THE BLOG
01/08/2015 05:19 pm ET Updated Mar 10, 2015

How to Retire in 5 Years or Less, At Any Age

Co-authored with Dale Clarke

What if financial planners were wrong?

What if you didn't have to wait 30-35 years to retire?

And what if you didn't have to sacrifice to max-out your 401(k) or IRA every year?

Even more, what if maxing out your retirement accounts and waiting 30 years for the market to do its magic was actually a myth? And that the "mountain of cash" you plan to retire on won't be nearly as large as their charts showed?

If this is the first time you've investigated these questions further, you're in for a shock.

Most financial planners will tell you that the market has an average historical return of 8% or 9% per year.

But if you look at anyone with their money in the market this century, their returns are a different story.

Far from rising an average 8% each and every year, the DOW has only risen 7.8% TOTAL in the last 15 years, when you adjust for inflation.*

That's a 0.5% annual return, rather than 8-9%.

At that rate, in 30 years, $100,000 would earn just $16,140. And yet most people would expect they'd retire a millionaire.

So what is the answer, then?

How can you retire wealthy? Do you have to sacrifice? And does it have to take 30 years?

The answer to retiring wealthy in just a few years time, and without sacrifice, is to focus on cash flow rather than accumulation. This is a concept we teach at Wealth Factory.

Cash flow is the movement of your money on a daily, weekly, monthly, or annual basis.

When money is moving, it's living, and when it sits idle, death is setting in.

To illustrate the point, compare the Amazon River to the Dead Sea.

More water flows through the Amazon River than the next 7 rivers combined, and accounts for 1/5th of the world's entire river flow. It's a ferocious river.

The Amazon is also overflowing with life. Civilizations have sprung up on the banks of the river and survived for centuries.

And then there's the Dead Sea. Many millennia ago, the ocean receded leaving a salt water lake with nowhere to flow to. Instead, the water has been sitting still, slowly evaporating and leaving the salt behind.

Now the Dead Sea is, well, dead. The water has become so salty from sitting in one place that nothing can survive.

The accumulation theory, where you set money aside and hope it grows, is like the Dead Sea.

Whereas cash flow is like the Amazon river, where your money is constantly flowing and working to make you more money.

Once you've decided to focus on cash flow rather than accumulation, there are two things you can do.

One, you can focus on increasing your monthly cash flow from investments and/or a business, which will take some time, effort and planning--in my experience, 2-5 years.

And two, you can focus on keeping more of the cash flow you already have.

I recommend doing both, but the easiest, most natural place to start is with option two, keeping more of the cash flow you already have.

The first step in getting the type of cash flow to become economically independent and do in 2-5 years what most people don't ever achieve in 30 with their finances begins with immediate savings. Three ways to keep more of your cash flow are:

  1. Use a tool like Mint.com to track and measure your spending habits to find out where you can save money. The idea isn't to sacrifice, but to be deliberate in how you spend your money.

    For example, one of our clients thought she was spending around $500/month on eating out, but tracking reports showed she was actually spending $5,200/month, much more than she would deliberately spend.

  2. Restructure loans to save on interest and lower your monthly payment.

    For example, refinancing your house to access $30,000 in equity can be a great idea if you use that money to pay off a $30,000 high-interest loan. That's because home mortgages are typically repaid over 30 years, have lower interest rates, and as an added bonus, the interest you pay is tax deductible.

  3. Pay down loans that will increase your cash flow the most with the least amount of effort.

    If you have student loan debt at 8% interest with a minimum payment of $50, and a car loan at 2.9% with a $400 payment, paying off the car loan and freeing up an extra $400 per month in cash flow will give you more immediate flexibility and opportunity in the future.

    And then if you wanted, after you pay off the car, you could even start putting that $400 towards the student loan, which will speed up the time in which you pay it off and help you save on interest in the long run.

With these strategies, it's possible to put thousands of more dollars in your pocket every month without working harder, hiring any new employees or learning any new investment concepts.

Instead, it's about managing the cash flow that you already have in a more efficient way. (Which could even mean stopping retirement contributions.)

And with the extra cash flow in your pocket, you can use it to invest or grow your business to the point where you can virtually retire in 2-5 years, only working when you wish to.

In my eyes, that's a better plan than making a 30-year bet on the markets.

* Note: In January 2000, the DOW hit 11,722.98, or 16,076 after adjusting for inflation. With today's DOW just over 17,300, the DOW is only up 7.8% in 15 years.

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