How to Retire at 30: a Step-by-Step Guide
They say that youth is wasted on the young. And I can honestly say that it was quite wasted on me. Not that I saw my 20s through the bottom of a glass or lived them in front of a screen with a popcorn bucket in my hand, but still, if only I knew what I know now and I want to share with this video, I would be successful and long retired by now.
I think every one of us would like to live a life of freedom. Freedom to explore new worlds, to nurture your passions, to do what you love without having to work a job you don’t like to be able to survive. We’ve come a long way since our ancestors had to hunt for survival. They had to. All day risking their life just to have one more day to live.
But we live in a different time now. Most of the money we create with our economy is not intended for our survival, but for our comfort. Now we work for progress. Like tiny ants, we keep the wheel of our economy spinning to make sure that none of us miss their essential needs, but also a ton of comfort we don’t really need.
More and more people now, including myself, are getting tired of working a job they don’t like just for the sake of a functioning economy. We are yearning for a life where we are free to develop our passions, foster our talents, and enjoy our young years instead of selling 45 years of slavery for 10 years of freedom in our 70s.
Many movements have been born, including the FIRE movement (financial independence, retire early), and they all aim for the same goal: reaching financial independence. The Internet and Social networks are bursting with blogs and videos about how to reach financial independence and retire by the age of 30, being able to enjoy a life of freedom and happiness.
Most of these sources will tell you about rules like the 4% rule, the bucket strategy, the x25 annual spending that you need to accumulate and so many other strategies taken from books. These strategies are important, but for what I’ve learned, and I wished I knew in my 20s, there is much more than that.
I want to condense in this video all aspects that I consider vital for being able to retire by the age of 30, and live a beautiful life free of the chains of an unpleasant job. To do this, we will cover the financial planning aspects as well as the mindset and perspective that will guide you in the next years through this path to financial freedom.
I want this video to give you a complete picture, so that afterwards you’ll have all the guidelines to be able to achieve in the next 10 years of your life what you are usually supposed to achieve in 45. If you’ll enjoy the video, don’t forget to subscribe to my channel and let’s keep in touch on Instagram, tiktok or Facebook.
To give you an overview, we’ll start reflecting on the mindset you need to be able to retire early. We will then calculate how much money you’re going to need, based on your goals and expectations; and then we’ll go into detail through the 4 main strategies to retire early, which are Reducing expenses, Optimizing your savings, boosting your income and investing in assets.
Step 1: Change the way you think about money and retirement
Now, the first question you need to ask yourself is “why are you pursuing financial independence?”. This might sound like a stupid question but the truth is that based on your goal in life, the path to financial freedom will need different strategies to be traveled. Some of you want to retire by age 30 because they want to travel the world, some because they hate their job, or maybe just because they are against consumerism and would like to live a life of simple means.
To retire early, you need to change how you think about retirement and money. Early retirement doesn’t mean retiring in the conventional sense of stopping all work, although lying on a floating mattress in the middle of a swimming pool all day isn’t exactly a bad idea; But instead, if you want to retire you should do it to reclaim your time to do the things that matter to you.
Retiring early is possible for everybody if you start soon enough, but it requires more or less effort based on your goals and your expectations. So first you need to set your expectations and start from there but if you ask me, money only matters if it helps you live a life you love. Early retirement is not about accumulating as much money as possible, it’s about having enough money to feel free to pursue your dreams and your passions.
Now, there are many ways to sustain yourself while you are retired and using the money that you accumulated early on should only be a part of it. Of course, you may spend the first years traveling the world, which is by the way what I would do, but there’s going to be a point in life in which you are going to need to have an impact. And this is a good thing actually.
Maybe there’s a passion that you can transform into a money maker. Or maybe you just want to feel free from a corporate job that oppresses you, but you’d be ok taking on a simple part-time job. So Mindset shift number 1 is seeing early retirement as a chance to do what you love and not as a chance to do nothing, I think it makes sense to you.
And maybe, what you love can even be monetized and this is going to help you immensely because you are not going to need to save enough money for 50 years before retiring from your normal job.
So now some of you might say: “Rick, we are talking about retirement, I just want to sleep, sip from a cocktail and watch television when I’m 30.
Well, still you don’t need to accumulate so much money before retiring that is going to last for the rest of your life. Instead, you need to cleverly put the foundation of a money tree that will keep your money growing long after your retirement. In other words, creating passive income sources.
Regardless of the path you choose, retiring by 30 will require a lot of work and frugality upfront and therefore we get to the mindset shift number 2 which is a lifestyle mindset. You can aspire to become rich and live a luxurious life, and I wish you to achieve everything you want in life, but it’s going to be much easier to retire early if you aspire to a modest, simple lifestyle. Too many people have won the lottery only to see their whole money disappear within a couple of years.
Too many people have budgeted their money wrong and found themselves broke. If you want to retire by 30 you are going to have 50, 60, possibly 70 years of your life that you need to finance with your savings. So live below your means. This might sound simple, but it is the single most-repeated piece of advice offered by the people who really have made their millions early. And it’s a mindset shift because living frugally shouldn’t end once you’ve reached your financial target. After retirement living below your means is going to become even more important.
Step 2: Planning: Make a Clear Plan for the Future
Survey your current status
Ok. The first step is developing an honest estimate of how much you will need. Let’s start with your longevity. According to the Center for Disease Control and Prevention (CDC), the current average lifespan of an American woman is 81.4 years and 76.3 years for the American male. So basically by retiring at 30 you’re going to have to stretch your savings for half a century.
And if you come from my island Sardinia, they might easily become 70 years of retirement – Seriously, we got more centenarians than shops here. Anyway, 50 years as retired is our starting point. Then you need to define your future lifestyle. Besides living frugally, define what kind of expenses you are going to have to face. Take a paper and a pen and try to list down all the expenses that you expect to have.
Don’t forget to consider things that maybe aren’t relevant to you right now, but can become relevant as you mature, like kids or a bigger apartment. The lifestyle you picture will decide how much money you need to save up. If you want to know how to calculate your yearly expenses, you can check out my video about getting out of debt that I’ll link here.
How much do you need to retire at age 30?
When the list is done, the question is “how much money do you actually need to save up?”
There are thousands of different ways to calculate it and each one is less reliable than the other. But don’t panic, I just mean that if you think about it, you can’t possibly calculate what you are really going to need in your next 50 years. But you can make a good estimate.
If you want to be conservative, you could calculate your average annual expenses and multiply it by the number of years you’re going to be retired. So imagine that you spend $40,000 after taxes annually and you expect to live 50 years after retirement, you’d need 40.000*50 =2.000.000$. But still, if you consider an average inflation rate of 4%, your 40.000$ are going to be worth like what, 6.000$ of today’s money in 50 years.
What I want to say is: You can’t live off your savings unless you are able to generate income while you are retired. And you do this either by having your money invested, or by finding ways to monetize your passions after your retirement.
Now, considering that you will at least invest your savings and get returns from it, a method you can use to estimate your necessary savings is the one suggested by the FIRE movement, based on what’s known as the 4% rule.
The theory behind the 4% rule is that, if you save 25 times your annual cost of living and you invest it in a mix of stocks and bonds, you’ll be able to withdraw 4% of the portfolio each year in retirement without ever running out of money, because this sum that you have is going to grow every year more than the 4% that you withdraw.
For example, let’s say you need $50,000 per year to sustain the lifestyle you want. Using the withdrawal rate of 4%, you multiply $50,000 by 25, giving you $1.25 million. If well invested, this sum will grow by more than the 4% you withdraw every year, namely by more than 50.000$, and therefore will never decrease under 1.25M.
Now, all these numbers do not take into consideration your real-life concerns. Ask yourself how your lifestyle is going to change in retirement. Think about family, kids, hobbies, and how much you are likely to receive in Social Security benefits (Social Security calculator).
Step 3: Reduce Expenses
Ok, now that we know pretty much how much we need to save, it’s time to talk about how we can get to that sum. First of all: have your expenses under control. For example, subscribing to this channel is free and it doesn’t impact your finances at all, but will give you a lot of information about how to improve your finances and lifestyle.
So be nice and click that subscribe button over there… Anyway, unless you just won the lottery, even after subscribing to my channel you’ll have to cut costs and learn to live more frugally if you want to accumulate your target savings amount.
The less you spend in retirement, the less you need to save. Likewise, the less you spend today, the more you can save for retirement.
Now, usually, we spend money for three reasons: one is because we need it for our survival and basic care, our so-called Needs. One is because we want things we don’t need, and these are our Wants, and another because we need to give money back to a bank because we bought things we couldn’t afford, and these are the debts.
The worst expense you can have is the interest you pay on your debt, and in particular I’m talking about the dangerous credit card debt. Getting out of debt is the best form of investment, in fact, the money that you are going to save on interest by not having debt is better than any return you could possibly get by investing that money in the stock market.
The only debt you should think of taking, but only if you do it in the right way, is the mortgage. The right way means for me that you buy a small place and you set the mortgage over a relatively long period of time so that the amount that you pay every month is like what you’d pay on rent.
This way you are not spending more than by renting but you are insuring an asset that’s going to come in handy when you retire early. If you want to know everything about how to get out of debt, visit my video about debt that I will link here.
While you reduce your debt, or even in order to reduce your debt, you’re going to have to reduce your wants. The key here is “Live below your means”. This includes restaurants, expensive gadgets, clothes and phones, and by the way it’s all in my last video about debt, so check it out after this.
Cutting your Wants will not be enough, in fact the average American spends over 70 percent of his income on housing, transportation and food. So trimming your budget in these areas will have the greatest impact on your overall savings.
Number 1, housing: if you are young, live in a small apartment, or better with roommates, or even keep living with your parents if your goal is to save as much money as possible. – Your parents are going to be happy about this.
Number 2 is transportation: settle for a cheap second hand car or even better use public transportation. This is going to save you thousands of dollars every year. And please, avoid leasing a car or getting into debt in order to buy one.
Number 3 is food: avoid restaurants and get used to cooking your own food. Try to use coupons when you go buy groceries and be aware of what you buy and their price.
Now, making short-term sacrifices in your youth is extremely important and you should see it as an opportunity to retire as early as possible. The sooner you start making these sacrifices, the easie r they are to adopt, and the more impact they’ll have on your goal to retire early.
Step 4: Optimize Your Saving
While reducing your expenses, you are creating more savings for you. So start moving part of your savings into a savings account of yours that you’ll use as an emergency fund. Imagine that at some point you get fired, or you have to move or something goes wrong.
Whatever happens, you might have to experience a period of time without any income. My suggestion is then to save at least six months income. This doesn’t have to necessarily be in the form of liquidity, but it’s important that you can cash it out at any moment.
To maximize your savings, you can also sign up for your employer’s 401(k). The money you save like this is deposited into the plan before it’s taxed, so less of your income will be taxed now. Plus, your savings will grow tax-free until you withdraw the money at retirement, hence they will compound at a faster rate. But the biggest advantage is when your employer also contributes to your 401(k).
For example, if your employer contributes $1 for every $1 you save, up to 6 percent of your pay, do your best to contribute the whole 6 percent, because you are getting an instant 100% return thanks to your employer. If a 401(k) plan isn’t an option for you, you can sign up for a Roth IRA. You’ll fund it with money out of your paycheck that’s already been taxed, but when you withdraw the money in retirement, it will be tax-free.
Alternatively you can contribute to a traditional IRA. All of this about 401(k) or IRA just regards a part of your savings, because the main part will be used first to pay off debt and then it will be invested, but we’ll see that later.
Step 5: Boost your income
Now we’ve seen the importance of cutting expenses and saving money. But there is one downside to cutting costs: you can only go so low before life becomes unbearable. And there’s probably nothing worse than living in complete sacrifice for over 10 years, depriving yourself of every joy, only to find out that it hasn’t been enough.
If you want to make in 10 years what you are going to need to spend in the next 50, you are going to need to boost your income. And for this basically you have two ways: one is incrementing your income on your actual job and one is creating other sources of income.
Within your current job or kind of occupation, you can increase your income by asking for a pay rise, by upgrading your education with additional training and seminars that allow you to switch to a more specialized and higher paid job, or simply by changing jobs with one with a better salary.
Alternatively you always have the option to take a part-time job. But if you really want to retire in your 30s I won’t lie to you. Just relying on salary bumps or small increases by switching jobs will unlikely help you achieve your desired goal within 10 years.
Instead, in your young years you should focus on starting a business or a side hustle that you can potentially leverage to earn much more than you will ever earn in a lifetime with a normal job.
In today’s economy, it’s arguably never been easier to make money. If you have a hobby or unique skill, turn it into a side hustle and this could become a passive income stream in early retirement. It’s really important, though, to choose the right side hustle. You must find something that can potentially impact many people or impact them enormously.
For example, if you open a grocery shop, you can just impact the people living in your district. So if you want to increase the income from it, you are going to be forced to increase the hours you spend working, and there are only so many hours in a day. Other side hustles, though, allow you to access the whole world as a possible audience.
This is the kind of side hustle you need to start. For example one of my favorites is becoming a Content creator. It doesn’t have to be Youtube, you can create courses or you can start a blog for instance. Whatever passion you have, there is a way to put that content available on the internet and monetize it. If you want to learn how to get rich quick with a side hustle, I’ve recently made this video (indica il video) and you should really watch it.
This video is going to give you all the tools that you need to define which business is right for you and has the potential to make you rich in a short period of time. There are different aspects to consider, like scale, control, entry, need, but you’ll find all the information there.
Additionally to this, if you just want a list of online side hustles that are going to boom in 2023 and that are most likely your best choices if you want to retire early, I recently published another video that is a top 7 list of side hustles for 2023 and it’s really worth watching if you want to retire early.
Step 6: Invest in assets
Ok, now, we know we need to work out a business that will generate great returns and boost our current income as much as possible. But still the goal is to stop working when you are 30. Right? Maybe you can generate more money starting a business based on your passions after retirement, but maybe you don’t want to do anything.
In both cases, before retirement you should invest as much money as possible because you want your retirement savings to keep growing after you retire. Otherwise, spending money year after year your savings will decrease more and more until one day you’ll find yourself without money again. There are many ways to invest your money in your 20s but I’ve got 4 main tips for you.
The first one is to invest in the stock market. There are always two types of people, one that says that investing in the stock market is risky and dangerous and one that says it will make you rich. The truth is that it’s really easy to make it dangerous and risky if you start picking stocks, because let’s face it, we are not Warren Buffett.
But the wonderful solution to this is called Exchange Traded Funds or ETFs. When you buy an ETF you are basically buying a basket of many companies and the ETF grows following the weighted average growth of all the companies inside it.
So the advantage is that, for example, instead of buying a single company in the automotive sector, that might go well but might also go really bad in the future, you are buying the whole Automotive sector. So some of the companies inside might decrease in value but others will increase, and the final result is in general a positive one in the long term. But let me make it easy for you.
The best ETF you can probably choose, which is by the way what Warren Buffett says his family should invest in when he passes away, is an ETF that follows the S&P500 index, for example the one that Vanguard offers which is called Vanguard S&P 500 ETF (Ticker: VOO). The Standard & Poor 500 index, S&P500, is a diversified collection of hundreds of America’s best companies, including Apple, Microsoft, Amazon, Tesla and so on.
The S&P500 has been growing from more than a hundred years with an average yearly growth of around 9%. Now, we are entering a decade of little growth for any kind of investment, therefore I can’t promise 9% growth in the next years, but in the stock market S&P500 is probably the best choice you can make if you want to have great returns in the long term. Assuming you invest 1500$ every month from the age of 20 to the age of 30.
At your 30th birthday you are going to have a portfolio of 273.000$, with a total return of more than 50%. 273.000$ will already give you a return of 24.000$ per year, if you consider a 9% growth, which for some people is already enough to live. Invest 10 more years and the compound interest starts kicking in, giving you 921.000$ when you are 40. Almost a million. And this is going to give you over 80.000$ per year of return without doing anything.
Of course living frugally, avoiding debt, starting a good side hustle, all these steps are going to extremely speed up your path to retirement because you are going to have more money to invest and can get to your savings sum before your 30s.
Know your risk tolerance
Now, let’s talk about risk tolerance. Usually the younger you are, the more you should risk. Since you are probably in your 20s or younger, you should try to risk more. Considering the drop they experienced this year, you could invest a part of your savings in established cryptos like Bitcoin, Ethereum, Cardano, Polkadot, Binance Coin and so on.
No one can know the future, but considering what happened in the last 10 years of crypto it is possible that in the next 4 years they will give you extreme returns. Nevertheless, limit the portion of your savings that you invest in crypto or other risky investments to a max of 5-10%.
To mitigate the risks, you should diversify even more. Already choosing the S&P500 instead of single stocks, you diversified a lot within the realm of stock equities. Moreover you took some bigger risks with Crypto. In addition, you could buy real estate investment trusts – the so called REITs.
Buy Real Estate
They are great assets and will always pay you back passive income for life. It’s going to be hard to learn and get into that business but it’s a great way to build a passive income source. If you want to break the ice with real estate, you could try to buy a small flat.
Try to negotiate a good interest rate and stretch the pay back time frame to the point that you pay every month less for the mortgage, than what you can get by renting it. This way you have two advantages: You have an asset that pays for itself, and you have an additional layer of security for your future, because in the worst case scenario you can use that flat yourself and won’t have to pay rent for the rest of your life.
Have a back up plan – How to mitigate your risk
The last suggestion that I want to give you, before closing this video, is “Always have a backup plan”. Times can get tough and none of us can foresee the future economy.
That’s why as I said you should always have an emergency fund that you can survive with for at least 6 months. Without an emergency fund, in case of need you may have to cash in some of your investments. The risk of doing this when the markets are down is that you could end up with a loss.
Beside having a back up plan, try to be flexible about your retirement age. I know we talked about 30 years old, but if you get to 30 and you are still not sure if you saved enough and acquired enough assets, it’s not a bad idea to keep accumulating until you feel sure.
And in the meantime, since you still have some years before your early retirement, be sure to subscribe to my channel, hit the like button a nd ring the bell, so that you’ll get notified of future videos. Let me know what your plans for early retirement are in the comment section below and connect with me on social networks.
I wish you a great evening and I’ll see you in the next video. Ciao!