Friday 14 July 2017

Finance Fridays – How to Retire at 40

We were looking at the pitfalls of car hire charges for last week's Finance Fridays. This week we are thinking of the easy life once we have retired but is it achievable to retire at 40? I have to confess I'm already over the hill!

There was a programme on Channel 4 this week called How to Retire at 40 and I have taken inspiration for this week's Finance Fridays directly from it. They suggested some ways to achieve this but is it something everybody can hope to do?

The first and most obvious way to retire early is to save enough money to not need to have to work anymore. For most of us the reason we do work is to pay the basic bills – mortgage/rent, council tax, utilities, food, clothing and transport. On the programme was Barney Whiter who managed to retire at 43 but how did he do it? He had calculated that you need a fund 25 times your annual spending in order to retire. So if all your essential bills and other extras come to £25,000 you need to save up £625,000. If you save 50% of your income you can retire in 19 years but if you manage to save 75% then this drops to just 7 years.

The way Barney was able to save around 55% of his salary was trimming away any unnecessary excess. Leading a frugal life really does pay off if you can stick to it. With the money he saved he put it into stock market tracker funds that was able to return 12 per cent and then compound interest doubled it every six years. He now lives off the dividends from his savings. The key to this formula is passive income – your money is in funds and shares doing the work while you don't have to.

Do you have an entrepreneurial spirit? If you have a good idea for a product then perhaps this is the time to start thinking about getting that product to market and making money from it. The sticking point for many people is the cost involved in setting up. One way to raise money is to set up a crowdfunding appeal. Through this method you ask strangers for money through specialist portals. They invest in your potential product and in return you offer them shares in the company, free products or other perks. With this money you can then go off and use it sensibly. Pippa Murray was able to raise £120,000 through the site Crowdcube within days for her nut butter company Pip and Nut. In just its second year of trading the company achieved £3 million in sales.

If you are thinking of something a more small scale then what could you do with £1,000? With this amount Adrian Nantchev set up basic website and with it his business Potato in the Post. No joke, this man sends out Maris Piper potatoes to people with a message written on it with a felt tip pen. You can even opt to have googly eyes stuck on to it! A basic potato starts at £4.23 with a 'luxury' sweet potato option costing £7.20. While he is still working in the business he only needs to work for about 8 hours a week in order to earn over £20,000 a year.

If retiring early isn't an option then paying off the mortgage on a property could be the next best thing. Investing in a property is doable by simply living in it. On your own you may not be able to afford a mortgage but you could by teaming up with a friend as a business arrangement. The two friends in question on the programme put down identical deposits of £25,000 but have now found that the mortgage is less than what they were paying in rent each month – more savings for your retirement pot. As the property is their sole and therefore main residence they won't be hit by capital gains tax when they decide to sell for a profit in a couple of years. Money made just through day-to-day living. Just make sure your chosen friend and business partner is someone you want to live with! 

When do want to retire? Have you thought about retiring early?

If you want to join in with this week's Finance Fridays then add your link to the linky below. Any post concerning financial matters is allowed. Full details here. It doesn't have to be published today as you have until 23.55 on Tuesday 18th July 2017 to join in.

Finance Fridays

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