2 Simple Financial Tips to Retire Early

If you want to retire early, start doing these two simple things. Then, use your savings to invest in quality stocks for the long haul.

FIRE has been a popular lifestyle among millennials for about a decade. It’s the acronym for “financial independence, retire early.” It’s simple to understand why it has gained traction. Who doesn’t want to retire early and do what they want?

There are different FIRE adaptations. One form is the Lean FIRE, which refers to the ability to retire on a small amount of assets by living a frugal retirement. Another form is the Fat FIRE, which refers to retiring on a large accumulation of assets to live comfortably on the generated passive income.

Some FIRE followers are going to the extreme and saving as much as 75% of their disposable income! This kind of frugal living might work if you manage to pay low rent, such as getting a roommate or living with parents, but it’s not for everybody. Financial planners encourage savings of 10-20% of one’s income. So, if you’re able to save 30-50% of your income regularly, you’re doing well.

Here are a couple more tips to help you retire early.

Be smart in using credit cards

I got my first credit card when I was going through university for the convenience of making payments. I must thank my parents for teaching me to always pay my credit card balance in full every month. It can be tempting to just pay back the minimum balance that the credit card company asks for, but if you read the small print, paying the minimum balance would lead to years of repaying what you owe. That’s because credit card companies typically charge interest rates of close to 20%. The best credit card I can find right now is one that charges a 13.99% interest rate from CIBC.

The average long-term market rate of return is about 10%. So, you’re better off paying off your credit card balance before investing in the stock market.

It’s great that credit cards provide different rewards. Personally, I like to keep things simple with cashback credit cards. However, you can enjoy credit cards that give travel or gas rewards. RBC Rewards gives points on your purchases that can be used to redeem merchandise and gift cards. Use your credit cards smartly. Don’t spend for the rewards. Spend your hard-earned money on items you need and reap the resultant rewards.

Prioritize your loan payments

A friend of mine likes to pay off their loans in a balanced way. Obviously, they have to pay down their mortgage every month, but other than that, they like to pay off a portion of their personal lines of credit and credit cards instead of paying off their credit cards first. I failed to convince them, but I hope I have convinced you to prioritize your loan payments.

Aim to pay off high-interest loans (i.e., credit cards) before lower interest loans like personal lines of credit. You’ll end up saving more money from lower interest expenses paid.

The Foolish investor takeaway

If you want to reach financial independence and retire early, borrow smartly. Always spend what you need on your credit cards and reap their rewards, but remember to pay back in full every month to prevent having to pay interest.

Obviously, if you have a mortgage, you need to make payments regularly, according to the predefined schedule. Other than that, aim to pay back high-interest debt (i.e., credit cards) first. Aim to save at least 30% of your disposable income and make wise stock investment decisions for long-term wealth creation.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool has no position in any of the stocks mentioned. Fool contributor Kay Ng owns shares of Royal Bank of Canada.

More on Investing

chart reflected in eyeglass lenses
Tech Stocks

Is Shopify Stock a Buy, Sell, or Hold for 2025?

Shopify (TSX:SHOP) still looks like a tempting growth stock going into a new year with strength.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

Outlook for Fortis Stock in 2025

Fortis stock is up 10% in 2024. Are more gains on the way?

Read more »

Canadian energy stocks are rising with oil prices
Dividend Stocks

3 Low-Volatility Stocks for Cautious Investors

As uncertainty grips the market, here are three low-volatility stocks you can buy and hold with confidence.

Read more »

Metals
Metals and Mining Stocks

3 Unstoppable Metal Stocks to Buy Right Now for Less Than $1,000

Gold prices are expected to keep rising or stabilize in the next few months, and the precious metal stocks rising…

Read more »

sale discount best price
Dividend Stocks

Time to Buy! 1 Dividend Stock That Hasn’t Been This Cheap in Years

This dividend stock provides practically everything: a stable income stream, steady occupancy rates, and more growth to come.

Read more »

Muscles Drawn On Black board
Dividend Stocks

Canadian Defensive Stocks to Buy Now for Stability

Two TSX defensive stocks offer capital protection and stability for risk-averse investors

Read more »

jar with coins and plant
Dividend Stocks

The Smartest Dividend Stocks to Buy With $2,000 Right Now

Given their stable cash flows and consistent dividend growth, these two dividend stocks are ideal additions to your portfolios.

Read more »

worker carries stack of pizza boxes for delivery
Dividend Stocks

Monthly Dividend Leaders: 3 TSX Stocks Paying Dividends Every 30 Days

These TSX stocks offer monthly dividends and attractive yields of more than 7%, making them top stocks for passive income.

Read more »