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Advice for your 21 yo self?
Old 08-31-2023, 02:26 AM   #1
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Advice for your 21 yo self?

Hi all,

I am 21 yo, graduating at the end of the year (hopefully) with an engineering bachelors.

My hope is to FIRE before 50. I aim to do this by working hard, investing and (possibly) starting my own business. I would love to learn from people who have been in my situation before.

So what would you like to say to your 21 yo self? Thanks
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Old 08-31-2023, 04:30 AM   #2
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Congratulations on starting to think about retirement at age 21! My wife and I gave a personalized version of this letter to our niece when she graduated from college. J. L. Collins was a major inspiration both for writing this letter and its content.


You are now focused on the next step in your career and this is how it should be. We would also encourage you to start thinking about your retirement now. Yes, retirement may be decades in the future, but it will be here sooner than you think.

Our philosophy since before we got married has always been to “LBYM” - Live Below Your Means. Spend less than we earn and invest the difference. You have a choice with every dollar you earn: You can spend it or invest it. If you invest it, it will work for you the rest of your life through the power of compounding.

Avoid most forms of debt. Borrowing money limits your future choices because you have to repay the loan. Never borrow money to buy something if the loan repayment will last longer than the asset you are buying.

Most people do not understand the importance of LBYM, and this is one reason why many people live paycheck to paycheck - even some people with relatively high incomes. Some spendthrift people will mock anyone with LBYM habits. Always remember that she who laughs last will laugh best. As you earn pay raises in the future, resist the urge to inflate your lifestyle to match the increase in income. Use the majority of each pay raise to increase your savings rate.

You may have taken a finance class that taught you about compounding. Compounding is one of the most powerful forces in nature. Make it work for you. To get the most benefit from this force you need to get started as soon as possible. Better yet, start right now, while you are young and time is still on your side. Time squandered now can NEVER be recovered.

Retirement comes for most of us, but not always on our own terms. We may be forced out of work due to health issues, or we may be laid off and unable to find a good job. Age discrimination against people over 40 is illegal in this country, but it is also alive and well in the world of business. Our goal should not be to save enough money to retire when we are 65 or 70 years old. Our goal should be to save enough so that we can retire by age 45 or 50 if we get laid off and cannot find work.

Money can buy lots of things. But the most important thing money can buy is your freedom. Freedom to live the way you want and where you want. You can find many websites and blogs about the FIRE (“Financial Independence, Retire Early”) concept. We encourage you to read some of them. One important takeaway is this: Financial independence is required. Retirement is optional. Financial independence means that your investments produce enough income to cover all of your regular and irregular expenses, with some margin of safety. Once you reach financial independence you are free to keep working if you like, or do something else if you like. Only when you no longer need a paycheck will you have full control over your life.

“Keeping up with the Joneses” is foolhardy. There will always be people with more money than you. Buying stuff you don’t need and rarely use is not worth the freedom that money can buy you. Don’t ever spend money on something if the primary purpose is to impress someone else.

There are many ways to invest. Over long time spans, the stock market has always provided better returns than most other common investments. There are three basic ways to invest in the stock market: buy individual stocks, buy managed mutual funds, or buy index mutual funds or exchange traded funds. Most people are not good at picking individual stocks. Most professional money managers can’t beat the stock market index that applies to their fund category. So don’t waste your money on managed funds. Invest in low-cost index funds to minimize fund expenses and have the best chances for better-than-average gains. Investing in index funds is very easy and will take up little time or energy from year to year.

One point not emphasized strongly enough is that a 401(k) with company match is a starting point and is not nearly enough to fund a retirement. Take any employer match first – that’s free money and anyone is a fool to not accept the maximum offered. After that further investment goes into a Roth IRA or 401(k) up to the legal limit. After that the savings/investment goes into a taxable account. This is called “Paying yourself first”.

The general wisdom is to save 10% of your gross pay in order to have enough to retire when you are 65. This is not adequate. You should plan to save at least 25% of your pay, and more if possible. The more you save and the sooner you start, the more time there is for compounding to work for you … time that can never be regained if you don’t start early. You may think you can’t afford to do what we are recommending. In reality, you can’t afford NOT to. Investing to buy your freedom will be worth far more to you in the long run than almost anything you can buy today. Long term gain is usually worth far more than immediate gratification.

You win twice if you can sustain a high savings rate: The more you save, the sooner you will reach your financial goals. And the less you spend to maintain your lifestyle, the less you need to save to fund your retirement.

The hardest part of saving and investing is ignoring instincts and emotions. You have to learn to ignore the sinking feeling and near-panic when the stock market drops half its value. Sure as tomorrow’s sunrise, someday it will, and with it half the value of your retirement fund. That’s when investing and staying the course is the hardest. Over long time spans, the stock market has always gone up.

Pensions and other retiree benefits are great to have, but not every employer offers them. Unfortunately, many employers (in both the private and public sectors) that did offer them have reneged on their promises. Be grateful if your future employers offer these types of benefits, but don’t count on them for your entire retirement. Have a plan for if/when an expected pension goes away. Don’t rely too heavily on promises that may be broken in the future, no matter how strong you may think your employer is.

Take your time going through the books we recommend. There is no urgent rush and you do have a life to live. The only quiz will be the one in 30 years or so. You can retire if you pass. You must keep working if you fail. What you do with your money now, and over the next decades, will have a multiplying effect on your standard of living in the last half of your life.

The choices you make now will have a huge effect on the lifestyle you can afford when you eventually stop working. Your future self will either say “Congratulations to me!” or “What an idiot I was!” You know which words you would prefer to hear.

Suggested Reading: (may be available for free in your local library system)

The Millionaire Next Door: The surprising secrets of America's wealthy. The numbers are dated but the philosophy will always be valid.
Thomas J. Stanley and William Danko

The Simple Path to Wealth
J. L. Collins

Your Money or Your Life
Vicki Robin and Joe Dominguez

Excellent blog on all retirement issues and also most life issues:
www.early-retirement.org
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Old 08-31-2023, 04:35 AM   #3
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By the time I graduated from college, I was already hooked on using credit cards to live beyond my means. Took a long time to learn that hard lesson.

Live beneath you means. Be frugal! This won't always make you popular with your friends, but it is the best way to get ahead.

Make a budget and invest first when you are paid. Put it on automatic and at least invest to matching from your employer.

I learned a ton from Mr. Money Mustache. Go read his old articles and it will give you a lot of ideas. I never was as frugal as he is, but his discussions of how to live below your means and the basics of investing are lessons I wish I'd been able to learn at your age. Go to his website and click the Start Here link and grab a cup of coffee and read.
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Old 08-31-2023, 04:36 AM   #4
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If you only read one investing book. Make it The Simple Path to Wealth.
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Old 08-31-2023, 05:53 AM   #5
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Another good book with a useful perspective - Your Money and your Brain by Jason Zweig.
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Old 08-31-2023, 05:55 AM   #6
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If you are already thinking about being financially independent at your age, you have the internal gift which will make you succeed. Not everyone has that trait or inherited that mindset.

The only advice I could give is live frugal, keep saving and investing each day in one way or another. I'm a believer in power of compounding and the earlier you start investing the sooner your goal/plan will happen.
Good Luck!!
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Old 08-31-2023, 05:59 AM   #7
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Originally Posted by MrAnticipative View Post
So what would you like to say to your 21 yo self? Thanks
Perhaps I'm in the minority - at 21 you should NOT be thinking about retiring, you haven't even started your career! What if you love it?

Set up savings and a 401k and then stop thinking about retiring. Focus on building - and enjoying - a career, a family, a home.

Most of us turned to fire after some dissatisfaction with our work, our companies, our bosses, etc. Find a way to love it, so it's not a grind, so you don't burn out to the point where you hate it.
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Old 08-31-2023, 07:19 AM   #8
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Educated yourself about investing and stay out of debt.
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Old 08-31-2023, 07:41 AM   #9
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Quote:
Originally Posted by Aerides View Post
Perhaps I'm in the minority - at 21 you should NOT be thinking about retiring, you haven't even started your career! What if you love it?

Set up savings and a 401k and then stop thinking about retiring. Focus on building - and enjoying - a career, a family, a home.

Most of us turned to fire after some dissatisfaction with our work, our companies, our bosses, etc. Find a way to love it, so it's not a grind, so you don't burn out to the point where you hate it.
+1. OP should have said thinking about FI, that is a great goal at any age.

Retiring and FI are separate goals, and I can’t imagine thinking about retiring at 21. I’d be thinking about my career…and enjoying it as much as possible.

OP: LBYM until it hurts. And read The Four Pillars of Investing Second Edition by William Bernstein.
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Old 08-31-2023, 08:15 AM   #10
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Quote:
Originally Posted by MrAnticipative View Post
Hi all,



I am 21 yo, graduating at the end of the year (hopefully) with an engineering bachelors.



My hope is to FIRE before 50. I aim to do this by working hard, investing and (possibly) starting my own business. I would love to learn from people who have been in my situation before.



So what would you like to say to your 21 yo self? Thanks
Education. Marriage. Children. The order is important.
Your spouse is your life partner-choose well.
Begin saving right away
Avoid consumer type debt
Proritize charitable giving
Prioritize friend and family relationships.
You are the CEO of your own career. Invest in you in terms of training.
Seek a career mentor and be willing to learn.
Gain meaningful credentials now.
Your career will be "made" in the next decade. Prepare.
Buy a home soon and begin building your balance sheet. Be willing to start small.
Older business people sometimes say the younger generation lacks willingness to work hard and long. Be the exception.
Take chances now. You have time to switch direction.
Live below your means. If you have two incomes, save one.
Be physically active but don't forget to take care of your joints.
Do not follow the crowd. On average they are not exceptional.
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Old 08-31-2023, 08:38 AM   #11
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My 21 year old self would have been flying C141's for a 20 and out in the Air Force. Each story is different.
That would be me, pursuing what I love.
Do not compromise on that. if you take a longer path to retirement but absolutely love your work, then you are the winner. Don't give up the idea that you can really enjoy your work, just to count up the shekels.
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Old 08-31-2023, 08:54 AM   #12
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As a 21 year old, I owned a gas-guzzling V8, and had my own thirst for Vodka. No letter from the future could have dissuaded me from blowing thru nearly every paycheck that crossed my hands.

At 29, however, I met the woman who would become my DW. She lent some order to the proceedings. The more logical ideas of Saving, Investing, and Buying a House in a Good School District became clear to me.....just in time for the Stock Market Rally of the 80's.

I would suggest to any young person in their 20's.....have a little fun. But take advantage of any saving opportunities like IRA's and 401K's. In the long run, the Stock Market will go up, and time is on your side.

This is the advice I gave to my Dear Daughter when she graduated College. She turned out all right, to my ever-lasting joy.
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Old 08-31-2023, 08:59 AM   #13
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Don't worry about retirement now.
Find a job that gives you purpose and one you enjoy.
Save a desired % (anywhere from 10 +) EVERY Pay Check.
Build an emergency fund.
Live life along the way.
Share your good fortune with a charity or religious organization that you believe in.
Read here and bogleheads forum, John Bogle has some good books to read, also.

Good luck to you!
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Old 08-31-2023, 09:50 AM   #14
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Agree with the advice not to worry about retirement at your age, but to focus on financial security - retirement will take care of itself.


Put your savings on autopilot. If you wait to see how much you have left at the end of the month to determine what to save, you'll never have enough left over. Have it deducted into savings before you ever see it.


Save into a Roth 401(k) or IRA - you'll thank yourself later.



Don't get caught up in "investment trends" or hot stocks. Invest in a broadly diversified index with low fees and don't worry about the ups and downs along the way.


Be appropriately conservative in your spending and don't worry about always having the fanciest/newest car, phone, watch etc. But that doesn't mean you should defer all your fun and dreams until "later". Just focus on what really matters to you and spend on that, but realize you have to make choices. Buying this car may mean you can't afford that vacation. Getting an extra big house, may limit travel options. You can work and save for anything you want, but likely not everything all at once.



Having good saving habits and a reasonable lifestyle will give you security of mind during your life when unexpected things happen - a job loss, an illness, a relative who needs help etc. Try to find a job you enjoy or at least that allows for growth and challenge. But having savings will help free you up to take chances and try things you might not be able to try.



It's possible to balance saving for your future with enjoying your present - don't let either one become all important.
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Old 08-31-2023, 10:11 AM   #15
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Take good care of your teeth! Getting them fixed later can cost you a small fortune, not to mention a good deal of pain and inconvenience.
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Old 08-31-2023, 10:21 AM   #16
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Since you're here, MrAnticipative, you probably already have a pretty good idea of what you need to do, and the initiative to teach yourself what you don't know. Lewis Clark's letter hit on one of my key points, that for every raise or loan paid off, I diverted MOST of that money to savings, but allowed my income a small boost, too, as an incentive/reward.

I think one thing I wish I could have done differently (besides starting earlier) would be to focus more on saving rather than paying down debt, because we got our mortgage during a time of really low interest rates, and while being debt-free is a great goal, I might have been a little too gung-ho about it in my 20s because I really didn't learn much about investing until my late 30s, so I used the tool I knew best, even if it wasn't the most appropriate tool in the toolbox.
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Old 08-31-2023, 10:35 AM   #17
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Live your life, don't worry about what other's are doing. The other's are not doing what you are doing in saving and investing.

Travel plenty. Allow yourself time to enjoy life and see different places.

Spend time with your parents. Don't take that time for granted.

Focus on both taxable and non-taxable accounts. Doesn't help to be a 401k millionaire if you can't access it.

Take care of your health and make sure you'll be around to enjoy all of your hard work and planning.

Best of luck to you!
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Old 08-31-2023, 10:59 AM   #18
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Thanks everyone.

Definitely discovered a gold mine of info here.
I really appreciate all the info, there seems to be a common theme which is great.
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Old 08-31-2023, 01:46 PM   #19
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Some will advise you to "do what you love" for your work. I would say do what you like that makes a reasonable amount of money, because love does not pay the bills. If you can make a reasonable amount of money, save a good portion of it and invest it wisely, you can achieve financial independence. Then, you'll be able to do what you love even if it pays nothing.

Also, realize that life is long. You can try something and, if you feel that it's not working out, don't be afraid to try something new. To that end, living your life so as not to foreclose options would be wise.
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Old 08-31-2023, 02:22 PM   #20
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Does Zimbabwe have a 401k? Roth or traditional or both or similar?
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