Your everyday behavioural choices will make a big difference to your ability to retire early and wealthy says Elizabeth Kerr

By Elizabeth Kerr

So what is this all about anyway and why do I care so much about how you spend your own money?

The answer is because I think that retirement need not be something you wait until you are in your 60s to achieve.

I think that if we drop all the financial drama, keep things simple and we talk honestly here together; then planning for an early retirement wont be just for the lotto winners and technology whiz kids.

Additionally I think that unless you are responsible for inventing a product or service that everyone needs in their lives then you don't have the right to rest on your financial laurels expecting to be continually employed until 65.

So I guess you could say my care is two-fold. I think having an income shouldn’t be taken for granted, so you should plan to retire as soon as possible just to be on the safe side.

It sounds harsh but your employment luck could run out at any time.

We assume that when we start our first job that it's going to pay a basic wage, and then we assume that if we work hard (or for some just keep showing up each day) that eventually that basic wage will grow, so we don't worry about saving too much because we will earn more eventually, so we defer saving until then.

But the problem is that by the time the more money starts coming in we have already increased our expectations of what we think we deserve to have and do with our money that the extra pay just gets swallowed up in gym membership fees, car loans, expensive coffees, pricey hair cuts, credit card interest, hire purchase or designer clothes.

It is this behaviour that separates the aspiring middle class from the wealthy in my opinion.

Let me make a typical example that I see all the time.

A student finishes their degree and gets an internship for a global firm based in the city.

The first thing that they need to acknowledge (but don’t) is that they are working with people who have been working for a few years or more so their earnings aren't going to allow them to spend like they do.

They are interns ... they are meant to look and behave differently ... no less diligently ... just differently.

But they forget that and in an effort to keep up they buy the designer branded suits and shoes to look the part and to show everyone how apparently successful they have become. Out of laziness they buy lunches out every day, take colleagues out for coffee and shout a few rounds on a Friday afternoon.

When they begin working longer hours they suddenly must have a car – it has to be a late model European car as no one of their decree now would be seen dead in anything older than 5 years. They drive this car into the city and pay handsomely to have it parked for at least 10 hours each day. To rub salt into their financial wounds they soon finds that this lifestyle is turning them into porky-pig so they pay a premium for the privilege of sweating in the nearest gym to their workplace.

When their monthly salary doesn't cover all of this they put it on credit cards and take to hire purchase like ducks to water thinking that soon they will be up for a promotion and can pay it all off then (besides they want to collect the Airpoints and hire purchase is interest free for 36 months ... right?).

But their luck is bound to run out well before their feelings of entitlement do.

All firms have ebbs and flows of business like any other and a companys’ projects come and go. Redundancies, restructures and time on the bench are as common as white bread.

If they were thinking before spending they might have realised how foolish it is to hedge bets on future income and might have done things a bit differently.

They could have moved to walking/bike distance closer to work thus negating the need for a car, car parking and an expensive gym membership fee.

They might have made lunches each day and been choosy about their attire going for clothes which made them look smart but not bankrupt their internship income.

I'm not saying they can't participate, but I'm suggesting they think first and put away more for the day when their luck runs out – for when their boss shouts "last on first off" from the corner office and they are jobless.

It doesn't just happen to those who are wearing suits or young and starting out. It happens to specially skilled and older employees as well. Every week there is a news report of a company closing/downsizing and/or sending manufacturing off shore. It’s no use whinging and moaning about this it’s just the ebbs and flows of business whether you personally like it or not.

The skills required in the workplace change so frequently that one can't be expected to keep up with the pace and the only protection anyone has is to prepare for when their luck runs out.

My husband started his career doing coding that no one even learns about now. He currently does a job that didn't even exist 8 years ago. He doubts it will exist in 10 years time either and instead will morph into another type of role for which he will be too old and seemingly fuddy-duddy to do.

Let's be honest, the drive and ambition of gen-y seems to be more attractive to employers than the cautious guidance of an older dude. (Again, no matter how much we want to argue the pros and cons of this ... It's just the way it is ... Not many grey haired interns about these days are there? ... Enough said!)

So my point in all this is that the young and the old can't afford to rest on their laurels because the time will come when luck does run out.

Our world now moves too quickly and the requirements of employees change with every year so it is plainly foolish to expect at you will a). be employed and b). that your earnings will continue to increase.

The only option you have is to gift yourself your own Golden Watch.

If you prepare as though you are going to be unemployed at any time then you will be just fine.

You can do this by paying close attention to your lifestyle and keeping your expenses low, investing what’s left responsibly and preparing for the day when you can live off the passive income from your personal money machine.