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Steps to Early Retirement

Updated on October 27, 2016

Early retirement or financial freedom, whatever you want to call it, many people aspire to get there.

Waking up each morning and wishing you could stay in bed for that bit longer is a feeling many people are familiar with. But why just accept that feeling as something you have to get used to and put up with until you're in your sixties, or even seventies?

Even worse, what if your life isn't going to last long enough for you to reach that dream of retirement?

If you want to choose how you spend your life and do the things you love to do, early retirement could be within reach; you just need to set the wheels in motion to make it happen.


You can't go into early retirement with debts. How are you going to keep up your monthly repayments if you don't have a job that's paying you?

Make a list of your current debts and see if you can spare a little extra cash each month to pay them off a little faster. Even the smallest amount of money could save you on a large amount of interest, giving you more money in the future.

Whilst looking at your debts you may want to put them into the order you wish to pay them. Think you would be more motivated if you saw the number of companies you owe go down quite fast to start with? Then start with the smallest debt and pay that off.

You can also prioritise debts by looking at those with the largest interest rate. This debt will increase faster than the others, so you may want to focus on that one first.

Other people would prefer to get the largest debts out of the way first so they can focus on the smaller debts later, knowing that if they can tackle large debts, smaller debts will be no problem to them.

Whatever you do, make sure you keep up with the minimum monthly payments on all of them, otherwise you'll end up receiving a financial penalty and digging yourself in even deeper.

Your Home

If you've been thinking of down-sizing for some time, once you've decided to aim for early retirement then now is the time to take that leap.

The money you will save either in rent or on the mortgage can go towards wiping out debts, paying down your mortgage or even creating a nice little savings pot.

If down-sizing isn't an option you wish to take, then your focus should be on paying off that mortgage.

How many times have you started off a sentence with "If I didn't have a mortgage, I could afford to..."? I know I have thought about this numerous times.

Like debts, mortgages have interest rates, and if you look at your mortgage statement closely, you'll be downhearted to see that each month you pay off some of your mortgage, the interest rate puts a large chunk of debt back onto it.

Start with an easy step towards paying off your mortgage: look at current mortgage deals. Could you get a better interest rate which would reduce the amount you pay off during the term or reduce the mortgage term? If so, make that switch.

Once you've switched mortgages to a better deal, then focus on increasing your payments within the limits your provider will accept (some fixed-term mortgages will only let you overpay by 10%). If you can afford to pay off more than your lender will accept without penalty, move the extra money into an account you won't touch and then use that money at the end of the fixed term or when you can afford to finish paying off the mortgage (so you only have one penalty payment or early repayment charge).

Some people will choose to reduce the interest on their mortgage by paying into it every couple of weeks. If you're paid more frequently than monthly, this may help you budget more effectively.

Once your mortgage and debts are paid off, you are very close to financial freedom.


Even once you've paid off your debts and your mortgage, you're still going to need money each month to pay for utility bills and food.

At the moment you pay these off with the wages you earn from your job, but if you choose to quit your job altogether for retirement (some choose to go part-time as they still like working) this isn't an option.

You could save a substantial amount of money and use this each month. But how much would you need to save? How long do these savings need to last? This is very hard to calculate. What you need is for your money to constantly make more money.

This can be achieved through passive income, such as rental properties or shares. Check out these ideas for creating passive income.


When you're planning your income streams, you need to know how much you require each month, otherwise you'll struggle. Trying to scrape money together each month is not many people's ideas of early retirement.

Write down your current monthly outgoings; bills, food, fuel, amount spent on entertainment and leisure. Then think about how you're going to spend your time in retirement; do these activities require extra money? Do you want to go on holiday a few times a year? Work out how much you think you need, then add a little extra to make sure you're comfortable.

When planning your retirement income streams, make sure these support your monthly budget.

Make a Plan

Seems obvious, but so many people forget this important step.

If you set targets along the way, it will push you to meet them.

Start by setting a target to retire by a certain age or within a number of years and then make plans on when you will have paid off your debts, your mortgage and created enough from passive income streams to support your lifestyle.

It may be hard for those few years, but once you've achieved it, it will be worth it!

Early retirement of financial freedom means different things for different people.

Some see it as a way of slowing down, maybe going part time at a job they love so they can enjoy more things that they love in their spare time. Others see it as an opportunity to cram more exciting experiences into their lives - holidays abroad and discovering new places and activities.

Whatever your dreams are of early retirement, the above steps will help you to get there.

Have you started an early retirement plan?

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