Method 1 of 2: The Basics: Making Smart Decisions
1 Determine exactly what a young age is. Young may be 40 or 50. In determining this age you'll want to be reasonable. If you're already 27 with no net worth it is going to be very difficult to retire at 30, so the first step is setting the age you want to stop working.
2 Learn to manage finances. Before you start bringing in the money necessary to retire young you'll want to know how to manage your money. There are countless amounts of stories of people who win the lottery, and end up miserable and penniless. No matter how much money you make it is important to manage it well.
- Start and stick with a budget. A budget will help you control everything from how much money gets saved to how much money gets spent each month. If you haven't started budgeting already, do it. It's amazing how many people don't know how much money is coming in and going out each month. You can't be responsible like that.
4 Save early, save often. The earlier you start saving, the quicker you'll retire. It's a devilishly simple idea, but it's hard to execute, and this is why: we humans value the tangibility and utility of the present over the far-off possibilities of the future. But you're not one of the unthinking masses, are you? You like the idea of saving early and saving often, because you know early retirement is sweet and attainable.
- In your twenties, experts say that you should at the very least put away 10% of your income straight into savings. This much should be easy to do in your twenties, even if it means you have to skimp a little bit.
- If you can, save any and all disposable money that isn't used to pay expenses, minus a bit of money for discretionary spending. If you earn $3,000 a month and have $1,500 in bills, squirrel away $1,250 each month and give yourself an extra $250 to do as you please.
- Rent instead of buy. Go to the library and rent books instead of buying them and then letting them attract dust forever. Watch movies online instead of buying DVDs. Renting may not make you feel powerful, but it will sure help you feel prudent.
- Take advantage of free stuff. There are whole websites devoted to people who believe in freecycling. Sign up for a (free) conference and partake in their buffet luncheon. When you travel, try couch-surfing. The world is full of wonderful opportunities to get free stuff; just make sure you're respectful and courteous doing it.
- Carpool if you can. With the rising cost of gasoline, you can potentially save $200-$300 a month on gasoline alone. This works out to a savings of $2,400-$3,600 per year.
- Wash your laundry in cold water. Detergent manufacturers sell specially formulated detergents meant for washing clothes in cold water.
- With cell phones being commonplace, consider whether you really need a land line in your home. If you do need one, some companies offer phone services using the internet, which is cheaper than regular land lines.
- Use LED or fluorescent bulbs in your home. Not only are they just as bright, but use much less electricity.
- Buy necessities in bulk. While the initial cost may be higher, you will save money in the long run. This includes water, toiletries, and food.
Method 2 of 2: The Nitty-Gritty: Saving (Lots and Lots) of Money
1 Don't get fooled by get-rich-quick scams. They're out there almost everywhere you look: scams that promise easy money with very little effort. The problem is, with them being so widespread, why aren't more people rolling in free money? The painful truth is that it's extremely, extremely hard to get rich, and it's extremely likely that giving your hard-earned money to one of these schemes is a lot like flushing it down the drain. If it's too good to be true, it probably is.
2 Get a Roth IRA. The Roth IRA is a special savings account that lets you bypass taxes provided that you keep your money in it for a certain time (usually after you're 59½ years old). You don't have to keep all your retirement savings in your Roth IRA, but it's a good idea to make tax free dollars for when you're older than 60. There are several bigadvantages of Roth IRAs:
- You choose an investment plan for your money. Your money gets invested in a portfolio instead of just sitting there, meaning that it can grow much larger than if you put it in regular old savings and get a measly 1% interest rate.
- Compound interest. Roth IRAs generate interest on your interest, which is called compound interest in the industry. You need to let your money sit for a while in a Roth IRA, but once you do, your money will start generating huge amounts of interest, which only then get bigger.
- Note: This is a way to beat inflation, and shouldn't be a large part of an investment strategy. Inflation happens when the government prints more currency, and the value of the total currency goes down. Do this if you're worried about inflation, not as a way to get rich.
- Houses (usually, although the housing crisis of 2008 proved that wrong)
- Stocks (usually, adjusted for inflation, the stock market has steadily climbed since 1900.)
- Small business (usually, but not always)
6 Create an automatic income source. It doesn't have to be a 401K, but you should set yourself up to receive funds even while you're not working. You could start a blog with advertisements on each page, or write articles for a revenue sharing site. Whatever you decide needs to generate income on its own; that way when you stop working, you can still pay your bills. Other automatic income sources include:
- Affiliate marketing programs
- Drop-shipping retail store
- Many more
- Bad debt looks like this:
- Heavy debt on your credit card for purchases that have long since lost their value. You're only paying the minimum payments and your interest rate is at a whopping 20%, before tax.
- Good debt looks like this:
- A mortgage on a nice home that's less than what you would pay to rent the home. The down payment on your home was over 20%, and the home is in a neighbourhood that's gradually increasing over time.
9 Take advantage of a 401(k) policy if your company offers it. A 401(k) policy is where your company funnels a small portion of your paycheck into a separate, tax-deferred savings account. The maximum current yearly contribution to 401(k) is $17,500.
- The great part of about 401(k)s is that your out-of-pocket contributions may be matched by your employer, depending on their policy. This means that whatever amount you decide to put into your 401(k), you employer will put in the same amount. If your employer does match contributions, definitely take advantage of that policy. It's the closes thing to free money you may ever get.