Here are five things we tell young people who want to achieve financial independence or retire early.
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1. Compound interest is your friend
Katie: In the world of financial independence, there is a belief that you have to have a million dollars invested and people often say, “I will never make a million, it's impossible.”
We keep telling them that they don't have to make a million. Compound interest will work out for you at least half of this amount. At such a young age, if you just invest some money and let it grow over the years, the results are phenomenal.
2. Learn to spend
Alan: Another tip is to find balance in your spending. When young people discover the possibility of financial independence, they get excited and think about retiring in their 30s. They think: “I will reduce my expenses to an absolute minimum and, for example, cancel my friend's wedding to save money.” Don't do it – enjoy life.
Katie: At the same time, your enemy is lifestyle inflation, trying to keep up with your friends and social expectations. You must resist the pressure to buy a bigger house or another status symbol after a promotion. Most people increase their spending when they start earning more money.
Alan: Happiness doesn't have to be expensive. It could be cooking dinner with friends, playing board games, running or arm wrestling with a neighbor.
Think about where you get happiness from and invest your time, energy and money there. I don't get any joy from expensive watches or random luxury items, but I love Marvel and that's where I direct my resources.
3. Diversify your savings
Katie: Build a fund for three to six months of basic expenses in case something goes wrong, such as if you lose your job. Also, have a second account with a small amount of cash for planned expenses over the next few years, such as a car, vacation or other short- to medium-term goals.
Alan: Everything else should go to tax-advantaged accounts*. And after using the limits for such accounts, invest the rest through a brokerage account.
*It is difficult to find a direct equivalent of such accounts in Poland. The Personal Investment Account planned by the government is to be something like this (OK). Currently, however, you can use, for example, an Individual Retirement Security Account (IKZE)which will give you a tax refund and a pension in the future.
4. Don't stop learning
Alan: Twenty-year-olds do not devote enough time to independent learning. They think: “I have already completed my education, I was taught at the university, I am educated – and that's all.”
Traditional education will earn you a salary, but lifelong learning will earn you a fortune. Reading books, studying, taking courses, learning from people who are great at what they do and modeling their behavior will really help you. Ask people how they got their current job or what they would do if they were your age.
Education should not end when you leave school. It should have just started then.
See also: “We are not ready for what is coming,” warns the Nobel Prize-winning godfather of AI
5. Take care of your health
Katie: Another thing you should learn – and we are learning now – is health and things like vitamins, supplements, eye patches to improve sleep, and water.
You don't have to optimize everything, but try to follow the 80/20 rule: eat well, sleep well, move 80 percent of the time. time, and for the remaining 20 percent just enjoy life.
The above text is a translation from American edition of Business Insider
