Most people view millennials as entitled, narcissistic, and incapable of making money. They believe they should receive free goods, rather than having to work for them. But there’s another side to the story. Millennials are the most educated generation in American history; over 25% of them (or about 16 million) have graduate degrees. They’re also more likely than older generations to be entrepreneurs who want jobs that excite them and pay well enough for early retirement at 35 years old or earlier.
The United States recently experienced a millennial moment, as median incomes for Americans aged 18 to 34 surpassed $30,000 for the first time since the Census began tracking that data in 1967. By this month’s reading, median incomes had risen another $1,000. With little fanfare, we entered a period in which it is possible for young adults to build less than $100,000 in wealth over their lifetimes—a staggering improvement from previous generations.
Why invest early in your career?
Today’s young adults in their 20s and early 30s are in the best position to retire early than any other generation in the past. You will have more money to save, and you can invest it more effectively than in previous generations.
The biggest advantage you have is time.
When your parents reached their 30s, they were busy supporting a family and buying a house. They had little time or money left over for savings and investing. As a result, their net worth was static at best and nonexistent at worst.
If you were to use your fiscal peak years as the years between your 20s and early 30s, when you are just starting to earn money and starting to think about retirement, you would have more time. People living into their 70s often invest in their 60s or late 50s, hoping that it will give them time to get started before they get too old for this game. But by the time they hit retirement age, most of them don’t have enough earned wealth to invest—if they’ve even started investing at all.
Your investments should grow faster than inflation because you need to have something to live off of during retirement. As a starting point, take the amount of money that you’re spending per year now—not just your living expenses but all of the transactions that you make every day with money.
The median age for retirement in the U.S. is now just over 60 years old, and it’s growing younger. That’s because baby boomers started retiring at an average age of 54 in 2000, just five years after the dot-com bust, and many of them were already in their late 50s by then.
If you go back to school or buy a car or start a business later, you don’t have to worry about supporting a family and buying a house in your early 30s. You can begin creating the assets you’ll need for financial independence when you’re still young enough to enjoy them: time and money can be put to good use before they’re used up.
People under 35 will own more than half of all wealth by the mid-2020s, and families who do reach the three-home, three-car lifestyle often don’t have enough money to retire early. As Bloomberg BusinessWeek put it: “Forget the American Dream. A new survey finds that 80 percent of people say that achieving financial security is their No. 1 goal.” And if you’re working for somebody else, it’s more likely that you’ll achieve financial insecurity than financial security.
How to invest early in your career?
Financial assets can be regarded as bets on the future, where you’re betting that either something will happen to make your bet pay off or you’ll lose your money if nothing happens.
Although it’s always possible to invest in something speculative for a quick return, it doesn’t take much time to learn that in general, this is a bad idea. Even when investment markets are at record highs, the longer you hold an investment, the higher the likelihood that it will still be worth something when you go to sell it. As a result, your investments should bring you more money down the road than they take from you now and they should be assets that you can keep and grow for as long as possible.
Your investments should grow faster than inflation because you need to have something to live off of during retirement. As a starting point, take the amount of money that you’re spending per year now—not just your living expenses but all of the transactions that you make every day with money.
You’re more likely to achieve financial independence if your annual income is between $30,000 and $100,000. However, it’s not always going to be easy to reach financial independence through investing.
When you’re just starting to save, the first $10,000 you put aside will be your hardest to save. Not only is it harder to save at the beginning than it is 10 years later, but if you wait too long and start saving in your 20s and early 30s instead of investing now, there may not be enough time to grow those investments into enough money to retire on.
Saving $1,000 per year is doable when you’re making $30,000 per year as a young adult. When you’re making $100,000 per year as a young adult, it’s still doable—you just have a lot more money coming in. By the time you’re earning that much as an adult, your investments should be paying off successfully and you should have a nest egg that can employ you for at least a few years before you retire.
Your investments should be assets that will retain their value, so they’ll continue to grow even if you retire early: real estate, precious metals, and stocks. Over the long run, holding stocks and bonds is likely to be less risky than paying too much for real estate or buying gold or silver bullion. You may also want to consider starting with some more conservative assets such as T-bills or CDs before you start investing in more speculative assets such as stocks.
Starting out, it’s important for you to think about what you’ll need when you retire, so the amount you invest may change considerably depending on whether you have children. If you have no dependents, then the amount that you need to save will be much less than if there are children in your extended family.
Even if you’re just starting out, the amount that your investments will grow over time is likely to be significant. You can keep an eye on their performance by creating a chart for how much they’ll be worth when they reach various ages in the future.
To keep things simple, you can use a compound interest calculator that lets you plug in several different assumptions about the market, inflation and the company that you’re investing in. These assumptions should include some kind of estimate of how long it will take for your investments to reach their intended target age, so you know what kinds of returns they’ll need to produce over what period of time.
Putting it all together,
Your investments must generate a certain amount of return annually if you want them to grow from where they are now to financial independence over a set period of time.
The way in which inflation and interest rates affect stocks and bonds also affects their ability to generate a return. If interest rates are too high or if inflation is too high, then it may be difficult to make money on your investments. For example, if you buy stock index funds that just mirror the stock market without trading at all, then you’ll get capital gains taxes when they’re bought and dividends when they’re sold, making them less attractive.
To make truly lucrative investments, you’ll have to predict how the stock market will do in the future and what kinds of trades will provide the highest return. In general, you can take risks when you’re investing for retirement or financial independence because there’s no shortage of money. The risk that you’re taking is that you’ll lose money in order to get a higher return later on—and not all investments will succeed in an effort to try to become wealthy.
Bottom Line: Invest early, invest well, focus on decision–making, and thus become Financially Independent, fast as you can.
