Retire Early and Frugally

Here is an interesting perspective on frugal living that goes along with our mission to live frugally but still enjoy life and live well.

One author of a frugal living blog describes frugal living as “to look at optimizing efficiency and utility – one will become frugal, rather than just do frugal things.”

This blogger claims he spend about 75% less than the average person, and yet gains an equivalent level of satisfaction.

One of things he mentions that helps you cut expenses during retirement is to live in a smaller dwelling and be within walking (or cycling) distance from work, libraries, and shopping areas.

If you don’t have children living with you, you will not have to worry about what school district you are in.

Large homes have high maintenance costs. You have to pay higher taxes, heating, cooling, lighting and water bills. Plus you have a large outside area to maintain. A smaller home will scale down many of your monthly expenses.

If live close to where you shop, play and work you will probably not need a car or be able to get away with one if you previously had two. You decrease your bills tremendously if you are only insuring and maintaining one car instead of two. Plus you get more exercise if walk to do some of your errands.

The frugal blogger I checked out said “If you take the money you’ll spend on your car and invest it in your retirement, you will add one million dollars extra to your early retirement account.”

Another tip is to stay healthy and exercise regularly. Health insurance is expensive and you probably will be paying for a portion of it yourself. So preventing future health problems is one of the best things you can do to prepare for early retirement.

Eat a good healthy diet and take care of your teeth. Dental procedures are really expensive so make sure you floss and get regular dental checkups.

Reducing clutter can also help you on your way to early retirement. Anything that you own has to be maintained. Furniture has to be cleaned, electronics need to be repaired, knick knacks take up space etc.

Before you make a purchase of a non-consumable item, think about if you really need it. If for instance it is a tool to make a repair, ask a neighbor if you could borrow theirs.

The less stuff you have, the more financial freedom you will have.

Try to avoid fixed costs for things you do not use all the time. For many people this could be cable tv or magazine subscriptions. You might want to consider Netflix instead of cable and going to the library occasionally to read your favorite magazine. You get the idea how your mind needs to orient itself to live frugally but comfortably.

Notice I have not mentioned anything about eating macaroni and cheese three times a week or keeping hens to save on buying eggs. Actually macaroni cheese is not very healthy and the hens might be fun but you see the point.

There are plenty of ways to cut expenses so that you can retire early without feeling like you are living a sub-standard lifestyle.

So keep riding with me on our journey into frugal living made easy. Knowledge is power so if you want to learn more ways to cut expenses see our post Understand Credit Card Grace Period Due Dates

Do You Need To Save For Retirement?

If you ask most people if they need to save for their retirement, and they are honest about it, they will say they needed to start saving long ago. Of course, most people had some sort of retirement plan set up in the past But the average American has not stayed on course, and they do not believe they have enough saved for a comfortable retirement at all.

If you would like to get back on course with your retirement plans, there are dozens of ways to do it. Some of these plans are open to almost everybody.

410K at Work

Does your job have a 401K plan? Many allow employees to automatically invest in a variety of plans. Some companies even match a portion of these funds, making this an obviously good idea. If you plan to be at your job for a few years, you will be happy to see how much small contributions can grow into tidy sums. You may also enjoy some tax deductions that you can use in the current tax year.

Individual IRA Plans

If you do not have an employer based plan, you are free to set up your own individual retirement account. You can choose a traditional or Roth IRA. You might be able to set up a plan at your bank, or even with an Internet company. You can even have them perform automatic deductions from your checking or savings account.

Retirement Annuities

Insurance companies also provide another solution that helps you use your money to give you retirement income. These are called annuities. There are several varieties of annuities, but if you are trying to use one to save for your future income, you may be interested in a deferred annuity.

You may fund them with one large payment. However, at this point it may be more useful to fund your annuity with a smaller initial contribution, and then keep adding to the balance every period. You can use this free deferred annuity calculator to see how much your savings can grow.

Can You Save For A Comfortable Retirement?

The longer you have to accumulate assets, the better off you will be. However, you will never be in a better position to start than you are today!

Everyday Cheapskate

Cheapskate Living Baby Steps!

At first when you hear the phrase frugal living it sounds like you have to start reusing your aluminum foil over and over again or living on macaroni and cheese like you did when you were younger.

You think it is just a nice way of saying you don’t make enough money. Believe me, I have been there. Actually though frugal living means something completely different. Not like the Monty Python and now for something completely different but a more peaceful way to live. There are many wealthy people who engage in frugal living and it is probably one of the reasons they are wealthy.

I learned about the relationship between frugality and contentment from a book called “Don’t Sweat the Small Stuff” by Richard Carlson and another book called Simple Abundance by Sarah Ban Breathnach.

Both authors talked about the endless cycle we all go through of when we get something we immediately start thinking about the next thing we want. Dr. Carlson gave the example of a friend his who bought a home. As soon as he closed on it, the friend started talking about the next bigger home he was going to buy. We have all experienced this cycle.

We are happy for a short period of time because we stopped focusing on what we don’t have but the wanting feeling comes right back and we start thinking about the next thing we have to have.

Frugal living is not about having less but being satisfied with what we have right now and we have a lot. Both authors advise “counting your blessings” and it does help make you feel better.

When you get into the mind set of being happy with what you have it translates into better financial and mental health.

Better financial health because when you are content you are less likely to use your credit cards to buy things you may want but not really need. Often we spend money because we have built up huge expectations that the item will make us feel better and improve our life somehow. Then we get disappointed because the purchase didn’t make our life happier. Plus we have the added worry of more debt.

Frugal living is a way of breaking out of that credit card debt financial misery cycle. It does not mean you will never buy anything new again but when you do buy that car, computer or piece of furniture, you know have done it for the right reasons.

Sometimes credit card debt is unavoidable – you need to fix your car, a major appliance or have medical expenses. When that happens though you are better prepared because you may have more available credit since you converted to the frugal lifestyle. Better mental health because you know you are not overspending and it helps you feel that you are more in control of your life.

If you are anywhere close to retirement frugal living can help you have a more comfortable retirement. If you want to retire at 30, frugal living will help you get there.

You don’t have to buy a course, read a book or sign anything to begin your journey in frugal living. Just begin by focusing on what you have and feeling content. When you start to think about what you don’t have just dismiss that thought. Count your blessings.

Stay tuned for more lessons in frugal living. The journey is more fun if you go with someone, so let’s go together.

Converting Traditional Ira To A Roth 2010

Beginning in 2010 everyone had the option of converting traditional IRA accounts to Roths. So what’s the advantage to a Roth? With a Roth you pay taxes on the income before you deposit it, you can take it out in retirement tax-free. If your’re thinking about converting, just make sure you have enough money on hand to pay the taxes you’ll owe. If you’ll have to dip into the IRA balance to pay them, experts say don’t convert. Instead, consider opening a new Roth account; The rules for eligibility and contribution limits change every year. You can (and should) get the official rules from IRS Publication 590.

When you do file your taxes a good way to avoid errors is to e-file. One of the biggest tax mistakes is not e-filing.
Nearly a third of people still send in paper tax returns. Not only is it tedious to do your taxes by hand, but you’re also more likely to mess it up. “When you file a paper return, the error rate is about 20%,” says Nancy Mathis, spokesperson for the IRS. “When you e-file, it drops to less than 1%.” Why? Among other things, the program takes care of the math and also prompts you to sign electronically. Plus, you can get your refund within 10 days using direct deposit, compared with 4 to 6 weeks when filing by paper and requesting a check. If you make $57,000 or less, use the IRS’s Free File program (irs.gov/freefile). Otherwise, taxact.com lets you file federal returns for free. (It’s $25.00 for state returns)

Early Retirement Medical Coverage

You might think that early retirement is just a dream but actually it is a possibility. If you have a strategy, plan carefully and are willing to make some sacrifices, it can happen.

First, you need to get a handle on how much money your are going to need on an annual basis to have a comfortable early retirement. The best indicator of what it is going to cost is to look at what your present lifestyle costs you. Then think about the type of life you want to lead after retirement. One factor that is excluded from your current expenses is long-term health care costs unless you have already purchased a plan. Also, paying for your own healthcare will probably be an additional cost until Medicare kicks in.

When you figure out what that number is going to be then look for a Retirement Expense Calculator, then see how much you’ll need to save to produce that kind of income.

Financial experts say you need to consider two stages of retirement: the periods before and after you are 59 years old, After 59 stage of retirement will be funded with investments such as 401(k)s, Individual Retirement Accounts, pensions, annuities, Social Security and savings. So make sure you contribute the maximum amount to your IRA. One financial adviser says “If you’re willing to enroll in a 401(k), you’re taking a major step to retiring early,”

You’ll need to consider also how to fund the pre-59 stage of retirement. You’ll need to consider assets that produce income and if there is any kind of part-time work you might be willing to do.

Money that is not going into an IRA and not being used for regular expenses should be invested on a regular basis. The easiest way to do this is have it deducted from your paycheck.

You will need to make sure you keep debt down. Credit card debt will suck away your extra money so use credit cards sparingly.

Want to learn a bit more about long term care and alternative to long term care policies. See our post More Alternative to Long Term Care Insurance at our sister site Free Insurance Policy Quotes

If you want to retire early it is critical that your finances are organized. Effective management of your finances is only possible if you know exactly what you’ve got and how it is performing. One of the frequently asked questions when it comes to organizing your financial paperwork – is what to keep and what to throw away. So here is some good advice from  of Simple Things You Can Do To Improve Your Finances by Ilyce R. Glink.

1. Federal and State Tax Returns – Currently, the IRS may audit you three to six years after you have filed. They can only ask for receipts six years back but if they believe you intentionally hid income or filed a fradulent return, there is not statute of limitations. Glink recommends keeping all tax returns with back up information. If you don’t like Glink’s advice, consult your accountant and ask about a “document retention schedule.”

2.  Investment information – The three things you need to know about your investments are: how much you paid for them, how much you sold them for and what was the annual rate of return while you held them. When you buy or sell an investment, you will recieve something called a confirmation statement – keep this, you will need it later. You also need to keep dividend statements for stocks and mutual funds.

3. Retirement account records and pay check stubs – If you have been making contributions to an IRA these are the records you need to keep until you have withdrawn all funds from the account so that you can prove the amount of the non-taxable portion: Forms 1040, 8606, 1099R, and 5498 for each year that you made a contribution to the IRA (according to the current tax law). Keep pay check stubs until you recieve your W-2 form for the year. This will give you an opportunity to check for errors.

4.  Insurance policies – Keep the original insurance policy and signed contract for as long as you have the policy. Once the insurance is cancelled wait 2 years and then throw away the papers.

5. Trust and other estate planning documents – Keep trust documents and back up documentation as long as the accounts are active.

6. Medical Records – If you don’t have enough medical expenses to deduct  anything from your tax return, you can throw them away after you file the return. If you do claim a medical deduction keep them filed with the tax return as supporting documentation. Also if you have an ongoing medical condition or situation hang on to your records.

7. Credit Card receipts and statements – After you receive your monthly statement, you can throw away your receipts for that month’s purchases UNLESS you are in dispute with the store about the item, may want to return the item or have purchased a warrantly regarding the item.

8. Household Bills and Receipts – Glink says after you record your general household bills you can throw them away except for those for child care and tuition because these might help you qualify for a tax deduction. If you qualify for a deduction keep these receipts with your tax records.

9. Cancelled checks, ATM Receipts, bank statements – Keep copies of your account statements going back six years or possibly forever, Glink says. Again, check with your accountant regarding what their document retention schedule says if you can stand keeping all that paper. Cancelled checks can be discarded after one year unless they relate to tax deductions or capital improvements.

10. Mortgage, home equity loan, second mortgage and property tax records – Mortgage companies will send you a statement listing  the amount of interest you paid that year, and the real estate and insurance premiums paid by the company on your behalf, if they escrow your tax and insurance payments. You need that statement and your property tax bills for income tax preparation. Keep these documents with your tax records for that year.

11. Home purchase/sale and capital improvements – Hold onto these records forever as you may be required to prove at some time how you calculated your profits.

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If your planning to retire early then you are most likely going to need to really pay close attention to your finances. Here is a tip from the book “50 Simple Things You Can Do To Improve Your Personal Finances.” One way to help get your finances in order is to get them organized in one place. You may want to even purchase a few inexpensive file boxes or a cheap file cabinet. Put everything related to your bank accounts, mutual funds, stocks and bonds and 401K into these file boxes.

Once you have seen everything you have you can began to organize your actual finances not just the paper they are printed on. The author suggests having one bank for all savings and checking accounts and having one mutual fund company or brokerage firm to manage your investments.

For more information on Early Retirement visit us at Fasthowto.com

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Less Tax Refund = More Wealth

Those of you who got tax refunds probably were very happy but an article in our paper said maybe we shouldn’t be so happy when we get a tax refund. The article said getting a tax refund meant you gave the government an interest free loan over the past year because you had too much taken out of your paycheck.So far in 2008, the average tax return totaled more than $2,400. So that means that millions of us are overpaying the government about $200.00 a month on average. Some people think that overpaying income tax is good way to save money but often it is an easy way to spend money on unplanned purchases. Here are some suggestions from the article about what to do with extra money:

Pay down debt ($200 per month could really help reduce it)

Save in a 401(k), an IRA or an education fund - If you are in the 28% bracket and contribute $200 a month to a traditional 401(k) you can lower your tax bill by about $672 per year. If you contribute $200 into a tax-deferred account earning an 8% return, after 20 years that account would grow in value to $118,649 before taxes are paid.

Save it for a rainy day – Put the money in a savings account or money market fund to be used in an emergency. 

 Invest it – Put the money into a mutual fund. Mutual funds allow small investors to particpate in the stock market.

Make a purchase to “upgrade” your life. Put the money toward a home improvement (ex. insulation that will help you save money on heating and cooling your home)

If you find you are consistently receiving a good tax refund every year, you may need to revisit the amount withheld from your paycheck.

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If your thinking about retiring early mostly what you have to consider are numbers. Here are just some quick rules of thumb to consider:

According to CNN/Money the first number you have to consider is how much longer will you live. Their answer is 95 to 100.

How much income do you need? Experts estimate that some people need as much as 100 percent or more of their pre-retirement income.

How big does your portfolio need to be?  Most experts reccommend you have a portfolio about 25 times the amount you withdraw for your first year of retirement. So if you want $60,000 per year of inflation adjusted income from your investments you would need a portfolio of about $1,500,000.

What age can you start collecting Social Security Benefits? – 62 years old

Those are just some quick numbers to consider. You also need to consider if you can deal with early retirement psychologically. What would you do with your time, if you didn’t work?

Maybe early retirement is too big a step. Why not think about semi-retirement. Is it possible to consult in your field as opposed to working full time? Do you have a hobby or a passion you might enjoy making into a part-time business? Could you stand to work a part time retail job if there were health insurance as a benefit?

See our previous post   Tips-On-Retiring-Early

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One the of biggest concerns for those who retire early is health care insurance. Few of us are fortunate enough to be able to retire early and have our health insurance needs taken care of. Also, Medicare doesn’t kick in until age 65. So if you want to retire in your 30′s,40′s or 50′s  health insurance is an important issue. Unexpected medical expenses can easily wipe out your hard earned life savings. The key word is unexpected – unfortunately you just don’t know when or if they are going to happen. Also as you age the possibility of having those expenses will increase. One possible solution to this problem is to consider a semi-retirement.

There are some companies where you can work about 20 hours a week and be covered under their health insurance. Generally there is a waiting period from three to ten months until you become eligible. If you are retiring from a job where you have health care benefits you might want to consider using COBRA until you are eligible for benefits at your new place. Granted most of these are minimum wage jobs but then again it is only 20 hours a week.  Many of these companies are flexible with scheduling. If you can find one of these jobs that kind of appeals to you, it can be a good solution until you are eligible for Medicare.

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Visit us at fasthowto.com to find more tips on early retirement How-To-Take-Steps-Towards-Early-Retirement and also visit us at over50web.com for more information about retiring early Save For Retirement

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