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Preparing for retirement when you’re in your 20s can seem pretty ridiculous.
Especially when you’re just beginning your career, retirement is literally the last thing on your mind.
Who wants to think about it now when you have more years ahead in your career than you’ve been alive for? It’s crazy!
The reality is though, compound interest works best in your favor when you have more time on your side.
It may seem like light-years away, but the sooner you start saving for retirement, the better.
If you knew me, you’d think I of all people would be the last person in the world to start planning that far in advance for something.
It’s never been in my nature to have a plan. I never had a care in the world as a kid for better or worse.
But when I began working in a job I despised, with a commute that took over 2.5 hours in total each day, I realized I needed to get serious if I ever wanted to get out of the rat race alive.
To date, since I’ve made a vow to myself to take my retirement savings seriously, I’ve scrounged away $133,000.
I managed to save over 100K by 30.
It was no easy feat. I’ll admit it took me hours and hours of studying and discipline to get there.
But now, I’ve learned what it takes and am that much more relaxed and confident about my future nest egg.
Here are the steps that helped me save $100,000 by 30.
9 Steps To Saving $100,000 By 30
#1. Learn What A 401k And An IRA Are
My first job was a joke as far as that goes.
I honestly didn’t even know a 401k existed.
Like I had never even heard of the term.
So, for the first 8 months of having a real, salaried job with benefits, I was on the default company plan.
I was contributing like 3% or something, it was extremely small, considering it was based off a $35,000 salary.
I swear I could not have been more clueless if I tried.
I remember when I got my second job at a tech software company, my dad told me to ask the HR person if they had a company-matching plan.
I was like a matching plan of what?
I’m thinking like health benefits or getting compensated for lunch or something.
I’m telling you I had no freakin’ clue about anything, like it was bad.
I didn’t even realize I had to setup a direct deposit!
Once my dad explained to me what a company 401k matching plan was, I was like oh okay, maybe I’ll get on that and try to learn more about it.
But in reality, I never did, because they didn’t have a matching plan so what was the point in learning about it, right?
It took me until I was in a job I really, really hated to begin to learn more.
I pretty much immediately started learning more about a 401k and realized I could change the contribution amounts myself.
Right away, I began taking advantage of my salary increase, because this allowed me to automatically contribute more, regardless if I had changed the contribution limit from my previous job.
On top of this, I learned there was also something called an Individual Retirement Account (IRA).
I didn’t realize I could also have a brokerage account with my own retirement account on top of my 401k.
While I was confused why I was only able to contribute a maximum of $5,500 at the time, I still thought it was amazing I could add onto my retirement savings.
I took full advantage of it and maximized my contributions for 3 years.
At $65,000 while living at home, I was able to take advantage of saving on costs and my parents being gracious enough to let me live at home rent-free. I saved a total of $23,500 for 2 years in a row.
Now, I understand not everyone can have an opportunity like that, but I didn’t have a full-time job for the first 2 and a half years out of school.
I also live in the Greater New York City Area which tends to be much more expensive than most places in the United States.
Regardless, I was still able to save 100K by 30. If you can’t afford place on your own, you can always find roommates to help spread the costs.
#2. Learn The Difference Between A Traditional IRA And Roth IRA
This saved my butt big time.
Understanding the difference between a traditional retirement account and a Roth retirement account is probably the most crucial concept to grasp.
Not to sound dramatic, but it could be the difference between you retiring in 40 years or not retiring at all.
In a traditional retirement account, you aren’t taxed on your money until you begin taking the money out of your retirement account. It’s what they call pre-tax money.
In a Roth account, you’re taxed today, but you aren’t taxed later on when you want to use the money for retirement.
The idea is you want to have your money taxed now if you’re starting your career, because later on you’ll most likely be spending more money, especially in retirement.
You can make some sacrifices in your 20s and 30s today to live a better life in 40 or 30 years.
Think of it this way.
Say you’re making $35,000 today. You’re not spending much on a monthly basis so you save as much as you can. Now when you’re 75, you were able to grow that nest egg to $1.5 million or more.
That might seem impossible, but that’s based off a 9% contribution of that $35,000 from a standard matching 401k plan invested in an S&P 500 index fund.
It’s not even taking into account you’ll get promoted and be making more money, further on in your career.
You’d rather be taxed on your bi-weekly income at $35,000 than be taxed on $1.5 million. It’s really that easy for you to implement.
#3. Figure Out How Much I Was Spending
Before I had a full-time job, I didn’t have a care in the world what I was spending.
It was ridiculous, but deep down I knew I’d eventually get a job and then have to take it seriously.
Even then however, there were so many areas I needed to cut down on.
I was buying coffee every morning and afternoon, I was eating out for lunch, it was just plain dumb.
Now you can say hey man live a little, it’s not that big of a deal.
And you’re right, it’s not for most people.
But when you’re in your 20s just starting your career and can hardly scrap any money to save, it does make a difference.
It makes a huge difference and I didn’t realize until I worked the numbers. Don’t believe me? Check it out.
#4. Live At Home While Working For A Few Years
Okay before you lay into me about how most people aren’t fortunate enough to live at home rent-free, I get it, really I do.
But, like I said before, I didn’t have a full-time job for 2 and a half years, so I had some catching up to do.
At the time, I didn’t realize, but I had the benefit of hindsight vicariously through my friends.
As soon as they got jobs, they took off for Hoboken, the city, wherever.
They all wanted to get the hell out of our hometown, and for good reason. NJ Transit sucks.
But they weren’t saving anything.
And when I hung out with them, I would hear them all make the same jokes about how they aren’t saving and don’t care, live your life blah, blah, blah.
But after a couple years went by, a few of them had to move back home.
Those living in the city moved out to Hoboken because it was less expensive. Then after another year, they moved back home too.
All the while here I am at home making the best of my situation saving my money, not going out on weekends, and on top of that, working a side job analyzing live soccer games on the weekend in a poor attempt at getting a full-time gig from it.
#5. Read Investing Books Every Day
This was tough.
Like honestly the toughest thing I think I’ve done yet.
But thank goodness I did. It saved me from being clueless.
It saved me from making poor investments, being taken advantage of from my “financial advisor”.
Honestly it really sucked getting started.
I remember I was sitting with my computer on Khan Academy watching a video on compound interest and just not getting it. That’s how much of a beginner I was.
But I told myself, out of anything else in my life so far, this is the one thing, that if I was patient with myself, if I stuck with it, it’ll eventually come and I’ll thank myself forever that I pulled through.
And I was right.
Every single day I made sure I was reading a book on investing.
When my commute was 15 minutes, I would come home and read for literally 2 and a half hours.
When I had to start commuting to the city, I was basically reading the same amount anyway.
I was extremely burned out from my job and my commute, but I wanted to learn investing more than anything in the world so that I one day could quit this commuting to work life.
In the moment it felt like forever, but in reality it took me about 3-4 years to really understand the ins and outs.
And I’m talking about like reading financial statements and understanding all the criteria to look for in a good company.
As far as the basics go, that took me about a year to really feel confident.
So if that’s the path you want to take, learn the basics because it’s the least you could do for yourself since you work so much anyway.
It really doesn’t take that long compared to living the rest of your life.
But for me, I wanted more and I’m happy to say for the past 2 full years since I’ve taken over from my financial advisor, I’ve done better than the S&P 500 index. Could be luck, but I’ll take it.
#6. Tracked My Net Worth
It blows my mind when people don’t track their net worth.
Always, always, always make sure it’s going up! You don’t want to check it 10 years later and realize it has a downward trend.
If you’re not on top of it, you may not realize your outstanding debts are taking longer to pay off than you thought or that you’re not on track to retire at the age you wanted to.
Your net worth is the single most important number, maybe other than your credit score, that you should be tracking.
I guarantee you if I asked 90% of you, you wouldn’t even be within $10,000 of the real dollar amount.
Tracking mine helped me realize that I should be saving as much as I can while I lived at home, because the expenses were going to go up literally exponentially when I moved.
I was right, but since I was tracking it, I was on top of my net worth to prepare myself.
I remember when my net worth was $40,000. Now it’s $147,000.
#7. Hardly Went Out And Spent Little Money With Friends
There wasn’t a lot to do at home anyway since all my friends moved out.
I would visit my friends who were still in school after I graduated, but even that wasn’t too often and it was in the Bronx, so everything was cheap.
I never felt like I needed to keep buying expensive things to begin with.
As long as I had my Xbox 360, I was good.
I hate shopping and literally still have t-shirts and jeans from almost 10 years ago. I was perfectly fine with it as long as they didn’t have any holes in them.
The times when friends were in town, we would just hang out at the bar or go to a diner, but it was never crazy expensive or anything. That was pretty much the extent of it.
#8. Paid Off Credit Card Bill Every Month
Okay, now, admittedly this is getting tough because I live in the Greater New York City Area and went a little overboard the first year and half literally not doing anything with friends saving a ton.
Now, my fiancé and I are a little more social and I’ve also been paying for courses to take to learn more about blogging.
But, when I was home, every month my credit card bill was paid.
Literally every two weeks my bill was paid.
It got to the point where my Dad was like, you know, you can live a little you don’t want to burn out.
I didn’t take that advice and took it a little far and I guess that’s what happened, but still, it did help set me up to where I am now.
And I never got into ridiculous debt, not even today.
When a buddy of mine moved to Hoboken, he was so ill prepared, he went $3,000 in debt in literally a month just because he wasn’t paying attention.
Just be normal and you’ll be fine.
#9. Fired My Financial Advisor To Manage My Own Money
Financial advisors can say what they want, but if they know you don’t know anything about money, from my experience, they’ll screw you over without any remorse.
And even if you’re in banking or some finance related job, it doesn’t mean you know what’s best for your investments.
Trust me, I saw it with my Dad.
Once I learned all this stuff from the books, I showed him and he got rid of his financial advisor too.
I was being charged $300 a year for poor service.
In 2013, the market went up 29.6%. Instead of being invested in an S&P 500 index fund matching the performance, my financial advisor had me in expensive mutual funds.
I was up only 13%. Not even half!
Once you understand what to do, take charge of your money. It’s the least you can do for yourself.
Wrapping Up
Those are the steps I took to be able to save over $100K by 30.
Don’t make the the same 2 mistakes most people make:
#1. Thinking they can start saving for retirement later
#2. Thinking that by saving money today, they will miss out on living life to its fullest
Saving money today vs. enjoying life isn’t an either or decision.
You can do both.
You just have to find a balance that works for you.
This will allow you to enjoy spending time with your friends while still setting you up nicely for your future.
I hope these tips are helpful and you’ll start using them if you aren’t already!
Author Bio: Alberto Gajano is the founder of Appetite for Investing, a site with a focus on investing for retirement. He discusses what he’s learned so far early in his career and gives advice on how to invest intelligently for the long-term, preparing you for retirement. You can find actionable advice here.
