Staying in debt is the downside of the American Dream. The only way to live a great debt-free life in America is to live below one’s means and focus on building relationships.
Welcome to the Staying Debt-Free at Any Age series, where I will discuss avoiding debt at various stages in life. Today I will discuss the roaring 20s and how to side-step the massive pitfalls of your youth.
The importance of your 20s. Your 20s may be the most critical financial period of your life. Yes, if you mess them up, you have time to recover. However, if you can get them right, the rest of your life can be a dream.
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The most crucial part of remaining debt-free in your 20s is your mindset. For this reason, I published that the “American Dream costs $5 million.” This article explains the massive financial burden of trying to live a “normal” life in America.
The mindset of most people in their 20s proves they can do it on their own. The allure of getting your own apartment, car, job, degree, and luxuries are all a lie.
Over the years, we have come to shame those youth that decided to stay home after high school. If you weren’t living on your own by age 21, you were a failure. Even your parents were ashamed of you.
Now think back to the 1700s and 1800s. If you were a king, would you expect your sons to go and build their own castles and kingdoms? You would keep your family tight inside the castle, mentor them, and prepare them to take over upon your death.
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As “The Two-Income Trap” states, our parents are buckling under the pressure of living a middle-class life. They don’t have money for your college, house, cars, or wedding. It’s far easier for them to push you out of the house to make you “prove” you can succeed.
Change your mindset. In America, they push you out of your parent’s house because it benefits American consumerism. Your parents drive you out because it helps their finances and hides the fact that they are broke.
This ritual needs to change as soon as possible. You need to live at home for as long as possible while keeping your sanity. Yes, it sucks to think about it, but it can be mutually beneficial to you and your parents.
A quick example. I am a US Marine (23 years), and I have seen thousands of Marines exit the Corps over the years. I recently talked to a Marine who is leaving after five years.
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This Marine received a job in San Diego paying $80,000/year. It sounds like a pretty good salary for a 23-year-old, right? However, once you look over the numbers, he would be eating top ramen for a few years to get ahead.
The truth is that you won’t get ahead by living on your own. To get ahead, you would need to make $150,000/year and live in a low cost-of-living area like Alabama, Florida, or Mississippi.
Remember, you not only need to save up for marriage, kids, and a house, you’ll need to fund your retirement fully. Here’s a hint, the $5 million number is low-balling how much life truly costs. You’ll need even more cash to have a standard middle-class life.
How to overcome the odds. Your mindset from your 20s needs to be overcoming financial adversity. Unless your parents give you a house, a dividends portfolio, and pay for your college, you’ll start poorly.
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If you are not saving and investing 50% of your salary, you are poor. Until you can reach this savings rate, you’ll have to sacrifice much of your lifestyle.
But don’t worry too much; once you get past living below your means, the rest is easy. Let’s look at the four things that will trap you in your 20s.
- Housing costs
- College costs
- Car costs
- Credit card debt
Housing costs. As I discussed earlier, you’ll need to live at home as long as possible. Ensure you are a good resident, pay some bills, and follow the house rules. Remember, your parents are doing you a favor.
If you meet a potential partner who laughs at you living at home, this is not “your person.” You simply can’t afford to live independently, and neither can they.
If living at home is not an option, you’ll need to move out with roommates. Even better, become a roommate while living with an older couple because trying to find responsible roommates your age will lead to disaster.
Choose Your Passive Income Adventure 3
College costs. Do not get into student loan debt. Before you even think about college, read “Debt-Free Degree” to get an idea of your options. You can’t afford to pay off student loans for 20 years.
If you can live at home, attend community college, work, save, and then transfer to a 4-year school, it may be the best way. Also, you can use work-study programs to assist in the journey.
If you can avoid student loans, you’ll be ahead of most of your peers. Don’t forget joining the military for four years can give you money for a degree and a down payment via the VA loan. It may be the best offer on the table for most Americans.
Car costs. Do you really need a fancy car? Your car should not cost more than $10,000. And I am being generous because inflation increased the price of used vehicles. My wife’s first car cost $3,800 in 2007, and my second car cost $2,800 in 2008.
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My first car in 2000 cost $8,500 ($14,500 in today’s money), and it was WAY too expensive. You simply can’t afford a nice car at this age. You’ll be setting yourself back years by buying into the hype of a new car.
Again, if a potential love interest laughs at your car, they are not your person. Read “How Not to Die Alone” for more on how to find the correct love interests.
Credit Card Debt. The credit card companies are coming for you at this age. The sooner they can grab you, the better. They are going to say that credit cards help build your credit score.
It may help, but chances are you’ll go off and buy furniture, clothes, and other frivolous stuff. Remember, your parents worked years to get the things you grew up with; why would you try to replicate their lifestyle in your 20s?
The Magic of Cash Flow
Understand that credit cards are the worst kind of debt because they use compound interest. The power of compounding can make you very rich, but credit cards are that power working against you. Avoid credit card debt at all costs.
Putting it all together and getting ahead. To survive your 20s intact, you’ll need to understand that you are already behind the power curve. You’ll need to lead a near-perfect life just “break even.”
You are starting with a negative $5 million clock over your head. However, knowing that number gives you a leg up on everyone around you.
Trust me; I went into the world not knowing that number. I thought it would work out by simply working my way up the corporate ladder. NOT! I was 38 years old before realizing it was all a shell game. They set me up from the start.
You can learn from my mistakes by starting a business early. You can also become a content creator or invest for dividends and interest. Anything you do in your 20s, you can bring into your marriage.
Can you imagine having a great job and a website that passively brings in $1,000/month as you enter your marriage? Your spouse could stay home with kids while growing your website. You have to form this mindset at a very young age.
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Unfortunately, your parents never had this entrepreneurial mindset, so you’ll need to catch up to get ahead. Read, read, and read some more.
Conclusion. To summarize, understand that you are already far behind in life in your 20s. Spending 3-7 years finding yourself is not an option. Hit the ground running and work towards your $5 million.
You may not know what you want to achieve exactly, but you can always work, save, and invest in dividends. As long as you live below your means and grow your assets, you can do anything.
You can become a plumber earning $75,000/year and have much more money than a doctor making $200,000/year. All you have to do is focus on getting cash into your dividend portfolio, and emergency fund—the power of compounding will do the rest.
Don’t blame your parents for their lack of financial education. You’ll just have to understand that no one taught them either. Just understand you’ll have to work twice as hard (job + business) and be twice as bright (save + invest) to get ahead. You can do it!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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