If you’re in your 20s or 30s, forget about saving for retirement. I don’t mean forget about saving and investing, I mean change your saving goals from “retirement” which is a distant and vague goal to “financial freedom” which you can attain at any age. If you’re willing to make some sacrifices in life, you can reach financial freedom years, even decades, before you reach retirement age.
How I define financial freedom is the freedom to live where you wish, move when you want and not be bound to any place or any company in particular. Financial freedom means you can handle a major car repair or medical expense without borrowing money and it means being free of encumbering debt. While the definition may sound simple, attaining financial freedom is a tough road, especially when you’re young. Attaining financial freedom means starting early and making sacrifices.
Minimize Student Loans
Student loans are one of the major productivity killers in the U.S. Student loans hobble young people during the most productive years of their lives and the unrelenting payments trap them in dead end jobs, sometimes for decades. While it’s almost impossible to get through college or an advanced degree without accumulating some student loan debt, anything you can do to reduce the amount of debt you take on is worth the sacrifice. Even if it takes you a year longer to finish, if you can avoid debt by doing so, give that option a hard look. Use community college to avoid a big piece of the expense of a four year college, though do pay attention to the portability of the educational credits you build up in community college.
Redefine Housing
Housing is, at its most basic level, keeping a roof over your head. Anything beyond that is emotion and making emotional housing decisions can cripple your finances for decades. Buying a house, especially right now, means taking on an expense that’s going to eat up nearly forty percent of your combined income. Right now our housing options in the U.S. stink and there’s not enough lipstick in the world to make that pig any more attractive. Mobility is a tactical advantage in the world and thinking divergently about living options can save you a lot of money. I would urge young people to consider every possible alternative housing option, including building your own house, tiny houses and alternate living arrangements. Some of you are going to the extreme of living in campers and vans and, if you can do that, you’ll be able to bank a lot of cash ahead. Van living is not a lifestyle everyone can handle and there are risks, but, sadly, it works.
Work Towards Self-Employment
I get that this is a stumbling block for a lot of people. Running your own business is harder than collecting a paycheck. Okay, so don’t start out intending to launch your own business, just learn basic business principles. That will help you out in your day job and get you to start thinking like a businessperson. Take classes, talk to small business owners about how and why they got into business and how they financed the transition. Instead of trying to come up with a business plan that needs a ton of startup capital, think about ways to start a business with little or no money. It’s easier to get financing to expand an existing business that already has a track record than a startup.
Minimize Transportation Expenses
Just like a house is a roof over your head, a car is a device to get you from point A to point B with the least possible trouble. I am constantly amazed at how many people accept loan and lease payments as part of their financial lives. No matter much money you put into service for a beater, it’s still yours at the end of the month. If your car is anything other than basic transportation, it’s an emotional decision that’s costing you money in debt service, lease fees and increased insurance.
Housing, transportation costs and student loans are the three big cripplers of personal finance. Working for wages, which have been basically flat for decades, is the road to financial stagnation. If you want financial freedom, you’re going to have to work for it.