Lifestyle
10 smart tips for financial freedom and early retirement in Nigeria
The dream of every working-class Nigerian is to be able to retire at a young age, when they can still enjoy their adult years after long years of service. Unfortunately, with the economic instability and poor salary, many people find themselves working even past the recommended retirement age in the country.
Despite the uncertainties and rising cost of living in the country, while salary remains the same, it is still possible to achieve financial freedom and retire early in Nigeria. However, it requires proper planning. The high inflation and economic uncertainties necessitate a robust and multifaceted approach.
This article explores ten (10) tips that can be leveraged irrespective of your income or societal status, to achieve financial freedom and early retirement.
1. Be clear and specific about your retirement plans
Before embarking on this journey, paint a vivid picture of your desired early retirement lifestyle. Ask yourself these questions:
- When do you want to retire?
- What will your daily life look like?
Crucially, estimate your expected annual expenses in retirement, factoring in inflation. This figure will be the bedrock of your savings and investment targets. There are free tools available online that can help to accurately calculate your retirement nest egg.
2. Start saving early and dedicatedly
The power of compounding cannot be overemphasized, especially when aiming for early retirement. The earlier you start saving, the closer you will be to achieving the total amount you need for retirement. Leverage reputable saving platforms and bank features to help you remain committed to this routine.
Aim to save a significant portion of your income – potentially 50% or more if feasible. Automate your savings to ensure consistency.
3. Create a detailed budget and track your spending
Like savings, expenses compound. Take, for instance, a N20,000 monthly savings on expenses can compound to N2.4 million in 10 years. This is why a meticulous budget is non-negotiable if you are planning for early retirement.
Understand where your money is going and identify areas where you can cut back. Living below your means is fundamental to freeing up cash for savings and investments. Regularly review and adjust your budget as your income and circumstances change.
4. Invest wisely and diversify your portfolio
Saving alone is often not enough, especially in an inflationary environment. Explore a diversified portfolio of investments. This could include:
- Real Estate: Rental income and property appreciation can be significant. Consider residential or commercial properties.
- Nigerian Stock Market: Invest in reputable companies and potentially dividend-paying stocks.
- Mutual Funds & ETFs: Offers diversification and professional management.
- Treasury Bills & FGN Bonds: Generally lower risk and can provide stable returns.
- Agriculture: A key sector in Nigeria with various investment opportunities.
- Fintech & Tech Sector: Emerging opportunities with high growth potential. Understand the risk-reward profile of each investment and align them with your retirement timeline.
5. Build multiple streams of income
Relying on a single source of income can be risky. Explore avenues for creating additional income streams, both active and passive. This could include starting a side business, freelancing, offering consulting services, investing in dividend-yielding assets, or creating digital products. These extra streams can significantly accelerate your retirement savings.
6. Minimise and eliminate debt strategically
Loan is the first go-to for some people whenever they are financially stranded. While loans can be saving grace in such situation, not all reasons for taking a loan are justifiable. Taking loans to purchase a luxury or want instead of need is a bad financial move.
High-interest debt can cripple your ability to save and invest. Always pay off your loan as soon as possible. Heading into early retirement with little to no debt will significantly reduce your financial burden.
7. Plan for healthcare costs
Health deteriorates with age, which is why healthcare expenses is the major concern of many retirees. Considering the challenges of the Nigeria’s healthcare system, you will need a robust planning.
Explore health insurance options that provide adequate coverage. Also, consider setting up a dedicated health savings fund.
8. Understand and maximize your pension
Familiarise yourself with pension scheme your employer subscribed you to. Ensure your employer is making contributions, and consider making Additional Voluntary Contributions (AVCs) to boost your retirement savings.
However, do not rely solely on your pension especially if you plan to retire early. Given potential economic uncertainties and the primary goal of early retirement (which may precede typical pension access ages for the full amount), your personal investments should form the core of your strategy.
9. Take cognisance of inflation
Inflation is a significant factor, especially when it comes to retiring in Nigeria. Your investment strategy must aim to generate returns that outpace the inflation rate to preserve and grow the real value of your savings.
Consider investments that have historically hedged against inflation, such as real estate or certain types of equities. Holding too much cash can be detrimental in the long run.
10. Remain disciplined and conduct regular strategy review
The journey to early retirement is not a “set it and forget it” affair. Regularly review your financial plan, at least annually or when major life events occur.
Track your progress, rebalance your investments if necessary, and stay updated on economic changes that might impact your strategy. Discipline, consistency, and adaptability are key to achieving your early retirement goals.
Disclaimer
The information in this article was curated for educational purposes only and should not be substituted for financial advice.
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