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Today we’re taking a look at how to start at 20 with $0 and retire by 30 years old by following this income flow chart. This Is the exact steps I followed between the ages of 19 to 28 to be able to achieve financial freedom. This is investing for beginners, a 101 guide on getting started with money management.
The first step is the essentials phase where the priority is paying for things that allow us to exist. First we start with rent and/or the mortgage, followed by groceries. It’s imperative to learn how to cook and aim for meals that cost anywhere between $1-$2 to save as much of our incomes as possible.
Then we pay for essential utilities such as water, electric, and gas/heating along with essential hygiene items. The following step is paying for income earning expenses such as internet, phone, and anything that is required to help earn an income.
Health Care is the next one. In order to avoid paying the mandate, I used to donate to a church which exempted me from needing “real” health insurance to avoid being penalized. The president has since done away with the mandate so you will not be penalized on the federal level, but each state has unique rules about this so double check with your state. At this point in time, consider making minimum payments on all debts and loans (student loans, credit cards, etc.)
Phase 1 – This is an optional step that will vary for everyone and it’s not necessary but build an emergency fund of $1,000 or one months’ worth of expenses. If you have liquid assets that can cover these expenses (such as my Robinhood Dividend Stock Portfolio), then this is not necessary. Pay any “non essential” bills here as well (cable, internet, phone, etc.)
Phase 2 – Contribute to your company’s 401K and make sure to get the full company match but do not exceed it at this point.
Phase 3 – Make payments on mid to high interest rate debts of 10% or higher with either the “avalanche” or “snowball” methods, whichever one fits you best.
Phase 4 – Invest and contribute to an IRA, your individual retirement account (I have a Roth IRA with the M1 Finance app). If you have any expenses to pay that may increase your income such as certifications (for me it was my youtube equipment) , consider saving that money in a high yield savings account, if you need it immediately, use a checking account.
Phase 5 – Aim to save at least 15% of your pre taxable income for retirement. This number is based on a research that showed people will need anywhere between 55% to 80% of their pre retirement income to support them in retirement.
Please reference the following guide for more details. Credit and thanks to reddit user atlasvoid for putting this together: https://www.reddit.com/r/personalfinance/comments/4gdlu9/how_to_prioritize_spending_your_money_a_flowchart/
*Links above include affiliate commission or referrals. I’m part of an affiliate network and I receive compensation from partnering websites. The video is accurate as of the posting date but may not be accurate in the future.