What is the biggest barrier to financial independence? It’s debt. I think a great first topic, is a starting point that so many millenials begin at. You’ve just finished college, starting your career, and sitting on a great big pile of debt!
There is no question about it, debt is the first wall you need to break through if you ever want to achieve financial freedom. You work hard for your money, and you want to enjoy life, not pay off debt, but the truth is a tough and aggressive strategy will achieve unbelievable results long term. Don’t believe me? I’ll let the numbers speak for themselves.
Lets consider a simple example, at the age of 25 years old you are sitting on $100k of debt, and just starting your career earning a salary of $50k per year. As long as you are still in debt, it will increase by 5% per year due to interest, but once you are out of debt you can invest your money and it will grow by 5% per year.
So the question you are left with? How much debt will you pay off per year, and how much will you contribute to your investments once your debt is paid off. The graph below has 5 scenarios, saving 10%, 20%, 30%, 40%, and 50% of your income per year that will go towards your debt/investment.
As I said, the results speak for themselves. Saving 50% of your income each year will leave you a millionaire by the time you are in your 50’s, while saving only 10% per year will leave you still in debt by the time you start thinking about retirement.
Next lets consider that timing is everything, the sooner you begin to tackle your debt and start investing in your future, the sooner you will achieve financial freedom. The next example considers 5 scenarios, in each scenario you save 30% of your income per year, but you wait to begin paying off your debt. Lets what life looks like at 55 if you start investing into your future at 25, 27, 30, 35, and 40.
Waiting until you are 27 will result a difference of about $100k in wealth by the age of 55! If you start at the age of 35 you will barely be breaking even, and starting at 40… well lets just say you have a few more years to go before you can start thinking about retirement.
In summary, these examples are very simple, in real life your income will increase as you advance in your career, the growth rate of your investment will vary year by year, etc… Be assured that these topics will come up again in the future, so don’t forget to always check back for new content.
The biggest question though is how do you save a certain percentage of your money each year? Once you’ve paid tax you still have to pay rent/mortgage, food, transportation, and so much else, how do you manage whats left over?
That why the next article will be focused on creating a budget that accommodates your lifestyle and helps you achieve your savings goals, who says you can’t save 50% of your income per year! Maybe you can do even better! Please check back soon to learn how and don’t forget to leave a comment and share this article with your friends!