The United States is home to over 20 million millionaires, about 80% of whom are self-made millionaires who worked and invested their way into the seven-figure club.
Wouldn’t it be great if you could join them and retire early?
Here are seven key steps you need to take in order to enter the seven-figure club, achieve financial independence, and retire early.
Track your spending
Anyone who has managed to accumulate a sizable amount of wealth can tell you that tracking your spending is the very first step towards achieving financial independence.
You can do it using a budgeting or expense-tracking app, Excel spreadsheet, or even a pen and paper. Make sure every penny you earn, spend, and invest is accounted for.
Avoid spending money on your “wants” and focus only on your “needs.” You do not need gourmet coffee, just like you do not need to eat at a fancy restaurant every week.
Cook your own meals, walk or use public transport whenever possible, cancel unnecessary subscriptions, and use coupons to save money on shopping.
Get rid of debt
If you have debt — especially high-interest debt like credit cards — get rid of it as soon as you can. High-interest debt can not only eat up much of your paycheck, but can also be a source of unending stress, which can adversely affect your health.
Paying it off should be your number one priority.
Contribute to your retirement accounts
Contribute as much as you can — or as much as you are legally allowed to — to your 401(k) or IRA accounts.
If you are in your 20s, and if you contribute $4,000 per year (approximately $350 per month) to your Roth IRA account, you can easily build a nest egg of $1 million by the time you retire (assuming an average annual return of 8%).
Invest in financial markets
If you are in your 20s or 30s it is the best time for you to start investing in the market. Since you are young, you can afford to adopt an aggressive investment strategy, which can help you build a substantial amount of wealth and retire young.
Data shows that more than 60% of millionaires in the US started investing in the market when they were young.
Ideally, you should start with an 80/20 strategy (80% in equities and 20% in fixed-income assets). As you grow older, consider gradually reducing your allocation towards equities and increase your allocation towards fixed-income assets.
Boost your earnings
Look for ways to increase your earnings. The more you earn, the more you can invest. The more you invest, the sooner you can retire.
Negotiate with employer for a raise or a promotion. Look for a high-paying job or switch to a high-paying career. Start a home-based business or take up a side-hustle.
Once you start making more money, make sure you invest the extra money wisely.
Embrace the grind
Achieving financial independence is not easy, nor can you do it overnight. It takes years of hard work, perseverance, and discipline to enter the seven-figure club.
Do not fall prey for get-rich-quick schemes and focus all your energy on saving and investing money diligently.