Last week I came across a Facebook post that asked if retiring as a millionaire was possible. My generation tends to spend their money on “stuff” as opposed to saving for the future, so I was excited to see a 25 year old eager to save. I told him that it absolutely was possible. This week we shift our focus towards our younger readers who have an interest in putting their money to work for them, and how they can retire as millionaires.
On paper, achieving the goal of $1 million is not difficult. If an individual contributed $20 per week for 50 years earning 10% on their money per year, they would have $1.3 million dollars at retirement. However sometimes it is difficult to find extra cash to put away, whether it is due to job loss or maybe a new home purchase. Fundamentally speaking, earning a million dollars by retirement if you are in your 20’s is absolutely possible.
There are a few areas in which I would like to provide some words of wisdom to our younger readers…
Student Loans: DO NOT miss payments. Student loans can hurt your credit score and make it very difficult to obtain a loan down the road. Continue to make your scheduled payments and if you can prepay the loan, great. Do not drain your life savings to pay off the loan tomorrow though, if your savings accounts can earn you more than the interest rate on your loan, you might as well allow your money to keep working for you.
Study your monthly expenses: Whether you keep track of your receipts or use a software program to enter your payments and purchases (I personally use Quicken), look at how much you are spending a month and compare it to what your income is. Take that difference and put at least half of it into some form of savings, whether it is an IRA, a personal investment account or the bank.
Employer sponsored plans are for your benefit, take advantage of them: Most 401(k)/403(b) plans have some kind of matching program. That is FREE MONEY, not even the best investment advisor in the world can give you free money. Invest whatever amount it is that gets you the maximum matching benefit, then with the rest of your savings open up a non-qualified account (personal or joint investment account) or open a Roth IRA (you cannot be actively participating in a 401(k) and have a traditional IRA). An outside investment account will give you more freedom and flexibility in your investment choices and will not face the restrictions that your 401(k) plan does.
Find a good CPA: A good CPA will cost you about $200-$400 per tax year, but their ability to find you savings and deductions is astounding. They can do what Turbo Tax cannot, it is a worthwhile investment, plain and simple.
Above all else, you need a goal. Saying “I want a lot of money” is not a goal, but rather “I want my accounts to be valued at over $1 million by the time I am 60” is a goal, a very obtainable one at that. It requires discipline but it can be done. Sometimes, you need some help getting there; do not be afraid to ask for help. There are professionals who take care of everything from your investments and savings to your mortgage and debt servicing (financial planners), and there are professionals like us at Treece Investments who manage your qualified and non-qualified accounts so that you do not have to spend time stressing over the markets. Do not hesitate to talk to these professionals, most do not charge for a sit down, and sometimes $1 spent today can bring you $2 tomorrow.