As I covered in a previous post, you can retire practically a millionaire by being debt free and saving your money for only 25 years. Retirement is typically at 65 so what should you be doing for the first 40 years of your life?

0 - 5: Be a kid obviously
6 - 15: Start developing hobbies and career aspirations
16 - 20: Get a job, work your way into some sort of management position
18 - 22: Figure out what you want to do for at least 10 years, go into debt for an education to qualify for that career path
20 - 25: Get started in your career and buy a house that you plan to keep until it’s paid off
25 - 40: Pay off your house and every other debt you have. Learn to live on what you make.
Stop creating new debt. Save for nice things you want.

And now it’s time to focus on retirement:

40 - 65: Change careers if you want. Save for retirement. $2000 a month at 4% interest will net you $1 million in 25 years. You don’t even have to invest in the stock market to be a millionaire.

If you absolutely must move keep your financial situation the same or make it better. Always keep track of what it will take to be debt free by the time you’re 40 and stick to that goal. If you can afford and want to pay for a larger house or a better neighborhood and still make the goal then great.

Regardless of your debt situation you should always be making enough money to pay it all off by your 40th birthday. If you’re not, then you’re cutting into your retirement.

The mistake many people make is saving for retirement their whole life and then getting there with a lot of debt. Suddenly retirement isn’t retirement because the meager amount you were saving your whole life is not sufficient to get you out of debt or even cover your debts for the next 20 years.

Look at it this way: you can put away $200 a month for 45 years at 4% interest and retire with $302,000 or you can get yourself out of debt and retire a millionaire by saving for 25 years after getting into and out of debt the prior 20.

Back in the old days people people bought a house and paid it off. Now, people can’t seem to stop moving and never actually pay a house off. “Content” is not in the vocabulary of many people. Now, there’s nothing wrong with getting a 30 year loan for a house. In fact, having a minimum payment that is low enough for you to survive a financial emergency at least temporarily is a good thing. But the thing to keep in mind is that it is a “minimum” payment. The difference between owning your home in 30 years and owning your home in 15 on a $150,000 loan at 6% interest is less than $400 a month. In 15 years or less you could be financially free essentially. Lose your job? So what. Work at McDonald’s. You own your home, it’s not going anywhere as long as you can pay the taxes and insurance. Hate your boss? Tell them to stuff it. You own your home. You don’t need their money anymore. You could live on minimum wage if you own your home.

Don’t believe me? Let’s run some numbers.

Right now I owe $2600 in various debts and bills. The house payment is $1310. The actual principle/interest payment is $1056. So now I’m down to $1550 a month I owe in other bills and debts. $1550 x 12 is $18,600 a year. Divide by 52 and you’re at $358 dollars a week I need to make to cover all my bills if my house was paid off. At 40 hours a week I need to make $8.94 an hour after taxes. At that rate I’m in the 15% bracket which is about $10.50 an hour 40 hours a week before taxes.

Now let’s go a step further and get out of debt completely. So I’m back to $2600 a month. Of that, $2015 is debt. So without debt I need all of $485 a month to pay my bills. That’s $5820 a year. Divide by 52 and we’re at $112 a week. At 40 hours a week I only need to make $2.80 an hour.

Imagine being debt free with 20-30 years left until retirement. People become so obsessed with retirement that they don’t realize that if they’d just get out of debt and own all their property they wouldn’t have to worry about retirement because they’d need next to nothing to survive. And you could be rich without risking your money.

We’ve been paying $2015 in debts so let’s put that into a savings account each month with a 3% interest rate. In 30 years you’d have $1.174 million dollars. In 20 years you’d have $661,000 dollars. So even if you waited until you were 45 to start putting money into a safe retirement account you’d have over half a million dollars to live off of for the rest of your life. And with only $5820 needed to pay bills each year, in 40 years you’d have spent $233,000 in bills leaving you with about $430,000 to spend on yourself.

Or about $900 a month for the rest of your life in spending money. On top of social security and other government benefits.

You don’t have to be rich to retire rich. You just need to get into debt early, get out of debt early and then start saving your money. Own your home. Own your cars. Stop using credit cards. Stop living in debt.