What To Do In Your 20s So You Can Retire By Your 40s

If you’re in your 20s and you want to retire by your 40s, I have some good news for you, and I have some bad news.

Let’s start with the bad news first — you probably were never taught much about personal finance, investing, improving your credit, or reducing your expenses. We just don’t teach those very important lessons in our school system.

But here’s the good news — you have the most valuable asset on your side right now: TIME. You have enough time to get your finances in order and become financially free by your 40s. You just have to know what to do and start doing it as soon as possible.

My Big Answer on Quora

I decided to write more about this topic after seeing an overwhelming response to answer I gave on the Q&A site Quora.

I had answered some questions in the past but never had the reaction I had to this one…

The question was:

“What should I learn in my 20s that will help me to financially retire at 35 and travel the world for the rest of my life?”

I started my answer with:

“I retired at 43, but if I knew in my 20s what I know now, then I could’ve retired at 35. Here are the 6 steps I’ve developed to help young people set themselves up for a successful early retirement:”

And from there I outlined the 6 steps that I believe provide the simplest and most effective way to achieve a successful early retirement.

Before we go over what the 6 steps are, let’s look at what happened in the 3 weeks after I posted the answer.

In those first 21 days, the answer was shown 742k times, upvoted 2.88k times, and shared nearly 1000 times.

I share these stats not to brag, but to illustrate two things:

1) There’s a serious need for knowledge about personal finance for young people in our country (they simply don’t teach these principles in our schools), and

2) The solutions aren’t rocket science. I think that’s why my answer was upvoted and shared so much — because the steps are I propose are easy to implement AND I’m living proof that they work.

Now, let’s jump into what the 6 steps are!…

Step #1: Know Your Numbers

The first step is to Know Your Numbers.

Get in the habit of tracking your income, spending, assets, and liabilities. Put all these numbers in a spreadsheet and update them regularly. You should know your Monthly Net Income and your Net Worth like the back of your hand.

What do I mean by “Net Income?” It’s simply your total income from all sources minus all of your expenses. Ideally you’ll calculate this on a monthly basis, so it’ll be your Monthly Net Income.

By calculating your Net Income, you’ll be able to see how much you currently have to start putting towards savings, investments, and paying down debts.

Now let’s look at your Net Worth. What exactly is your Net Worth, and how do you calculate it?

It’s simply the sum of all your assets (like your home, your car, and your bank accounts) minus all your liabilities (like your mortgage and your car loan).

Net Worth will give you a very clear picture of the strength of your financial health.

I suggest updating your Net Worth weekly (or at the very least monthly). Even if it doesn’t change that much, it’ll keep you more focused and in tune with how your finances are doing.

Step #2: Figure Out Your Target Retirement Goal

The second step is to Figure Out Your Target Retirement Goal.

You can use the 4% Rule and Multiply by 25 Rule to calculate how much nest egg you need to retire. Basically these rules say that you should have at the minimum 25x your yearly expenses in your retirement nest egg.

The 4% Rule is used to help you determine the amount of money to withdraw from your retirement nest egg each year. The idea is for you to withdraw a small percentage of your nest egg to live on for the year while leaving the bulk of it untouched, so that it can continue to work for you.

In other words, according to the 4% Rule — if you stick to a withdrawal rate of 4% (or less) of your nest egg each year, you theoretically should never run out of money!

That leads us to another rule called the Multiply By 25 Rule. This rule will help you determine just exactly how much Nest Egg you need to retire.

What is the Multiply By 25 Rule? Well, if we simply “flip” the 4% Rule, we can calculate that your Required Nest Egg is equivalent to your Yearly Withdrawals x 25.

One final bit of advice on the 4% Rule and the Rule of 25 — you should consider these to be your minimum requirements for setting your Nest Egg goal.

If you can live on 3% or 2% of your Nest Egg, that will give you even more security! If you want to play it safe, aim for a Nest Egg goal that’s 30x or more of your Yearly Expenses.

Let’s look at an example: suppose your yearly expenses are $30k. Take that $30k, and multiply by 25 to get your Minimum Savings (that comes out to $750k). If that number seems daunting, just know you can reduce it by lowering your expenses, which we’ll talk about shortly.

Step #3: Pay Down Debt

The third step is to Pay Down Debt.

If you have credit card debt, you’ll never retire early. Devise a plan to eliminate credit card debt asap. As for other debts, like student loans, car payments, and mortgages — the more you can eliminate the better.

Here are some tips to get that debt paid off faster:

Pay highest rates first:

You’re probably not going to be able to pay off all your debts at once, so you have to prioritize which ones to pay down first.

Obviously, the debts with the highest interest rates should be paid off first. You should also look at other factors, like whether the interest is tax deductible and if there are annual fees.


Another strategy to help pay off your loans faster is to consolidate your higher interest loans into one lower interest loan.

Not only can consolidating help you reduce the interest rate you’re paying, but it can also lower your monthly payments, protect your credit, and help you pay down your debt faster.

Automate your payments:

If you haven’t done this yet, it’s a no-brainer and super easy to set up. Automating your payments will help you avoid missing any payments and/or getting late fees.

Pay more than the minimum:

In addition to automating your payments, you should try to pay more than the minimum each month. This strategy will help you reduce the total lifetime interest you pay and enable you to pay off your debt faster. Even if you only pay 10% more than the minimum, every additional amount helps.

Student loan programs:

If you have a lot of student debt, check with your employer to see if they offer any reimbursement plans. Some companies have programs to help their employees pay off their student loans faster.

Also, look into any federal or state loan repayment and forgiveness programs. These programs are available, so you may as well see what’s offered — just Google “government student loan reimbursement” to see what you may qualify for.

Other options:

If you feel your debt has gotten out of control, there are other options you can pursue, such as credit counseling, debt settlement programs, and even bankruptcy.

Step #4: Maximize Your Income NOW

The 4th step is to Maximize Your Income NOW.

To build your nest egg, you need income. The best way to maximize income is to develop multiple streams of income.

Here are some suggestions to earn additional money:

Freelance Work:

A great source of additional income is doing Freelance (or Contract) work. You can find a variety of work opportunities on sites like Upwork, 99designs, Fiverr, and Thumbtack.

These sites are great for skills like marketing, web design, engineering, writing, and other skill sets that are typically in high demand.

Many businesses prefer to hire Freelancers to work on projects that are too small to justify hiring a F/T employee. And if you do a good job, you may be able to extend your contract, get additional projects with that employer, or even get hired on a more permanent basis.

Side Hustles (or Side Businesses):

These can be a great source of additional income. You can create and sell your own products, become a wholesaler, or provide a service.

If you have some expertise in a topic, then you can develop on online resource like an ebook, an online course, or a how-to video on Youtube.

Ideally the topic should be about how to do something specific that others would like to be able to do.

Some examples: how to build a website on Wordpress, how to invest in the stock market, how to play the electric guitar & get into a rock band, how to interview for a job, or how to rebuild a car engine. The possibilities are endless!

Another option is to act as a middleman or wholesaler on sites like Amazon and eBay. Or build a business around a service (like web development, tax prep, design, etc).

Gig Economy:

If you prefer not to sit at a desk all day, there are all kinds of income opportunities in the burgeoning gig economy (also known as the On Demand Economy).

You can drive for Uber or Lyft, perform tasks for other people on TaskRabbit, deliver food for Instacart, or find babysitting opportunities on UrbanSitter. These jobs are great, because you can pretty much pick and choose when you want to work and how many hours you want to put in.

Sharing Economy:

A more passive way to earn extra income is with the Sharing Economy. This involves renting out (or sharing) something you own to others for a fee. You’re basically using your assets to work for you and make money for you.

The most popular sharing economy site is AirBnB. If you happen to own your a home, you can make extra money by either renting out the whole property or just a room.

Some other sharing economy opportunities include Getaround (for car sharing), Spinlister (for your bicycle), and Sailo (for, you guessed it, your boat!).

Step #5: Learn To Invest

The 5th step is to Learn How To Invest.

In this step, you’re going to take all that extra income and GROW it! You should understand and take advantage of these 4 investing concepts: Compound interest, Dollar cost averaging, Diversification, and Automation.

Compound Interest:

To put into perspective the power of compound interest, just read what Albert Einstein (one of the greatest minds in modern history) had to say about it:

So what exactly is Compound Interest and how does it work? Basically it means that you’re earning interest on interest, so each year’s gains get larger and larger.

Dollar Cost Averaging:

This is an investment strategy of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price.

By using this technique, you buy more shares when prices are low and fewer shares when prices are high. When you average out the price you paid for these shares, you haven’t paid too much or too little (kind of like Goldilocks).


You set up auto-investments and let them run. You basically set it and forget it! We’ve talked about how to automate your debt payments earlier. Well, you can also automate your investments.

The easiest way is through your company’s 401k plan, because they’ll automatically make the investment for you from your paycheck each pay period.

But you can do the same thing on your own with your IRA or non-retirement stock investments. We’d recommend investing weekly if possible (to take advantage of dollar cost averaging). At the very least, plan to do it monthly.


As the saying goes, “Don’t put all your eggs in one basket!

By diversifying, you’ll spread your risk over a variety of different investments. For example, if the Real Estate market tanks in your area, you still have stocks and bonds. Or if US Tech stocks take a tumble, you’re still invested in corporate bonds and International funds.

Step #6: Slash Your Expenses

The 6th and final step is to Slash Your Expenses.

If you really want to retire in your 30s or 40s, you can’t spend all your money on stuff you really don’t need. There are a variety of strategies to reduce or eliminate altogether a lot of your household expenses.

Here are some suggestions:

Buy Used:

The first tip is to buy things used (or secondhand), especially big expensive items that lose value quickly. Some examples:

  • Car — You’ll save a lot of money by buying a car that’s a few years old, and if the previous owner took decent care of it, it’ll feel almost like a brand new vehicle.
  • Furniture — Look on sites like Craigslist or Nextdoor for used furniture. Many people look to sell their old furniture when they get new furniture or are moving. Typically they’re motivated and are willing to sell at a low price.
  • Clothing — You can buy secondhand clothes at stores like the Salvation Army or Goodwill, or online at sites like ThredUp or Poshmark. Many times the clothes are as good as new but might just be out of season or have a small flaw.

Buy in Bulk:

We’ve been shopping at Costco for many years and get a variety of our household items there to take advantage of the bulk discount. Things like toilet paper, cat food & cat litter, peanut butter (my personal favorite), coffee, and snacks.

Do Things Yourself:

Rather than paying someone else to do it, take on projects yourself. Not only can you save a lot of money this way, but there’s a certain sense of satisfaction from doing things on your own.

Some examples:

  • Small home improvement projects — we’ve done our own projects like fixing a garbage disposal, replacing toilets, painting, and installing a ceiling fan.
  • Gardening — there’s a certain zen feeling to working in your own garden.
  • Your taxes — (even though our taxes have gotten complicated over the years, we prefer to do them ourselves with TurboTax) — it’s a lot cheaper than hiring an expensive accountant and it forces you to better understand what’s happening with your money.

If you’re ever not sure how to do something, just go to Youtube, and there’s most likely a how-to video to walk you through it!

Get Free Stuff:

The best place to find free stuff is on free-stuff websites. The two we typically use are Freecycle and Nextdoor. You can also get free stuff on Craigslist. The nice thing is that not only are you getting something for free, but you’re keeping something from being thrown into landfill.

We’re also big fans of clothing swaps. The way it works is you bring all the clothes that you no longer wear (or no longer fit) and you take any available clothes you want (they may be used but they’re new to you!). Anything that’s left over goes to charity.

If you’re interested in finding a clothing swap, try searching online for one in your area Or talk to your friends about hosting one of your own.

Cut Creature Comforts:

Some of the money-sucking culprits are your clothes dryer, your temperature controls (heat in the winter and A/C in the summer), and your cable TV bill.

To help reduce these household expenses you can do the following:

  • Dry your clothes outside. If you don’t have access to a yard and clothesline, you can just use a fold-up clothes rack and put it on your deck or in your bedroom.
  • Cut the cable cord — there are more and more cheaper options now than using one of the big cable providers. Check out Sling TV, streaming services like HBO Now, Amazon Prime, and Netflix. Or you can opt for a Basic cable plan or even just an indoor TV antenna to get local channels.
  • Turn down the A/C and Heat — Bundle up with extra sweatshirts and blankets in the winter, and open windows, close your blinds, and run fans in the summer (as much as you can considering where you live).

To Learn More…

This was just an overview of the 6 steps to a successful early retirement. If you’d like to learn more about achieving financial freedom by your 40s, check out our additional resources:

Website: RetireBy45.com
FREE Guide: The 7 Keys To A Successful Early Retirement
Online Courses: Retire By 45 Academy

As I always say, none of this rocket science. It just takes some initiative on your part. BUT if you apply these sound financial principles when you’re still relatively young, then you too can definitely earn yourself an extra 20 years of retirement!