Today we’re going to discuss the step by step guide I used to reach my early retirement goal in my late 20’s. Enjoy!
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PHASE 1: Your Freedom Figure
This is the target you have to reach, in order to have full control of your life. This is something you should know even if you have $0 in the bank.
There is a great way to figure it out and it’s called the X25 Rule…
So firstly let’s assume you want to make $50,000 per year without working. Secondly, we would need to multiply 50,000 by 25 which gives us 1.25 Million Dollars. The idea is that you are able to withdraw 4% of this per year without ever running out of money, and 4% of 1.25 Million Dollars is $50,000.
PHASE 2: is Laying The Foundations!
There are 4 stages I considered when I was in this phase during my early 20’s.
Stage 1 is Paying off High Interest Debt.
It’s crucial to pay this off before you even consider investing your money, as high interest debt is holding you back. But saying this, it is very important to understand the difference between ‘good debt’ and ‘bad debt’
Stage 2 is Putting aside an Emergency Fund
This is essential for your foundations as if you start investing without an emergency fund you might find that a few months down the line you get into a spot of bother with an unexpected expense and no cash to pay it… You will then have to pull your investments out to cover the expense, and you will miss out on potential profits.
Stage 3 is Building A Great Credit Score
A credit score is a bit like your CV: it follows you around in life, is regularly updated, and it helps lenders decide whether you’re a worthy borrower.
All you need to do as soon as you turn 18 is get a credit card, start putting some little expenses on it like gas, and pay that baby of in full at the end of each month. This way you pay no interest and prove to the lenders that you are a reliable borrower.
If you aren’t 18 yet you can just ask your parents to make you an authorized user on their credit card.
Stage 4 is Reducing Your Tax Liability
In my early 20’s my income was really starting to get eaten up by taxes, so I started looking for the best ways to save as much as possible. I then discovered if I opened up a retirement account then I could save money I hadn’t paid tax on. This is known as a 401K in the USA and a SIPP in the UK.
I opened another account that allowed me to save money that I had paid tax, but in the future I wouldn’t have to pay any tax on my capital gains. Or in other words, all the money that money generated! This is called a Roth IRA in the USA and an ISA in the UK.
PHASE 3: Building Multiple Income Streams
A secure job is nowhere near as common as it once was with the average person now working up to 12 jobs in their lifetime.
The more perceived value you have to society, the more you will get paid. If you do the bare minimum or your service doesn’t really help people, you will be paid bare minimum.
PHASE 4: Creating Passive Income
Once you have your side hustles and income in check, it’s time to start looking into passive income streams. Side hustle money doesn’t last forever, that’s why you want passive income streams so that your money can make more money WHILE YOU SLEEP!
I’m talking Stocks, Real Estate and Cryptocurrencies!
The stock market is probably the easiest to get involved in, especially nowadays.
Cryptocurrency is the second area I would focus on as it also has quite a low barrier to entry with apps like Coinbase making it easier than ever to purchase crypto coins, however it is definitely riskier.
Real estate is the last on the list, this is honestly the holy grail of wealth building, however it is a little harder to get into.
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