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3 Dangerous Financial Mistakes That’ll Ruin Your Chance at Early Retirement

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Jeff Cuellar

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Early retirement – it’s the ultimate dream for many hard-working Singaporeans. Let’s be honest, most of you have this romantic vision of retiring at 55 so you can do the things you love in life – travel, play golf, start your own business or simply become a beach bum at some exotic destination like Bali or Fiji.

Yes, those are all terrific reasons to work towards early retirement, but the biggest benefit to early retirement is this – you can choose to work (or not) at your own leisure. If you choose to work, it’s because you’re bored and need to keep busy, not because you need to income to survive.

Sadly, too many Singaporeans believe in dangerous retirement myths that end up ruining their chances at not just early retirement – but retirement, period.

If you want to avoid that worst-case scenario and retire early, you need to make the decision NOW to avoid these 3 dangerous financial decisions:

 

#1 You Spend Too Damn Much

Of all of the dangerous financial mistakes you can make – this one is the MOST hazardous to your retirement dreams. In fact, I’d go so far as to say that this is the catalyst that causes most personal finance problems.

Look, I know it’s difficult to keep it on your pants – I’m talking about your wallet by the way. But no matter how many times you walk by Orchard ION, Orchard Central or Orchard Towers (for the drink specials) – you must resist the urge to splurge!  And that means keeping your emotional spending in check.

Honestly, saying that you can’t save money on your salary is a copout. The truth is that it’s entirely possible to create a budget that’ll save you enough money to pay off your debts, build up your emergency fund and start saving for retirement – no matter your salary.

All it takes is the willpower to resist your urge to give in to Singapore’s hyper-consumerist society – especially when you don’t have to maintain a lifestyle you can’t afford.

If you want to move up a few income brackets, you’ll definitely need to make some career changes. Thankfully, we have plenty of career-related articles to help you get there.

 

#2 You Don’t Save Up Enough, Early Enough

Not saving enough, early enough is a major consequence of overspending. And the consequence of that is… you can’t build up a large enough nest egg to retire on.

I can’t stress enough just how important saving is to retirement – you absolutely cannot retire early (or retire at all) without saving up a decent portion of your salary every month for retirement. That means you’ll need to create a budget that you can stick with consistently.

Now why is saving up early so damn important? One reason – compounding interest. See, the earlier you save and put some of that savings into investments, the faster you’ll build your retirement nest egg.

For example, if you only put $5,000 into a mutual fund that earns 8% interest – over 45 that $5,000 will grow to $160,000. Now imagine how much of a nest egg you can build if you put in another $5,000 every year – you’ll end up with $1,930,000+ in the same 45-year time span!

Even if you’re a “late saver”, as in someone who’s just thinking about retirement in your 30s, it’s still possible to retire (although I won’t say you’ll be able to retire early). You’ll just need to work damn hard on generating extra income while downgrading your lifestyle.

If you want to read up more on saving enough money, be sure to check out our extensive list of saving-related articles.

 

#3 You Don’t Invest for Early Retirement

If you take away anything from this section it’s this – you cannot retire early unless you invest for growth. No, winning the lottery or receiving an inheritance don’t count towards earning your early retirement.

If you’re investing already to build up a nest egg for early retirement, that’s terrific. But investing is about more than just planting “seed” and waiting for it to grow into a tree that produces fruit – you’ve got to constantly evaluate that growth!

Even if you pick stocks with great long-term growth potential, that’s no guarantee that you’ll earn enough to retire early. You’ll need to constantly re-evaluate your investment goals and appetite for risk as you age. Remember – there’s no such thing as a safe, high-return investment. If you want to reach early retirement faster, you’re going to have to take more risk on a high-growth portfolio.

For example, if your goal for retirement savings goal you set in your late 20s is less than half of the value of your portfolio in your 40s – you’re going to have to make a choice on whether you want to take more risk by having a stock-heavy portfolio that’ll hopefully generate more returns quicker.

If you want to learn more about investing basics, don’t worry – we have plenty of investment-related articles for you to check out.

 

What are some dangers out there that can ruin your chances at retiring early? Share your thoughts with us on Facebook! For even more useful information on everything personal finance, visit MoneySmart today!

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Jeff Cuellar

I'm known by many titles: copywriter, published author, literary connoisseur, ex- U.S. Army intelligence analyst, and Champion of Capua.

  • I agree that retiring early isn’t always easy but there are steps that can be put in place such that saving for retirement becomes automated – the money is saved before you see it; don’t see, don’t spend! The same applies for dealing with home loans and other commitments.

    If automating sounds like a good idea, you can read my blog at financebookblog.blogspot.com for my summary of advice I picked up from The Automatic Millionaire! =)