Looking to get off the paycheck-to-paycheck treadmill or to drop out of the rat race altogether? Here's what you'll need: a solid plan for how you'll spend your time and a way to either earn dramatically more or spend much, much less.
This is not an impossible dream. In 2004, 7.5 million U.S. households had $1 million in assets, not including their homes. While the financial waters have become more choppy still then, you can still steer your way to an early exit from the workaday world.
How do you get there?
- Set a financial goal and have a long-range plan to reach it. (Find a plan that's right for your age on our "Create a Retirement Plan" Decision Center.)
- Automate deposits to retirement and savings accounts so you won't be tempted to spend that money.
- Pay down your debt. (See "Your 5-minute guide to managing debt.")
- Figure out ways to build your savings, even if you have to play mental games with yourself. (See "Secrets of successful savers.")
- If you change jobs, don't cash out your 401k plan. (See "8 do's and don'ts for your 401k.")
- Take inspiration from the many who quietly gained wealth by saving religiously and investing wisely, whose homes and cars don't scream "rich." (See "The rich have money -- and passion" and "Save like the rich and famous.")
You can also follow the lead of many of America's newest millionaires and consider starting your own business. A common thread for many of the newly rich of the past 10 years is innovative entrepreneurship. (See "From rags to the world's richest.")
- Get some business education. That may mean holding a desk job for several years or taking classes. (See the video "How to turn an idea into a business.")
- Pick partners who complement and enhance your strengths.
- Get good advice. Alumni networks and sources such as Business on Main and YoungEntrepreneur.com offer plenty of it.
- Write a solid business plan. Find inspiration at Bplans.com. Your plan should be able to champion your idea to potential investors.
- Raise money. Don't depend on your credit card to carry you in the first six months, when you're unlikely to be making a profit.
- Don't immediately quit your day job.
- Develop self-discipline. It's a lot harder to meet demands you've imposed on yourself than those of a 9-to-5 employer.
To many, ditching the rat race means downshifting to a less demanding and more fulfilling career. That's understandable. Most Americans spend more time commuting than they do taking vacations.
- Calculate how much you need to live on. Try it out for six months before you commit to a reduced lifestyle. You have to know if you can truly live without the comforts you have or envisioned for yourself in the future. (See "A simpler way to save: The 60% solution" and "The new money-for-life retirement plan" for guidance.)
- Consider relocating to a more rural area. (See "Rescue your retirement in 1 move") Can you ply your skills in a smaller setting? You'll likely earn less, but the cost of living will be lower and you'll spend less time commuting.
Maybe you're in midcareer and yearn to take an extended work break.
- Figure out what you want to accomplish and how long it will take. Whether you want to volunteer in a developing country, remodel your house or explore a new line of work, your financial security will take a hit, so you'll want to make good use of the time.
- Figure out how much your sabbatical will cost, including health insurance and travel, if that's included in your plans.
- Find the money. Consider savings, a home-equity loan, investments or the sale of assets such as your car or home furnishings. Each option comes with a caveat. (See "Quit work for a year: 7 steps to do it right.")
- If possible, choose a leave of absence rather than quitting your job. You'll likely be able to borrow from your 401k.
Perhaps your goal is to retire early.
- Determine how much money you'll need to live on and how long it will take to accumulate it. (See MSN Money's Retirement Income Calculator.) Financial counselors say you should draw no more than 4% to 6% of your portfolio a year to make it last. (See the video "How much will you spend in retirement?")
- Once you retire, experts recommend that you maintain your investment portfolio in three pots: one to provide cash to cover expenses for a year, one in fixed income investments to generate money for the first pot and one in stocks to grow income for the first two. (See "Your 5-minute guide to retirement security.")
- Have a plan for what you'll do with your time once you have it. You'll want to replace the sense of purpose you gained from work with one that's even dearer to your heart.
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Updated June 22, 2010