A big part of how to retire early is being financially prepared. And while the following tips aren't circling around the next-best investment opportunity, they can provide practical financial guidance that just about anyone can apply.
Payoff your home loan earlyChances are your home is your largest monthly expense. If you can, try making additional payments toward your home's principal. By doing this, you may be able to shave years off your home loan and save tens of thousands of dollars in interest charges. You can begin by simply increasing your monthly amount, making an extra payment at the end of every year, or paying half of your regular monthly payments every two weeks. To see how much you may be able to save and how much sooner your home can be free and clear, try Bankrate.com's mortgage payoff calculator.
Diversify your retirement savings accountsCreate a retirement plan that includes both a Roth IRA and 401(k). Both of these accounts allow you to save money for your retirement until you begin tapping into your nest egg. When you begin drawing income in retirement, a Roth IRA will allow you to take qualified withdrawals tax-free. With a 401(k) you'll be subject to taxes at withdrawal, but you will reduce your current taxable income by the amount of your contributions (subject to contribution limits). The combination of both retirement accounts not only allows you save more, but may help you keep more of what you save when it comes time to draw retirement income. Both types of retirement savings accounts also allow additional annual catch-up contributions for individuals age 50 and older.
Know that every little bit helpsIt may seem simplistic, but it all adds up. For example, do you get a year-end bonus from your employer? What about your income tax refund? Instead of spending it, save it. Are you lucky enough to have an employer who offers any type of 401(k) matching? Taking advantage of such a plan is like getting free money for retirement. What about insurance? When was the last time you reviewed your policies and shopped rates? The point is, there are many ways that you can find small amounts of money to put toward your retirement - and every little bit helps!