It’s never too early to start thinking about what you can do to retire early. Even if you end up working well into your later years, you’ll have set yourself up for a lifetime of security, enjoyment, and success.
Of course, the steps that you’ll take to prepare for retirement differ from one decade to the next. In other words, the things that you’ll do in your early twenties will be different from how you approach early retirement plans in your forties.
If you’re in your twenties, and you want to retire early, then consider these first steps:
Imagine What it Means to you to Retire Early
You can’t start making a plan to retire early if you don’t even know what that looks like for you. Of course, your plans might change as you age. Nevertheless, you should start by establishing a vision right now.
At What Age Would You Like to Retire Early?
At what age do you want to retire? Early retirement in the 21st century can mean:
- Making a fortune with a start-up and retiring in your thirties.
- Establishing a location-independent career by your forties.
- Retiring in your fifties and spending the rest of your life in leisure.
These goals are each very different. Therefore, your plan starts with knowing those goals.
What Does Work Look Like After You Retire?
Early retirement might mean that you don’t work at all. On the other hand, you might simply want to retire from a 9-5 job while still earning money from passive income, side gigs, etc. Pore over all of the options available to people who retire before the typical age of 65. Choose the goal that makes the most sense for you. Then select a backup plan just in case.
How Much Money Do You Need When You Retire?
Finally, set a financial goal. If your dream to retire early is to travel frugally then how much do you realistically need for that? If your retirement dream is to stay home and raise children, then how much do you need to secure the house and necessary lifestyle costs?
Do your research. For example, find out what other people in similar situations are paying monthly. How much do they keep in savings? What resources do you need for post-retirement emergencies, health care, etc? Think about the cost of inflation.
Start Growing Your Net Worth Now
Dreaming up your retirement life is a good start. You’ll have a good idea of your financial goals. Furthermore, you’ll know how much time you have to meet those goals. Once you’ve done that, you can set a decade-by-decade net worth goal. Then it’s time to start growing your net worth. This means that you reduce your debts and increase your assets. Starting in your twenties you can:
- Work hard to keep student debt loan minimal.
- Pay off all credit cards each month to establish good credit.
- If you have existing credit card debt, pay it off aggressively.
- Find an employer with 401(k) matching. Invest the maximum allowed.
- Set up an IRA account.
- Start family planning. You’ll need to save up for kids if you plan to have them.
Finally, if you intend to invest in expensive items that can become assets (cars, houses), then it’s time to start getting savvy about those purchases. Make smart choices to make those investments work for you.
Invest In Your Money Education
More than anything else, you should spend your twenties learning about money. Our society doesn’t teach people enough about money. However, the information is out there. You can take classes (online and in person), read books, subscribe to financial blogs, and talk to experts. The more you know, the more likely you’ll be able to retire early.
For example, you should definitely learn how to make and stick to a budget. Your goal is to live well within your beans. You should also learn about all types of investments including risky, risk-averse, short-term, and long-term investments. Finally, you should learn how to communicate about tricky money issues with loved ones. From your eventual spouse to your aging parents, the people in your life can impact your own finances. Therefore, it’s important to be able to speak with them.
When you’re in your twenties, you have a lot more energy than you might have as you get older. Therefore, it’s the perfect time to really spend time working hard. Create a career plan and follow it aggressively. Take side jobs; they give you extra income plus work experience. Learn everything you can about passive income streams and start figuring out which ones will work for you.
Finally, surround yourself with peers who also want to be smart with their money. This can go a long way towards how much progress you make in your 20s towards your goal to retire early.