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financial freedom, 2040 finance, fire, early retirement, financial freedom, Millenial, retire early
HOW TO RETIRE EARLY
MONEY DECISIONS IN YOUR 20's FOR EARLY RETIREMENT IN YOUR 40's.
Start Here
Hi.

Welcome to 2040 Finance, a financial freedom site for young Australians. The idea being that if we make some smart money choices in our 20s, retirement and financial freedom around 40 is a realistic target.

I am a mechanical engineer who started putting money away not long after I entered the workforce back in 2012. Despite having read a few books back in uni about how to manage my finances and invest, what happens in theory is very different to what plays out in practice. 

What's This Site All About?
I have always been motivated to explore the unorthodox and unconventional paths in life. For me, following the herd appeared to be more of the same; buy a new car, save up for a house, pay off house for 30 years, get to 45 and realise you should’ve started saving earlier, reach 67 and 'maybe' retire. That's all well and good, but it wasn’t something I was interested in. 

Since I started working 6 years ago, I’ve had friends buy $30,000 cars only to sell them for a fraction of that and then take out a new loan for a $50,000 car. I’ve seen people go from having saved $90,000 to spending it all within a year. I also know of a few who have been working the same time as me, on a similar salary, and have very little to show for it.
  
The things I value in life aren’t ‘things’. I’d rather have 1 x $5000 used but reliable car, and take 9 x $5000 holidays than buy a single $50,000 car. I have no dramas renting a place as long as I am investing money still. Renting gives me flexibility to choose where I live.

The idea of quitting your job appeals to many, but only a handful of people I’ve met seem truly interested in the process of investing and building wealth which I find to be a little sad. 

Investing - the idea of using money to ‘buy’ more money, should interest more people. 

I think there are a few reasons why people don’t at least make a start:

a) Not knowing any better due to never being shown or

b) Thinking it is too hard or too risky. Why worry about it now when you can deal with it later, especially if you don't earn much? This is often justified by “I want to enjoy myself while I’m young, when I earn more I'll make a start”.

Either way, a bit of education, mindset shifts and habit building can help here.
I wanted to start this blog up as a way to educate those who are just starting out in their career. I remember leaving school and having almost zero understanding of investing. This is my way of paying it forward to you. 
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How We Got Here
I still remember the feeling when my first 'real' pay cheque went in. Like most people who go from zero income to ‘wow I have money now’, my bank account may as well have had a hole in it for the first year.

The little bit of investing I did try failed spectacularly; check out the share prices of two shares I bought into and sold at huge losses (NEN and FMG)
I could’ve taken the money to the casino and had a better outcome. 

After about a year of spending my money on ‘dumb shit’ and my failed investing attempt, I decided to be a bit more responsible with my money. 

I stuck my money in a safe bank account so I could save up for a house deposit. Yep, no more risky investing for me. After all, you can’t lose money in a savings account and saving up to buy a house is just what you do when you're an adult right?

With a goal in mind, I was more focused with my money. It started out being a bit of an addictive game for me where I’d continually raise the bar – “I’ll try save $10,000”, “Okay now I’ll try make it to $15,000”, “Right, now we want to make it to $20,000”, and so on. 

By around 2015 I managed to save up enough for a house deposit and was looking to buy. I'd had a look in the areas I knew and had read all the books. But for some reason I decided against buying a house. The reality of saddling up on a 30 year mortgage for a place I probably wouldn't stay in for more than a few years made me baulk. 

While I was focusing on saving up for a house deposit, there was another number I was slowly starting to notice in my bank statements.

bonus interest goalsaver
Yes this was a small bit of interest that my savings were generating each month just for sitting in my bank.

In my head, this extra $175 or so a month translated to “1 free weekend out a month”, “1 free carton a week”, or “1 free week rent per month”.

This is where I had my ‘aha’ moment.

I knew my bank account wasn’t returning very much relative to some other investments (it was just over 3% p.a. at the time). If I put this money into something that gave better returns, instead of covering 25% of my rent for the month, maybe it could cover all of my rent.

I remember calling up my mate excitedly and telling him that I could put all my money into a certain investment returning 9.5% p.a. and essentially use the income from that to pay off a brand new $33,000 car over 5 years - yes this is coming from the guy who disdains spending money on brand new cars. I'm glad I didn't do it, but this was the moment the term 'passive income' became real for me.

So I started learning about investments again. This time with a bit more tact. Instead of doubling down on ‘hot stocks’, I learnt to spread my risk across different shares and asset classes. 

I learnt about asset allocation, the basics metrics by which you evaluate a company, alternative investments like peer to peer loans and precious metals. I used real estate investment trusts (REITs) to invest in real estate without actually buying a house. I learnt technical analysis and how to read a share price chart. I also read (and still do) about the markets on a daily basis.

These were the obsessions I pursued in my free time – how can I earn more with my money. 

A nice side effect of all this obsession was that the more I learnt, the more money I wanted to be available to put into investments. This lead to me doing a budget, working out where I actually spend my money and how much I need to live off. It also helped me identify and eliminate unnecessary expenses.  My partner also helps with this one; she is more mindful on spending than I am.

This brings me to where I am at now.

At 27 years old, I should be able to retire by the time I’m 38 (around 2028) – give or take a bit for fudge factor. Our wedding this year for example, may set this back a few months. 

So while the retirement is still a while away, the wealth I am building now is very real. I currently earn about $10,000 in passive income per year ($833 per month on average) which is enough to cover about a third of my yearly living expenses. This is on top of capital gains which is a nice side bonus. 
Wouldn't "Retirement" get boring?
Now "retirement" doesn't necessarily mean doing nothing for the rest of your life. That would be pretty unfulfilling. "Financial freedom" is a more accurate description of what we're trying to achieve here. Not needing to work to maintain your lifestyle means you can be free to do other things with your time.
For me? Perhaps i'll keep working - after all, I do like my job. But maybe i'll try work part time so I can spend more time on this blog. Maybe i'll have kids by then too, that'd be a great opportunity to be able to spend more time with them. Another option is to travel and live in various other parts of the world. Travelling is much cheaper when you're not trying to cram everything into a 2-3 week holiday. Either way, freeing up more time to pursue other things is a huge benefit. 
So how can you do it to?
I would start by reading the free ebook here

This gives you a nice little background on things like personal savings rate and how to channel your cash when its payday.
After that, take note that there are three key components which will determine how long it'll take you to reach financial freedom.

- Maximising your current income
- Cutting out living expenses you don't need
- Learning how to invest

They all work in tandem and you will need to score at least OK in all three of them if you aim to retire early. Most people will find themselves attracted to one more than the others; for example, I love investing but my partner loves cutting out the crap we don't need. 

Some of these may take time; for example, maximising your earning potential will come over time as you upskill, but there are other ways you can do this, say by taking on side gigs.

Cutting out expenses you don't need is usually the low hanging fruit. Subscriptions, memberships, old healthcare or insurance policies you haven't reviewed for a few years, rent, impulse buys, interest repayments... they all add up as expenses that can potentially be reduced. The good thing is, the worse you are at spending your money, the more opportunities you'll have to trim down the expenses. For more, check out here and here.

Learning how to invest can be trickier and down the track i'm going to post a series on this. Thankfully there are ways to do this for those not too keen to get into the nuts and bolts of it - seeing the right financial planner can really help set you up

Even if you're strapped for cash, there's ways to start investing with less than $100. A DIY investor can use passive index tracking funds. Warren Buffet (a.k.a. one of the best investors of all time) recently won a $1 million bet by saying a passive index tracking fund could outperform an actively managed fund


Welcome New Readers
Have a look around. If you're new the best place to start would be by downloading and reading the FREE Early Retirement Introductory eBook.
For those wanting more, we have plenty of content through our articles and downloads.

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