4 Starting Steps to Financial Freedom
We all dream of retiring early and spending our free time doing what we actually want. However, how can we, as 18 to 25-year-olds, make sure that by the time we’re in our 50’s, we can retire and be well off? Or even better, how can we make sure that by the time we’re 65, we can live off millions?
Luckily for you, there’s no better time to get started than now. Surprisingly, most ways I will mention need time to grow, so starting at our age not only helps, but is necessary.
You’ve paid off most or all of your debt (congrats!), and you have some spare money. What should you do?
1. Keep your day job
Unfortunately, there is no other way around this, aside from getting lucky. Until you have the money to start a side-hustle (see #4) you will need constant paychecks to stay afloat and to pour into the other methods. The saying “you need money to make money” isn’t always true, but it’s the easiest. So until you have enough in emergency savings, investments, side businesses, and everything else you may need, keep the day job!
2. Invest for the long term
There is a reason I mention this second after the obvious one; if you take anything away from this article it is that the #1 thing you can do now, that you won’t be able to in the future, is invest in compound interest. Compound interest means that every year, the interest, or gains, you receive, grow based on the previous year’s gain. That means if you get a 10% return on $100, the first year you’ll get $10, but the second year you’ll get $11 (10% of $110). Let’s put it this way; Let’s say you want to retire at standard 65. I am 23, so that is 42 years away. Let’s say I put $100 in a standard market return of 7% every year. If I put that $100, and just that, by the time I am 65 I will have $1,714 (assumed, of course). Just off $100! Now, if I am 24 years old when I start, and only have 41 years, that only gets me $1,602! Just because I waited one year, I lost more than $100, which was my total amount put in! The truth is that you could lose thousands of dollars later in life simply by waiting to invest.
3. Invest in tax-advantaged retirement accounts
This piggybacks off the last one, but you want to start a Roth IRA and contribute to your 401k if you can. A 401k is great because oftentimes your job will match it up to a certain amount, that DOUBLES your money with zero extra work! Also just as importantly but more confusing, start a Roth IRA account on any brokerage firm (Vanguard, Fidelity, Charles Schwab, etc). A Roth IRA is a tax-advantaged account that lets you take out your money tax-free because you are investing money that’s already been taxed off your paycheck. This means money sitting in your bank could grow endlessly (see #2) and you can reap it all in the end with no taxes. The maximum amount this year is $6,000, which is $500 a month. If you can, try to max it out. Remember that $100 now can equal $1700 by the time you retire. When the money is in the account, you get to choose what to invest in. While investing in stocks you know may feel the coolest, index funds (funds that track S&P 500 or Nasdaq) or ETF’s (Exchange Traded Funds; a stock that is made up of the average of hundreds of other stocks) is usually the best way to go. I have my money in $VGT and $VONG, which are Vanguards Technology and Growth Funds, however, there are so many to choose from!
4. Get a side hustle going
Much simpler sounding than it actually is, there is nothing wrong with a 2nd job. Whether that job is a traditional 2nd job with set hours and locations, or it’s a gig job driving Ubers or Doordash’s, selling paintings, making songs, or writing articles for Medium, finding multiple streams of income can help accelerate your journey. I was never a big fan of dropshipping or affiliate marketing, but I’ve seen them be successful. Make logos, write content, deliver Amazon packages, we’re all in the grind together.
That covers the first steps you should take on your path to financial freedom! Feel free to follow along to stay updated on tips and tricks you could be starting right now to retire early.
