How to Retire by 30 and Achieve Financial Freedom
Updated: Oct 2, 2022
The idea of retiring early is a dream come true! You need to plan accordingly and sacrifice your present for your future. Early retirement is not easily achievable, but when done early you can enjoy the rest of your life on your own terms! No need to care about showing up to work on time, dealing with stress at work, or working at a job that doesn't fulfill your life! In the upcoming sections, you'll learn how to retire by 30 and achieve financial freedom.
Live below your means
This may sound simple, but this is most often cited advice from those that make millions early on. It is no longer frugality that gives us more cash. Although being frugal could help like using coupons to get food you usually get for cheaper or buying a reliable car instead of overspending on a car that you only use for your daily life.
But how low can you keep your living expenses? You need to find other ways of making money to retire while being financially independent, not relying on social security benefits, but having created automated systems to make you passive income.
Spending money is fun, but a lot must be sacrificed to retire in your 30s. But, that doesn't mean you have to invest or save all the money you earned from your job or other sources. You will have to keep track of your finances to achieve your financial goals.
Live on a Budget
The first step is budgeting. The average American follows the "50/30/20" budgeting. What's included in the 50/30/20 rule?
Needs include:
Groceries
Housing
Utilities
Health Insurance
Car Payment / Auto Loans
It's important to note that this is a fair budgeting tactic, but you won't be able to retire early. More aggressive savings and investing will be needed if you want to retire at 30. Your biggest advantage is time. Time allows you to unlock the true power of compounding your money.
As mentioned earlier "live below your means" including your needs. If you're looking for a one-bedroom apartment, you should consider location and price. Don't worry much about the looks of the house as your goal should be to retire early not drenching yourself with extra expenses just because the house looks "nicer". Please do me a small favor... do not buy a house and get into tremendous debt when you're young! It's definitely not worth it and you could've used that down payment on an investment property to generate you passive income.
Get used to being uncomfortable. Retiring early is no easy task, especially in your 30s. Why can't many people achieve this? Because it's not easy.
The budget I recommend 40/30/20/10:
According to the Bureau of Labor Statistics (BLS), the median salary of an average American is $54,132.
Here's how much you can afford with the 40/30/20/10 using the median salary of $54,132:
Needs: $21,652.80
Investing: $16239.60
Savings: $10826.40
Wants: $5413.2
Make sure to save up to six months' worth of spending in an emergency fund. Did you know that 49% of Americans couldn't afford an extra $400 of unexpected costs from their cash savings?
What if you were fired from your job and had no income? This is when being frugal isn't going to help much because you have no income! So, that's why we encourage everyone to have saved six months' worth of spending in case life takes a turn.
With this 40/30/20/10 budget, you can set yourself up for a great future!
Open an Individual Retirement Account
The IRA is a retirement savings account that allows people to make up their own 401(k)s by claiming a higher contribution than they can. An Individual IRA is open to everyone because the account is not a 401k. A typical Roth IRA is not eligible for IRA contributions of more than $6k annually. Similar to a 401k, a saving person should meet the maximum contribution limit on IRAs each year.
Although we want to retire early, why not take advantage of investing in the stock market without being taxed? Your employer can put a portion of your income into a 401k and you can invest and withdraw your money tax-free at 59 1/2 years old. If you would like you could withdraw early, but you'll pay an additional 10% as a tax penalty.
I recommend investing $500 a month into your retirement account and investing in low-cost index funds. Index funds offer a well-diversified portfolio, primarily the S&P 500 built up of 500 stocks. The historic return of the S&P 500 has averaged 10.5% from 1957 to 2021.
For example, if you were to invest that $500 continuously into an index fund that tracks the S&P 500 from the age of 22 to 60 then you will have $2,482,241.95 tax-free! If you weren't to invest that money, then the total money saved would've been $228,000, staying stale in your bank account! You made 11x your money without doing any extra work! Taking advantage of compound interest is the best thing you can do!
Yes, the point of this article is for you to retire early, but you can't just go full risk. You also need financial stability and this is what retirement accounts offer. Don't put all your investment budget into retirement accounts or else you won't be able to enjoy early retirement.
Investing in the Stock Market
We already have our retirement account set up with our low-risk index funds. Now it's time to introduce more risk to our portfolio. Individual stocks can help us speed up the process to retire early.
Unlike index funds, individual stocks will require more research and knowledge in the market. You're basically investing in a business with a future to produce more money. The stock market has created tons of millionaires and billionaires. All the billionaires you know of have all their net worth in stocks of their own businesses
What to look for in stocks?
Revenue growing fast (20% or more yearly)
Profitable
Evolving (always creating and acquiring new business to grow their company)
P/E Ratio (is the company over or undervalued?)
Leadership (an amazing company with horrible leadership is the beginning of the end)
You have to do a lot of research when it comes to choosing stocks. Always have a long-term vision and plan to hold these investments for a long time. There are investments with dividends, so you get paid to own stocks. Check out the 7 Best High Yield Monthly Dividend Stocks to earn passive income.
A quick set of questions for you
What companies can you name right away?
Companies you purchase products from
Known to produce quality products
Everyone is using them
You've seen advertisements for them.
Keep close attention to these companies because they most likely have stock and you can invest in them on your phone. If you don't have a brokerage account, I recommend Robinhood. Check out Investing With Robinhood Made Easy.
Be aware of market downturns and upturns and don't let the market control your emotions.
Invest in Real Estate (Best Investment to Retire Early)
Around 90% of the world's millionaires have been created by investing in real estate. It is sure to help you own early retirement. The only reason you should be saving money is to invest more. Luckily you don't need to save too much money because you can leverage your properties to earn passive income! This is how true wealth is built... DEBT!
By owning a property you can earn money in several ways:
Residential Rental
Home renovation / flips
Vacation rentals
Commercial Real Estate
There's much more, but they will require more knowledge in the area of real estate.
Real estate is one of the best asset classes because the land is limited. So, if you purchase a house it will appreciate in value because there will always be demand for housing.
If you don't have enough capital to start then look for a partner and split the costs and efforts by half to continue mastering your craft and have more money to invest. Invest in education by buying a course in a real estate sector that interests you the most. Once you own your first property, life starts to get so much easier. You now have 2 sources of income from your job and your properties and you have equity in the stock market.
Financial independence has only gotten a few steps closer and you can say hello to a new lifestyle. You can now set a future for your family and lay a foundation for generational wealth.
Welcome to Early Retirement!
Yes! You! You can change your life at an early age! It's no longer a pipe dream to be retired in your 30s, even 20s. There are lots of people who dedicated their time and spend their hard-earned income on cash-producing assets.
Even if you don't achieve retiring in your 30s with the information from this blog, I know for sure you'll be very close and will get there in no time! You'll also be way far ahead of everyone!
What are your plans after retiring? Where will you spend your time? Will you get closer to family or do that thing you always wanted to, but couldn't because you had no time?
You would think that life would be amazing after you're retired. Well, first off it will be, but it's going to get boring if you just sit home all day, and you're always going to want more.
More money, more properties, more cash flow, more businesses, etc... All these are good things and can elevate your lifestyle! Then you no longer have to reduce expenses, but should be looking forward to spending more money on healthier food, new experiences, charities, and all those things you've wanted to do!