How to Retire by 40

When your goal is to retire by 40, you have to stick to some important basic guidelines. These tips have proven successful for those that have retired young and should serve as a starting point to help you achieve an early retirement.

1. Reduce your monthly expenses to the bare minimum - Reducing your expenses is the largest single factor towards early retirement. Few things do you have as much direct control over as your monthly expenses. Income can fluctuate or stop but expenses are a guarantee every month,This is the reason why reducing them is so important and can have a huge impact on your potential savings.

2. Pay off Debt - Having your house, cars, and credit cards paid off is a huge financial and emotional burden lifted from your shoulders, more importantly, it reduces your monthly expenses substantially. No debt will also give you the freedom and flexibility that few get to experience, do not underestimate the emotional power of having no debt.

3. Save at least 50% of income - An ideal savings rate of 60-80% of income is even better, however saving at least 50% of your income will get you to your goal of retiring by 40. Savings is another crucial part of the formula for early retirement that will allow you to differentiate yourself from most other people whom retire at 65.

4. Invest in high growth index mutual funds - Index funds have very low fees, are simple to buy, and are diversified. You want a high return to increase your savings, and investing in a Russel 2000 or S&P 500 index mutual fund, can get you the higher returns you need to retire before 40.

5. Become as close to a minimalist as possible - The closer you can reduce your reliance on material items the freer and happier you will become. The things you own end up owning you, how much time do you spend buying, maintaining, insuring, fixing, and storing items. If you think of all the negative aspects of owning material items you will see that having less is really having more. You will appreciate the things you do have much more and use them more as well while saving money.

6. Create multiple incomes - Most early retirement books and blogs say work one job and save, although this is a good formula, a often overlooked concept is multiple incomes. Multiple incomes gives you advantages that a job won't, diversification of income, potential income growth, and stability. Having as many as five smaller incomes from hobbies or projects is a much safer way to make your income

In conclusion, retiring by 40 is not only for the wealthy, any person can retire by 40 regardless of their income using these basic foundations. There have been a few noted examples of people retiring with less than $200,000 and living comfortably, so anyone can truly retire by 40.