The Young Person's Guide to Financial Independence

If you're young and just starting out, you may be anxious to become independent and move your life forward. You are in the early stages of a prosperous life, as long as you make smart decisions, starting now. It's easy to feel as if you have to accomplish all your goals immediately, but being in a hurry can backfire if you charge full speed ahead, without fully weighing the consequences of every action.

The potential damage from hasty-decision making can be avoided, if you remember that you have many years to build your dream life; Rome wasn't built in a day. Pave a solid foundation, and build your life little by little. One smart step at a time will lead to the life that you've decided is right for you.

Take advantage of your no-cost living while you can.
If you still live with your parents, you probably don't have many expenses. The necessities, such as food, shelter, clothing, transportation, medical care, and plenty of entertainment are being provided by the people who love you most. Don't take that for granted.

If you have income from even a part-time job, save at least half of it with every paycheck; this is likely to be the last point in your life that you'll ever be able to save as much as 50% of your income. Some day soon, you'll be paying all those expenses yourself and you'll have a great appreciation for all that your parents have provided for you.

You'll need plenty of money when you start out on your own, the more, the better. Stash the money you save into some CDs at your bank, so you have the funding needed when it's time to get your own place. Parties, fashion, and gadgets may be important at this time in your life, and that's okay; just make sure you are building for your future at the same time.

Get your education.
The traditional route is going to college, but many college students enroll in programs when they still aren't sure what they want to do with their lives. Education isn't just about a piece of paper that proves you were educated. Education is about life experiences and learning from them.

If you know want you want to do for a living, you've got an advantage over those who haven't yet found their passion. Get your degree, and good luck with your job search. Many other students have chosen a major, only to later realize that they really don't like the field they've chosen. They change their major after completing much of the coursework for the wrong degree, wasting time and money.

If you aren't sure of what you want to do yet, consider taking another approach. Take all your general studies courses first, go to school part-time, and get a part-time job in your field of interest. You may have to settle for a low-paying entry-level job, but consider it an investment in your education. Even if you have to take out trash, clean restrooms, or run ridiculous errands, it will give you insight on your field of interest. You may discover that you'd rather do something else once you've experienced it from the inside.

Earn a living doing something you love.
Your parents may pressure you to follow in their footsteps, or they might encourage you to aim higher than they did at your age. You may be thinking about following your peers into the next hot industry. You may have no idea what you want to do. There are so many career choices, it's normal to be overwhelmed by it all.

Take some pressure off of yourself; it's your life, decide what you want to do at your own pace. Do you have talents, skills, or hobbies that you enjoy? You may have to work for a living, but work doesn't have to be unpleasant. Find your passion; I can guarantee that you can find a way to make money doing it if you are determined enough. There's no reason to suffer with a job you despise when you have so many options.

And keep in mind that many successful people have changed careers in mid-life or even later, and have been very happy with their decision to do so. Your career is not who you are; you may want to work in several fields during your lifetime, just for the experience of it. Earn income doing something that makes you happy, and if you need to someday, try something else.

Start your IRA.
Retirement is probably the last thing on your mind at this time in your life. Why worry about something that may be forty or more years away? Starting your IRA now will allow you to take advantage of your most valuable asset, time.

Let's say you invest $3000 a year through a Roth IRA, earning an average of 9% annually, and plan on retiring at age 65. If you start when you are 40, you will have $276,972 at retirement; better than none, but hardly enough to live a life of luxury when you stop working.

If you start at age 30, you will have $705,374; that may be enough to do a little travelling here and there, and live fairly comfortably.

But if you start investing at age 20, you will have $1,719,558 at retirement. One million, seven hundred and nineteen thousand dollars. $3000 a year for ten more years equals just another $30,000 out of your pocket, but compounded year after year will build to over a million dollars more in your pocket when you retire. That is the magic of compounding; put it to work for you.

Use credit responsibly.
Used wisely, credit can offer the convenience to buy now and pay later, based on anticipated income. A credit card can help you budget; your credit card statement will itemize all your expenditures and you can easily see what you're spending every month. A credit card is needed for car rentals, hotel reservations, and on-line purchases; using credit is a way of life.

There's no doubt that credit can make life easier, but the convenience of credit can make it easy to lose control of spending, if you aren't careful. Only spend what you plan on paying in full for each billing cycle, this will save you interest charges, as well as keep you in the habit of only spending what you can afford to pay back. Creditors make money by keeping you in debt to them, so they may give you a higher credit limit than you need.

Don't use something just because it was given to you; a credit limit should not be treated as a spending budget. The average college student graduates with anywhere from $4000 to $8000 in credit card debt; it's hard to get ahead if you have that much debt before you even start earning a living.

Be okay with less than the best of everything.
We would all like to own top-of-the-line electronics, drive brand-new cars, surround ourselves with luxurious furnishings, and wear the latest fashions. It's just that it's very expensive to live that way. It's expensive enough to put many of us into some serious debt to keep up with such a lifestyle.

No matter what you buy, somebody will always come out with a new and improved version of it. Learn to appreciate what you do have and be sure you can truly afford anything before you purchase it. There's no use in trying to "keep up with the Joneses", because there will always be a Mr. Jones who is richer than you.

Going into debt to acquire possessions is not what life is about. You'll have plenty of time to attain your worldly goods, just be smart in how you pay for those things, and make sure you can really afford it.

Never stop learning.
Your education doesn't end when you get your degree. You have opportunities to learn something new every day, whether through formal education, life experiences, or by independently researching topics that interest you. Learn about anything and everything that you can use to improve your life.

Learn more about your job to improve your chances for a promotion, study finance and investing so you know what to do with the money you make, and learn more of the skills required by your favorite hobby so that your leisure time is more rewarding. No matter how smart you already are, there will always be something new you can learn to improve your knowledge and your life.


Retirement Calculator Source:
Bloomberg.com