Monday, January 22, 2018

My Strategy to Retiring Early

Now that I've got the blog up and running, I wanted to talk about my personal strategy to retiring early. 

If you have been reading my blog then you would know that I like dividend growth stocks as my investment strategy. However, there's more to it than just investing in dividend growth stocks. 

Part of the problem with retiring early is that you don't know how much money you will need in retirement. There are a lot of future unknowns that are hard to plan for. I don't have a family or a house so I can't say how much money that is going to add to my expenses just yet. I also don't know about my current salary and job and if that is going to increase over the next 10 years. In my estimations I like to underestimate, because this provides me a margin of safety. 

Since I don't really know how much I'll need I'm working on building up as much as I can as fast as I can. Here is what I'm currently doing to try and get to early retirement:

1. Increase my income. This isn't always easy, but if I can increase my salary a little each year or find a way to make some money on the side then that will help to get me to financial freedom earlier)

2. Decrease my expenses. This is easier than increasing your income. There is usually always a way to decrease your expenses. I'll detail my expenses in another post, but I probably spend about $35,000 a year right now. The biggest expense is my rent since I live in the DC Metro area and rent is very high right now. If you can find a small way to decrease your expenses it will really add up big time. 

Here is a quick example: If you eat out 5 times a week at $12 per meal and you cut this back to just 4 times a week, you will save $624 a year. Now this doesn't sound like a lot right? Well if you did this for 20 years it would add up to $12,480. Now this amount could potentially allow you to retire a year or two earlier. What about if you cut it back to just once or twice a week? Is eating out that much really worth it?

3. Invest as much as I can as often as I can as early as I can in high quality dividend growth stocks. I honestly have very little in my checking account because of this. I know that with every buy I get a little closer to my goal of financial freedom. Now I'm trying to build up my checking account a little in the case of an emergency, but I've kept it pretty low for the past four years (<$4k) The longer you wait to start investing the longer you will be working. To really feel the full power of compounding you have to start as early as possible and invest as much as you can. If you have $50k sitting in a savings account you need to put that money to work.

4. Continue to take advantage of my employer's 401k. My employer matches up to 4% for my 401k and this is a no brainer. This is free money they are giving me as long as I contribute 4%. Of course I would like to have this money to invest on my own, but the free money is too hard to pass up. I chose a Roth 401k because this allows me a little more flexibility down the road. I will go into more detail why I chose a Roth plan in another post, but I do plan on pulling from my 401k when I'm near retirement. I've looked into this and I can pull contributions without penalty and gains with a 10% penalty.

5. Continue to invest a small amount in non-dividend stocks. Now I know this goes against the philosophy of investing in high quality dividend growth stocks, but I believe these stocks are too good to pass on. I also invested a good amount in Facebook at a low price and I'm playing with house money at this point. The stocks I invest in have a very high growth potential and I wanted to own a piece of them. I used Stockpile to invest small monthly amounts so I didn't disturb my pace of investing in dividend growth stocks. The stocks I own are as follows:

Berkshire Hathaway

I also believe there is some potential for these stocks to pay a dividend in the future and that could potentially add a good amount of dividend income to my portfolio. However, If I'm near an early retirement these could be the ace in the hole that helps me get there.

I think these stocks combined with my 401k could help push me over the edge once I'm close to financial freedom.

6. Reallocate high growth stocks. Another possible way to get to early retirement sooner would be reallocating dividend stocks that have greatly outperformed their dividend growth. A good example of this is Boeing. I really like Boeing as a company so I'm not going to start selling yet, but the growth on my principal has far exceeded the growth on their dividend. By selling shares of Boeing and putting them into another higher yielding stock, I effectively add dividend income to my portfolio without having to invest new capital. 

This is basically my overall strategy to achieving an early retirement. In this early retirement I would not look at selling any of the principal and I would live off the dividends completely.

Let me know what you think! What do you guys do differently?


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  2. This post is really informative and all of your points are totally right. Me and best-friend running a small online business. We were thinking of expanding our business. As we shared the business newly, it was hard for us to get a loan. We heard about being able to find a lender who offered small cash loans and this sounded like a really interesting option. After seeing their online reviews, we found a lender who gave us took a small loan. It was really helpful for us. The service and process made it easy. We got the money form the lender they helped us find the next day and it all started by just filling out a simple form.

  3. Really nice and informative post and i am agree with all the points. Keep going and i will be stay in touch with you for more updates. house for rent in Lahore

  4. You have written an excellent article about your strategy. Appreciate you for this stuff. orient inverter ac price in Pakistan

  5. We must prepare when we retire so that we will not be a burden for our children and we can have financial freedom even if we reach our retiring age.