For many people, retirement is the dream: being free from work and taking control of your own time.  In this country, people don’t reach retirement age until their mid-60s – that’s the point at which you’re able to receive the state pension and hopefully start drawing down on a workplace out personal pension too. However, if you make some savvy financial decisions while you’re still young, you may be able to reach a point of financial independence before you get to retirement age.

Have a clear goal in mind

It’s easy to think of early retirement in the same way that we might dream about winning the lottery. A big, life-changing event that will only happen if you get incredibly lucky. Really, though, it’s a goal like any other: a dream that you can bring true yourself if you plan properly and work hard enough.

To do this, you need a clear and concrete goal. Instead of fantasising about margaritas on the beach, ask yourself what kind of lifestyle you want to lead when you give up work. Do you hope to travel? Are there hobbies that you want to invest in? Are you expecting to splurge on luxuries, or do you just want to live a humble life without being tied to work? You need to work out how much it’s all going to cost – don’t forget to factor in the effects of inflation, as things will cost more in years to come – and what that means in terms of desired annual income.

Live below your means

You won’t be able to retire early without spare cash. That means finding ways to squirrel away extra money while you’re still young. Ideally, you want to be maxing out your earning potential – whether that means looking for promotions at work or starting up a side business in your spare time – while simultaneously cutting your living costs. People aiming for financial independence often choose to live frugally during the early part of their career, cutting out luxuries such as meals out or entertainment subscriptions, so that they have more freedom later down the line.

Debts, savings, investment – in that order

Extra income isn’t going to be enough on its own, though. You also need to leverage it wisely:

  • Get rid of your debts as soon as you can – particularly any high interest debts such as loans or credit cards. You could also consider overpaying your mortgage, reducing the payment terms and giving you fewer outgoings to worry about once you do retire.
  • Ensure that you have an emergency savings fund. This should cover around three – six months of expenses, and will help to cover you in case of an emergency. If all of your money sits in an investment portfolio, there is always the risk that you won’t be able to cover an unexpected bill or redundancy.
  • Put the rest of your money into investments. The key to retiring early is to invest young, as this is what allows your money to grow. You can put money into a stocks and shares ISA, or consider upping your pension payments. If you have a lot of cash to invest and you’re not sure where to start, speak to a personal finance adviser.