“There are no shortcuts when it comes to getting out of debt.” – Dave Ramsey.
Retiring without debt is a worthwhile goal, but a difficult one to achieve. It requires a lot of discipline and sacrifice. If retiring debt-free is your goal, follow these steps to make it happen:
- Make a Plan
Unless the financial goals you currently have allows you to retire debt free, you have to take action today. Develop a plan and make specific but realistic goals for you to achieve. Determine how many years you have to retirement, calculate the amount of debt you owe inclusive of the interest then use that calculation as a basis for creating a financial plan that will help you retire debt free.
Remember that there are two ways to pay down debt: increasing your income or decreasing your spending. Both should be part of your debt-free retirement plan.
Budget and Save
Some say the biggest secret to being rich is living like you are poor. It sounds like common sense, but you have to consistently save money if you intend to retire without debt. Live frugally keeping your monthly expenses low while sticking to a budget and focus on maximizing your retirement savings.
In order to retire on a steady financial footing, it is important to plan a regular budget that focuses on retirement savings. The 60% – 40% budget is ideal, where you are living on 60% of your income and 40% is divided for retirement savings, debt payment, emergency savings, and short-term savings.
Start Paying the Debt
After assessing your money habits, taking stock of your expenditures and debts and making a surplus budget (one where the income exceeds the expenditure), focus on getting rid of the most expensive debt first.
The sooner you repay all your debts, the sooner you can start contributing to your retirement, and the more savings you will have in the end.
There is always the possibility of being taken off course on your journey to debt-free retirement. For instance, you might have to deal with unforeseen expenses such as a medical emergency. It is important to note that you might do everything you can but still not rid yourself of all your debts by the time you retire. However, you are still left better off as long as you have been actively saving for retirement than if you had not taken any action at all. Plus, you would also still be far ahead of millions of people who are not prepared for retirement.
Conclusion: Saving for retirement is essential for everyone who wants to be financially independent and maintain a comfortable standard of living after they stop working. Debt is a drag on your future financial freedom and needs to be reduced to a minimum before you retire.