This post is sponsored by Lexington Law.
I’ve thought a lot about what retirement looks like in the future for me. I’ve come to the conclusion that I don’t think early retirement is for me. Would it be nice to have “free” time? I guess. But what would I do with it? I really like my job and what I do. I want to continue to evolve professionally and work on various projects that draw my interest.
But I think the ultimate goal for me is to have financial freedom.
Financial freedom for me means that I can move and live anywhere I want. It means I could take a six month vacation if I wanted. It means I could change careers and not be stressed about the salary or financial implications. It’s not so much the retirement aspect that I’m into but the financial independent aspect of the F.I.R.E Movement that I personally find most attractive.
So now that we’ve discussed that, I want to share some of the goals and financial focuses I have for not wanting to retire early. I think because the timeline is not so accelerated but because the financial goals are still similar, there are some smart adjustments I can make in my financial goal planning.
4 Financial Goals To Set If You Don’t Plan To Retire Early
1. Improve your credit score.
I’ve said it before and I’ll say it again: our world runs on credit.
Unless you have huge amounts of cash saved (which most of us don’t) it’s very likely that you’re going to have to borrow money in the future if you want to own a home or buy a car. There’s nothing wrong with needing to finance something — it’s why the entire process exists!
Your credit score can also be taken into account when you’re trying to rent an apartment, get an insurance quote or even be hired for a job. It’s a measure of financial trustworthiness that many businesses rely on.
That being said, having a good or excellent credit score will help you spend less money in interest payments over the course of your loan term. As a general rule of thumb, a higher credit score means a lower interest rate. A lower interest rate means you’re paying less to borrow the funds. Make sense? Plus a higher credit score indicates that you are a trustworthy borrow and/or person which makes it more likely that you’ll be approved (though, it’s often not the only factor involved in various decision making processes).
According to Lexington Law, your “credit score is a number used to provide an overview of your financial health and responsibility. It pulls information from your credit reports and uses an algorithm to come up with a number, somewhere between 300 and 850.”
Improving your credit score starts with understand the factors that make up your credit score, reviewing your credit report for errors and inaccuracies, and then taking the appropriate steps to improve your credit.
You can start here for some ideas to work towards improving your credit. If you have credit questions or have unfair and inaccurate information on your credit report, I recommend setting up a consultation with the credit repair consultants at Lexington Law. Bad or poor credit can cost you more than money and it’s worth the effort to improve your credit score.
2. Save up 12-18 months of an emergency fund.
An emergency fund is what you rely on in case of a financial emergency or loss of income. It helps bridge the gap and see you through until you are bringing regular income in again.
The general recommendation is to have three to six months worth of expenses saved in your emergency fund. There’s a good chance you’ll be able to find another job or replacement income during that amount of time.
If you’re not planning for early retirement, I think it’s a good idea to have even more saved up. Maybe 12-18 months worth to help direct you towards financial freedom. This way you have the ability to make more choices determined by what you want and not out of circumstance.
Now while I have a six month emergency fund, I’m nowhere near reaching 12 or 18 months. This would be quite a stretch goal for me to achieve in the next five years. It’s not one of my current financial priorities but after we figure out our situation with buying a home, it’s a goal I think I will focus on for the future.
3. Develop multiple streams of income.
Having more than one stream of income is awesome for a whole host of reasons (more on this topic is coming next month!). It means you can save more money each month or pay off debt faster. It can also mean that you aren’t reliant on one job or income for paying your bills. Also, it can help you feel less stressed and get out of the paycheck-to-paycheck cycle that so many of us can get stuck in. Living that way can feel very discouraging.
When I was in college, there was one night where I didn’t even have enough money in my bank account to afford dinner. I was putting myself through school, mostly with scholarships and my two jobs, which were supplemented with my student loans to bridge the gaps. That night, I made a promise to myself that I would do everything I could to avoid that feeling in the future.
Of course it took me a few more distinct situations (and years of learning how to budget and earn more) to be comfortable with my finances. It also took me a while to develop multiple streams of income. One of the most straightforward ways is to start a side hustle.
You most likely have a skill, talent or resource that other people are willing to pay you for. Your resource might be your time or maybe it’s your car. You could tutor school children. Or babysit. Maybe you have a knack for graphic design or know how to code websites. Are you’re handy with knitting needles or crafty and can make custom seasonal wreaths? Whatever your skills are — there is most likely a market for them.
You can also learn how to make passive income as well. This is an ultimate dream for many who wish to achieve financial independence.
4. Save and invest more of your income every year.
Just because you don’t plan on retiring early doesn’t mean you should just save the bare minimum every year! I like to call myself a saver who likes to spend. Yes, I spend money on things that I love like travel and fun shopping trips to Target but that is after I have prioritized savings.
I recently shared how my household saves 60 percent of our income every year. This number will likely fluctuate in years to come as our expenses shrink and expand. However, it’s still important to to me to set savings goals every year.
Make sure you are maxing out your tax advantage retirement accounts like your 401(k) and/or your IRA. These accounts should be a priority in preparing for your eventual retirement, especially if you aren’t saving otherwise for that time of your life.
The earlier you can start saving the better. And it’s all thanks to something called compound interest. This helps your money grow over time. So the earlier you can start putting money into investment accounts, the sooner your money can start growing.
Start by looking at your budget from last year, or even the past six months. Analyzing your budget can help you better understand the flow of your money.
Categorize how you are spending your money between your past self, your future self, and your current self.
You past self is mostly taken up by debt repayment. Whatever you putting towards credit card payments or student loan debt, consider that money as going to your past self.
Your future self is most simple: it’s everything you’re putting into savings. Whether it is retirement savings, revolving savings, sinking funds or investment accounts — this is for your future.
Your current self is pretty much the rest of your expenses. All of your month to month expenses like your rent or mortgage payment, groceries, your internet bill, etc. are included here.
Breaking down your budget between your past, present, and future self can be far more eye opening than looking at things line by line. Turn these numbers into percentages by adding up your total expenses and dividing by the income you brought in this month.
How much are you giving to each version of yourself?
You can start increasing the number to your future self by setting up processes like automatic transfers to help you save autopilot.
Your Goals Going Forward
There’s a lot of focus on the F.I.R.E Movement right now. And while I personally think it’s a fascinating endeavor, I also know that there are many reasons people don’t actually want to retire early.
While I am inspired by the financial independence aspect of the movement, it is financial freedom that I crave the most. If you don’t have plans to retire early, I recommend working to improve your credit (start by taking the steps above and reaching out to the credit repair consultants at Lexington Law if necessary), bulking up your emergency fund past 12 months, developing multiple streams of income, and savings/investing more money every year using the future/past/present budgeting system.
Which of these goals will you start on right now?