It sounds crazy, especially in this day and age (and especially if you’re a young entrepreneur, working long, grueling hours and hustling to make a regular income) but it’s actually doable. Sure, it’s a challenge and breaking it down into a few steps may be oversimplifying it, but you owe it to yourself to at least try to retire early as your peers continue to work away.
Step 1 – Look at Your Budget
Everyone should learn the basics of budgeting on a monthly income, whether it’s an allowance from your parents or a steady paycheque. Start by opening up a spreadsheet and, for one month’s time, keep track of everything you spend and everything you earn. The government of Canada has a budget planner tool on their website.
A common–and useful–rule of thumb is the 50-30-20 rule. Fifty per cent of your monthly income should go towards necessities, like rent, food, transportation, electricity and heating; thirty per cent should go towards recreational things like new clothing, gym memberships and streaming services; twenty per cent – and this is the key point – should go towards debt repayment and saving up for retirement.
Step 2 – Look at Your Lifestyle, and Your Life Goals
Once you have your monthly income and budget nailed down, including your savings, think about your current lifestyle and what you want to happen in the future.
Are you living comfortably right now? Maybe you’re renting and you want to own a condo or a house. Maybe you’d like to purchase a car or go on that trip to Europe you’ve always dreamed of. Are you married? Do you have children? Make a list of your financial goals–the big things you’d like to accomplish–and target an annual income that would let you live a comfortable life.
Let’s say that, as an average entrepreneur in Canada, you’re making about $70,000 a year (according to sources like Neuvoo and Indeed). Minus tax deductions, and using the 50-30-20 rule, your average annual savings should be around $10,000. If you’re 25, you’ll have saved approximately $250,000 by the time you’re 50; if you’re 30, it’ll be closer to $200,000.
According to Expatistan, the average cost of living in Canada for a single person is $2,754 per month). Financial experts recommend estimating 70 to 80 per cent of an average monthly income for retirement; therefore, average living costs for a retiree should be around $1,927.80 to $2,203.20. And if you compare that to our estimated savings in the paragraph above, you’re looking at about 7 to 10 years’ worth of savings.
So what can you do to maximize your nest egg?
Step 3 – Pay Down Your Debt
The first thing to do is to get rid of any and all debt. Credit cards and lines of credit will eat into your savings, gobbling up that twenty per cent until nothing is left. Work hard and live frugally (see below) to pay down your debts, and once you’ve cleared off your cards and deposited your last sum with the bank, start putting money into savings right away.
There are lots of strategies out there to manage your debt. For example, myMoneyCoach has a good list of resources here, and Gail Vaz-Oxlade is a notable Canadian finance writer who has written extensively about money management.
Step 4 – Live Frugally
Millennials have been given a lot of advice, possibly well-meant but very noticeably tone-deaf, about living frugally, to the point where ‘avocado toast’ is a well-known meme. People who cry “just cut back on your lattes and monthly spa sessions!” ignore the greater global context of lower wages, unstable working hours, and rising costs of living, making long-term saving goals harder to reach. As an entrepreneur, you’re probably far, far too familiar with worrying about where the next paycheque will come from and having to hustle your hardest.
This step isn’t about throwing out your iced coffee habit or your video game addiction to live on rice and beans. It’s about identifying what’s important to you. As seen in step 2, when you were reviewing your lifestyle and goals, adjust your spending to suit. If it’s important to you that you have dinner out with your friends every week, go for it. If it’s important to you to save up for a house, go for it.
Retiring at 50 is the goal of this article, but it’s crucial to have a balance in your life. See what money you can store while still allowing yourself the things you love in your life.
Step 5 – Sit Down with Your Bank
You’ve done a lot of work on your end; now it’s time to see what your financial services provider can do for you.
Talk to your bank about retirement plans and setting up investments. Maybe a TFSA (tax-free savings account) is right for you, or an RRSP (registered retirement savings plan). Chris Muller at youngandthrifty has a great guide on investing: who to talk to, what types of investments there are and how much to start with. When you’ve gotten this far with your savings stored up, you don’t want them to just sit and do nothing – you want them to multiply as much as possible.
With the right budget, the right portfolio, and the right spending habits, retiring at 50 is well within your grasp. Plan for what you love and get ready to pursue your dreams – whether they’re tanning on a beach, learning a new language, or building that library nook with the secret bookcase you’ve always wanted.
Gillian Robinson | Contributing Writer