The traditional way of thinking about retirement goes something like this: you work for decades and decades at a job, save up a lot of money, then retire to do the things you love. But nowadays, career and retirement can look a lot different. Jobs are becoming more flexible, and people are looking for a better balance between working hard and enjoying life—before it’s time to retire. Hence, the concept of mini retirement.
Mini retirement means prioritizing your experiences now, instead of saving all your money for retirement later. But it doesn’t mean burning through your savings or forgetting about long-term financial goals!
Curious to learn more about the ethos and how-to of mini retirement? Jake Northrup—a financial planner who took a trip to Antarctica instead of buying a home—joined the HUECU Wintersession Personal Finance Seminar earlier this year to chat about mini retirement and saving for the future. Check out Jake’s video here, and read on for a few tips on how to prioritize the fun and freedom of retirement when planning your finances.
Decide What You Want
A “mini retirement” looks different for everyone. Some people want to travel for a few weeks or even live abroad for a few years. Others might want more outdoor space for playing with the kids and hosting backyard barbecues. Still others may be pining for more money to invest in a new hobby or take up a sport. Dedicate the time to sit down and consider what a happy and fulfilled life looks like for you. Nailing down the specifics of how you want to live your life—before retirement age—is a first and very important step to get into the mindset of maximizing your life rather than simply maximizing your money.
Defining what truly brings your life value will help you redirect your money toward what you want—so the natural next step is cutting back on the things you can do without. When it comes to scaling back expenses, think big. It’s not just about giving up Starbucks and making coffee at home. Ask the tough questions. Can your family live with a single car? Would it be worth it to move to a smaller house and lower your rent or mortgage for a few years? How much could you save and what would you do with that money? Cutting expenses can open up the opportunity for work breaks and sabbaticals, giving you more flexibility for travel and quality time with family.
Be a Smart Saver
While you’re cutting expenses and putting your money toward life-enhancing “mini retirement” experiences, it’s still important to keep saving. Indeed, saving in the right way can set you up for a higher level of pre-retirement financial freedom. Jake Northrup recommends the 50-30-20 rule. Figure out your after-tax income, and aim to spend 50% on needs like rent or mortgage; 30% on things you want, like going out or hobbies; and 20% on savings and investments. Working with a structure like this helps you save for the future while also allowing plenty of leeway to spend money on what you value, right now.
Again, starting early is key to living a life where mini retirement is possible. Investing your money as soon as possible gives you compounding interest, which can make a huge difference throughout the course of your life—even if your initial investment amount was minimal. Aim to start a Roth IRA if you’re a younger earner, as this type of individual retirement account lets your earnings grow tax-free. Moreover, look at where you’re putting different kinds of investments based on their purpose. An emergency fund, for example, should be in an easily accessible savings account rather than in a high-risk investment.
Track Your Spending
The only way to know if your financial habits are aligned with your life goals and values is to deeply understand how much you spend and on what. It’s not just about planning and budgeting! While budgeting is important too, the first step is knowing how much you spend on a day-to-day basis. Sit down with a pen and paper and go over all your credit cards and checking accounts to get a clear picture of what your spending looks like—you might be surprised how much subscriptions or gas money add up to every month. Then, ask some tough questions. Are you happy with where your money is going? What mini retirement opportunities could arise if you were able to cut back? There’s not one right way to do mini retirement—it’s all about learning what might be possible for you!