer depends on your definition of rich. For yachts, butlers and 10 villas around the world, you could inherit a bunch of money, marry into a bunch of money, build a very successful company, win a huge lottery or bet a fortune on a long shot and win. In other words, you will need to get lucky. However, there's another definition of wealth that is more attainable: financial security. The way that everyone reaches financial security is different.
The Road to Financial Independence
According to Ben Zoma, a rich person is one who is “happy with his lot.” I define “rich” as having financial independence or the financial ability to live your lifestyle as you desire without having to work. Once you determine the elements and costs of your desired lifestyle, you have to determine how to reach your goal of funding your future lifestyle, without the need to work, by creating a financial plan.
First and foremost, to achieve financial independence, your financial plan will require you to save money. In order to save money, you must spend less than what you earn while you are working. After all, if you spend more than what you earn, you will always be in debt. (For more, see: Will Your Retirement Income Be Enough?)
If you can be satisfied with a lifestyle that costs less than what you can afford, at some point, you should be able to save enough to support that lifestyle in retirement. This doesn’t mean you can’t be “rich” until you retire. It means you are rich when you are able to retire. Even if you’re rich, you don’t have to give up working. However, at that point, working becomes a lifestyle choice rather than a financial necessity.
5 Ways to Reach Retirement Lifestyle Goals
Here are five ideas for accelerating your journey to retirement and experiencing the lifestyle you want without having to work:
2. Don’t get into debt. It’s okay to take out a mortgage to buy a house, but don’t build up consumer loans or credit card debt. The non-deductible, high interest rates will set you back.
3. Invest wisely. Be sure to invest in a diversified portfolio of stocks, bonds and real estate. Don’t try to pick hot funds or time the market. Seek the guidance of an independent, fee-only investment advisor.
4. Protect yourself and your family. Be sure to have adequate insurance coverage (medical, property, auto, life and disability) and make sure you have an up-to-date estate plan (wills and living trusts).
5. Hire a good Certified Public Accountant (CPA). The more you spend on taxes, the less goes into your savings. Since tax laws are complex and ever changing, a knowledgeable CPA will save you much more than his or her cost.
The longer you work, the less money you’ll need for retirement. That’s because you’ll have more years to save for less years in retirement. If you would prefer to retire sooner, you can reduce your lifestyle expenses and the savings you do have will last longer with a lower cost lifestyle. Last, If you can consult or work part-time in retirement, you can retire sooner. This is sometimes considered "semi-retirement" and is appealing for those that want to work in retirement but on their own terms. (For more, see: How to Make Early Retirement a Reality.)