At this point we have discussed Financial Independence and Retiring early, but that brings up the obvious question, what should I do with my income. There is no lack of information related to what you can and should do with this, but this is my personal opinion.
We have already discussed the prerequisites, create and stick to a budget, then establish an emergency fund. When those things are under control, what comes next is leverage your tax advantaged accounts. Anything pre-taxed can really earn yourself a potential raise, without actually doing anything. The most common plans here are 401k’s and 403b’s. As of 2018, you can contribute up to $18,500 per year to a qualifying plan as a pre-tax contribution.
Not only does this not get taxed netting you a substantial profit (anywhere from 18-45% depending on your bracket) by not having to pay taxes on it, it also is an easy way to “set it and forget it”. This money in theory should also grow while it is leveraged in investments, and certain funds have average annualized returns of around 10%. Then you can leverage the power of compound interest to have this eventually turn into a sizable retirement savings.
There may also additional benefits to this contribution. Many employers will offer some sort of match on this contribution. For example, they may match 50% of the first 6% of your pay that you contribute. If you are making $5,000 per month and are contributing 6%, you will be contributing $300 per month and your employer will add an extra $150 for doing nothing more than you are doing now. That is an instant raise.
Personally, take a look at all these factors, then at the very least, maximize your employers match. If you can afford it and you do not have any high interest loans outstanding, perhaps consider maxing out the $18,500 annual contribution, but more on that in the coming weeks.
I am just a regular guy who does far to much research on financial independence and early retirement (FI/RE). I look forward to sharing my journey with you all.