If you want to retire early and, more importantly, retire comfortably, you need to start planning for the future as soon as possible. Building a sizable pension pot is relatively easy if you have a strict savings plan in place and invest your money sensibly.
With this in mind, I’m going to explain the three smart money moves I’d make today to prepare for the future.
The first is to review my finances to see where I could save some money. Most people have that old subscription or two that they no longer use, and this money can almost certainly be better put to use by saving for the future. Even if it’s just £10 a month, this extra contribution can provide a substantial boost to your pension pot over the long term.
I also highly recommend clearing any credit card balances or other debts. It’s always best to make sure you have no borrowings before you start saving as it’s usually the case that debt interest rates are way above what you would be able to make on a savings account. You can reinvest any interest savings you achieve into your pension pot.
After cutting any unnecessary costs from your budget, the next smart money move I think you should make is to set up a regular investment plan. Today, most stockbrokers offer a monthly investment plan which allows you to invest as little as £50 a month into the stock market.
The great thing about using this strategy is you can set up a monthly direct debit and then forget about it. Set it to come out of your account at the beginning of the month, means there’s no need to worry about saving for the rest of the month. That way you can spend whatever’s left over.
Combined with tax efficient savings products such as the Self Invested Personal Pension (SIPP), a regular savings plan can turbocharge the growth of your pension pot.
For example, if you set up a regular monthly payment of £200 to invested in a low-cost FTSE 100 tracker within a SIPP, you’ll be adding £3,000 to your pension. Assuming the FTSE 100 continues to increase in value at a rate of 8% per annum, as it has done for the past decade, I calculate this simple strategy could leave you with a pot worth £365,000 after 30 years of saving.
My final tip is to plan ahead. In reality, it’s going to take some time to build a pension pot that’s sizeable enough to retire on from scratch. Therefore, it’s essential to have a long-term savings plan. By doing so, you can ensure you’re contributing as much as you can afford without putting yourself in a precarious financial position (as doing so could set you back years).
However, if you have a sustainable, sensible plan in place, and stick to it, making enough money to retire early is an entirely reachable goal.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.