Since we are now getting very close to the end of our early retirement journey (in less than six months), I thought I would reflect on some of the decisions we made in our twenties that set us up for early retirement success. I know a lot of people are talking about the stupid article “If You Are Saving Money In Your Twenties, You Are Doing Something Wrong” that came out last month (don’t click on it if you can help it!). But I thought readers of this blog who are currently in their twenties (or early thirties) and might appreciate some color commentary on what helped us get to early retirement at 49 years old …
- BE HUMBLE, NOT BOSS – Avoid the just out of college temptation to borrow for shiny new cars, vacations, or an expensive place to live. Life is a marathon, not a sprint, and you will have plenty of time to enjoy life’s finer things. In fact, you will look back with amusement & satisfaction that you started humble & made it big later in life. When we started out, we shared a practical used car while many of friends bought brand new luxury vehicles or big trucks. We felt like we were behind at that point, but you should see our garage now.
- KILL THE WEEDS EARLY – If you have already accumulated debts (credit cards or student loans) pay them off as soon as possible. Even if they seem small relative to your bright future, you will be surprised how quickly they can grow and spoil your ability to build wealth. My wife & I were debt free (except the house) when we were 26. If you could do it even sooner – I would recommend it.
- MAX YOUR INVESTMENT HORIZON – As you start your career, start saving immediately. Don’t squander the savings potential of your twenties by spending everything you make, which is what most people do. Investments grow with the formula principle x returns x time and time often makes the biggest difference among the three variables, because an extra 10 year period adds 30-40% to a 25 or 30 year time horizon is huge. It would be hard to increase your savings deposits or investment returns by that much, wouldn’t it? A financial planner shared this concept with us when we were in our early 20s and it made an incredible difference.
- BANK YOUR RAISES – Start investing in your employer’s 401k fund or a Roth IRA and increase the amount you contribute each year. Instead of upgrading your lifestyle with every annual pay raise, bank the raises for a few years until you are saving a full 15% of your gross income (or more). We’ve held our lifestyle spending flat for almost a decade now – many of those years we banked well over 50% of our income.
- PICK A MATE FOR LIFE – It’s a shame when divorce turns a marriage into a bankruptcy proceeding. I suppose it’s hard to always know exactly who you are marrying, but do your best to ensure that you have similar values with respect to kids, work, & money. Those are the things that people end up arguing about and can undermine your ability to plan for the future. Mrs. FireStation and I just celebrated our silver anniversary – we make decisions together and are ready for early retirement (before 50) together. That’s worth more than money, but also necessary to save money.
- AVOID THE NOT-SO-SMALL HOUSE – If you are starting a family you will want to buy a house, but don’t buy more than you can afford. Aim to have a 20% cash down payment (so you can forgo lender mandated insurance) and take out a 15 year mortgage. You won’t have as much house as some people your age, but you will be building equity fast and have much lower interest rates over time. Again, it will be fun to remember the “tiny house” you once lived in.
- PLAN FOR A STRONG FINISH – It’s easy to compare yourself to others at this stage of your life, but it’s better to have a strong finish than quick start when it comes to building wealth. When I share my plans of retiring before I am 50, many of my friends are amazed that I have been such a “great investor”. Truth is I’m a very basic investor who had the good sense to differ gratification early and started to save in earnest in my 20s.
What other suggestions do you have for setting yourself up for success in your twenties?
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