Mindy: People working towards financial independence love a benchmark to work towards. Should you be saving more, investing differently, buying a house, starting a business, slowing down? Are you on track? Are you really behind? This is what we’re going to be discussing today. All of the financial milestones that you should be hitting in your 20s, your 30s, your 40s, and your 50s.
Mindy: Hello, hello, hello and welcome to the Bigger Pockets Money podcast. My name is Mindy Jensen and with me as always is my ahead of schedule co-host, Scott Trench.
Scott: Thanks, Mindy, great to be here. Excited to talk about the track record of achievements that we think are good milestones, good benchmarks for the serious students of personal finance who start early, right? So this is going to be, you know, not for the median American. This is going to be for the probably top 10%, top 25% of wealth builders over their careers who start in their 20s pursuing financial independence. And as a caveat, these are milestones we think you should be hitting if you start financial independence in your 20s. If you’re watching this and you’re behind, can you catch up? Absolutely. Don’t let these parameters discourage you. Instead of thinking of them as age milestones, think about them in terms of quartiles or percentages along the journey to financial independence from wherever you’re starting. All right, with that, let’s jump in to the major milestones that you should hit in your 20s.
Mindy: Scott, since you are closer to your 20s than I am, why don’t you run through what we should be doing in our 20s? What we recommend our listeners be doing in their 20s.
Scott: Yeah, so I think if you’re looking to achieve financial independence early in life, then the point of your 20s or the focus of your 20s should be to build a strong foundation and exit your 20s with really strong momentum on that journey to financial independence. So it’s not about getting rich in your 20s, although some people do that and are able to achieve that, but for the vast majority of people, I think it’s about building the habits, skills, and trajectory that will move you toward financial independence. So this is the foundation, not the finish line. And we’ve got a couple of milestones. So the first one here is going to be to learn an investing order of operations and to automate investing according to that, right? That order of operations that we like best here at Bigger Pockets Money is to build a $1,000 emergency reserve, tackle your high interest rate debt, take the 401K match, and if your employer offers something like an employee stock purchase plan or other free money to take advantage of that, then to fully fund your emergency reserve, which would be three to six months of expenses, to max out your HSA, to fully fund the 401K, to max out your Roth IRA, max your 529s if they apply, they may not apply in your 20s, but they may apply in your 30s depending on how your your family situation evolves. And then from there to begin after tax investing in an after tax brokerage account. From there, later in life you may optionally pay off low interest rate debt. It’s not necessary that you perfectly execute an order of operations or that you agree with every step of this order of operations. But if you invest starting young, starting in your early 20s, according to an order of operations, maybe you flip the Roth and the 401k uh in this order if you’re in a low income tax bracket. But if you apply that in your 20s, we think you’ll exit with a lot of momentum and a lot of growth. Okay, the second milestone for your 20s is to build a real safety net. This is part of the order of operations, right? And we think two milestones that are concrete are you should nail that $1,000 starter fund in your early 20s after a month of two after entering the workforce. And by your late 20s, you should maintain and consistently support that three to six months of expenses. The third milestone is about net worth, right? Maybe you have debt, maybe you don’t. In addition to thinking about that emergency reserve, we want to hit some solid net worth numbers. Those are trackable events, the first $10,000, the first $25,000, the first $50,000. You should set those targets and hit them and more over the course of your 20s.
Mindy: Okay, Scott, these are all financial goals that we’re setting and we’re we’re encouraging people to set in their 20s. I just have a really quick comment before we continue on because we do have more milestones for you. If you’re not able to do all of these, especially some of those investing order of operations, in my 20s, I definitely could not have fully funded my 401K and my HSA and my Roth IRA and do after tax investing and all of these other things. We’re building the habit. We’re starting to think about where our money is going. So if you’re only able to put away $5,000 a year in your 20s, that’s okay. These are the order that we suggest you put them in. Honestly, in your 20s, I’d flip the Roth IRA and the 401K because you’re most likely in your lower income earning years and you have all this time for your Roth money to grow tax free. So, in your 20s, I might want to flip those. But if you can only max out your Roth IRA or only contribute a small portion to your Roth IRA, you’re starting the habit and that’s what’s most important.
Scott: Yeah, we don’t expect very many people at all to be able to go down the full list of the order of operations, maxing out everything and having money left over to invest after tax and having money left over after that to pay off low interest rate debt. It’s just that this is the order of operations we recommend folks follow as far as they can down the list as they’re earning and saving and investing.
Mindy: Yeah, we’re just getting you intentional with your money.
Scott: All right, milestone four. This is where we diverge a little bit from the foundational stuff, the order of operations and those types of things. I think your 20s it’s the time to make a bet on yourself. This can look like a lot of things, but you know, some examples mean a career change, right? buying or starting a small business or joining a startup, purchasing a house hack or a live-in flip involving real estate in in some portion of your financial plan, moving cities or pursuing that next really good opportunity, learning a new high-value skill if your cur- current career trajectory isn’t offering you those opportunities. Right, is this going to apply to everybody? No, if you’re, you know, in big law and are and on track to be make a partner in your 30s, don’t do any of these things. Just go and focus on that. But for the rest of us mere mortals, I think that you’ve got to make a big bet on yourself at some point if you want to achieve financial independence at an early age. And I think that the best way to do that is in and you’re going to be in your 20s, using that liquidity that we talked about, the three to six month emergency reserve or maybe even a little bit more, to make a bet on yourself. You can lose, but you can also win. And I think that’s not discussed enough as a critical part of the path to financial independence. So you should at some point choose growth over comfort in your 20s in order to try to give yourself a chance to really uh propel your financial position forward.
Mindy: Yep, and you’re making a big bet on yourself. You’re able to make a big bet on yourself because you have this three to six months of emergency fund and and spending in the bank, so you’re able to take these bigger risks. If you’re spending every dollar that comes in, you’re not able to take these risks, you need the comfort of that job.
Scott: And related to this, I think milestone five is to learn how to increase your income, right? There needs to be some element. It doesn’t have to be all of these, but one of these has to be in your journey in your 20s, right? You either need to job hop to that next or better opportunity. You need to negotiate a salary increase with your boss or really negotiate what the next promotion, the criteria for the next promotion look like. You need to stack skills. Those can be hard skills or technical things that that are related to your career or even better soft skills and development of the toolkit that you have in your career, right? As a CEO at Bigger Pockets, I have developed a toolkit that included, here’s what a strategic plan looks like, here’s what an annual budgeting process looks like, here’s my performance management protocol, right? And I have tools, artifacts for each one of those disciplines. And I think that’s a really powerful thing for you to be thinking about early in your career is building out that toolkit, the frameworks that you’ll apply to the problems that’ll be common across your entire career and how you solve them. And the last wrapping this all up is just this aspect of becoming more valuable in a general sense. I’m a big proponent of hustling, saying yes to that next opportunity at work, even if it’s not in your direct job description, and I believe that good things come your way over years, not not next week, but over months and years of saying yes and going above and beyond consistently over the course of a career. And I think that’s a huge habit to develop in your 20s. Your 30s wealth, the wealth you build in your 30s will be a direct translation of the trajectory that you build in your 20s and your income is going to be the single biggest driver of that wealth in your 20s and 30s.
Mindy: And Scott, we recently interviewed Paula Pant to talk about negotiating at your job. She had some really great tips that cover a lot of these things, job hopping, negotiating salary, skill stacking. That’s an excellent episode, episode number 712. I want to encourage anybody who is thinking about how to negotiate their salary, how to increase their income, go listen to that episode. You’re going to get a ton of value out of that one.
Scott: All right, next milestone is going to be real estate or at least your housing expense. This is an optional one, but I think that for a great majority of people in their 20s that are not in San Francisco, you know, Los Angeles, New York or maybe a handful of other very high cost of living cities in this country, that considering a house hack or live in flip is a cheat code to boost your journey to financial independence. Allowing yourself to live for free, you know, in a in a small multi family or a house with extra additional bedrooms by renting out those units to tenants or roommates can be a complete game changer. This is something that I did personally off and on for almost 10 years, and it totally transformed the trajectory of my wealth building because it kept my housing expenses super low and left me with multiple rental real estate assets that I still own today and that produce cash flow to fund financial independence. This is a huge lever and housing is the biggest expense or the biggest anchor holding you back from saving money and achieving financial independence.
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Scott: And we’re back.
Mindy: Scott, I once did the math on my very first live in flip, which is a little bit different than house hacking, although it’s kind of the same, you’re still hacking your housing. It cost me $1,400 to live there for four years after all of the expenses. It was a condo, so there were HOA fees, but because I had increased the value of the property, I sold it to then move into my husband’s house because he had a house and I only had a condo. It cost me a total of $1,400 to live there for four years. That is not $1,400 a month, $1,400 total. I think that is an amazing way to hack your housing is the live-in flip. You buy an ugly house, you make it pretty. And it doesn’t have to be a full gut rehab. You could just paint every wall from black and remove the ’70s shag carpet and bring it up to more modern standards, and people pay a lot of money for that. You do the sweat equity and you get all the rewards.
Scott: All right, the next milestone, milestone number seven here is become financially literate. And this does not mean Tik Tok literate. You don’t follow somebody on Tik Tok for advice. This just means actually understanding how to build wealth and personal finance. You should be able to explain by the end of your 20s how investing works and what you are investing in and why you are investing in it. You should understand how your taxes are computed and how investing in the order of operations that we discussed earlier minimizes tax burden for the majority of W2 employees, you know, typical workers in this country. You should understand how debt works and how a loan for against a rental property or a house act, for example, can be a tool to build wealth, but credit card debt is an anchor that will hold you back. And you should understand how retirement accounts work in a mechanical sense, so you understand how and why you’re contributing to them and how and when or why you might be able to withdraw from them, especially early if you are looking to eventually achieve financial independence at an early age. The way the best way to do this is to pick up a book and start reading and then pick up another one and another one. Audibles fine, written fine, whatever floats your boat, but I think that if you can read one book a month across your 20s, you’re going to emerge from your 20s as is in the top 1% of Americans, not just, you know, in in terms of your knowledge base, but probably that’s going to translate to ideas and tactics and tweaks to your financial situation that will maybe even put leave you in a trajectory to be in the top 1% in wealth for your age bracket by the end of your 20s.
Mindy: This is awesome, Scott. What else you got?
Scott: All right, next milestone. Milestone number eight is to write a simple financial plan. I wrote a book called Set for life, which is a very detailed financial plan along these lines for a fictional person. I call Joe, average Joe, earning a median income to exit his 20s and move into his 30s with a a strong financial position. You should just take a blank piece of paper and write out the basics of your plan. Here’s where I’m at today. I’m earning, saving, and investing, but I don’t feel in control. I don’t feel in power in my life. And where I want to get to is a place of financial independence. And I want to reap the emotional benefits of moving along that path to financial independence in terms of freedom and power over my day and optionality in my life across my 20s, my 30s, my 40s, my 50s, however long it takes me to get there. I want to gradually reap those benefits, and here’s the financial position that will that will manifest at that way. I’ll feel this way when I have my first $100,000 saved up. I’ll feel this way when I have my first $500,000 saved up. I’ll feel this way when I have my first million, and I’ll feel this way when I reach true and lasting financial independence and can do whatever I want with my day. I think a one page document that outlines that plan and the specific actions you’re going to take is a really powerful tool and you can begin beating that up with Chat GPT or with a professional financial planner.
Scott: All right, next milestone, defining your direction. I think that the bias when I was 23, I didn’t know what I wanted to do with my life, right? And I think that’s true in many, many people. And so financial independence was a logical goal because it just increased optionality later on. But by the time you hit 30, you should be able to define that direction a little bit more clearly. So this is milestone nine is defining that direction. And I think by 30, by the end of your 20s, you should be really clear on what you want from a financial position, whether that’s true financial independence and early retirement, whether that’s the foundation to pursue entrepreneurship in some form, whether that’s a full-time real estate investing career or whether that’s a maximizing your potential as an employee or potentially budding executive in your career at the company you work for. All of those are valid goals, but those should be more clearly defined by the time you’re 30, so you have a clear picture of what where, you know, of where you want your life to go as you begin to make potentially very big life decisions like who you marry, where you live, what kind of family you’re going to build, if that’s in the cards for you.
Mindy: Scott, the only thing that I’m going to push back on so far is this define your direction. The way that you’re saying it in my ears is that you have to know what you want to be when you grow up by the time you’re 30. And I have changed careers completely, changed careers three times, including in my 40s. So I think a better milestone here is define your current direction. Make sure you know what you want to do for the time being, but don’t be afraid to pivot if things change. Like when I was in my 20s, podcasts didn’t even exist. So there’s no way I could have been a podcaster. That would be so funny. It’s 1991. I’m going to be a podcaster when I grow up. What the hell’s a podcaster?
Scott: I think they had a thing called radio back then.
Mindy: I think that’s totally fair, but I also think that as you’re making these big life decisions, you know, it’s it’s good to have at least somewhat clearer hypothesis of what it is you want. And Mindy, I think it’s probably fair to say that that’s true for you as well by the time you were turning 30 in the sense that you, you kind of had the shape of your life in terms of what your family situation was going to be looking like and what some of those big moves, maybe not in your career, but in other aspects of life were were starting to they’re starting to take form a little bit more and there’s some permanent decisions being made right around that time within the next few years.
Mindy: Uh, I think the only permanent decision I had made by the time I was 30 was that I had just gotten married. I got married when I was 29 and I knew I wanted to have kids, but I didn’t know how many I wanted to have. And the job that I was at was not some sort of like career job. I think there’s a lot of people who are scared to pivot, and I’m just here to say, if your career isn’t doing it for you, pivot, find something that does it for you, find something that you don’t dread all the time. But, you know, start thinking about the future.
Scott: That’s what I’m trying to communicate with this milestone. So that that that’s a better way of phrasing it. But that that I I completely agree with.
Scott: All right, and then the last milestone is to exit your 20s with momentum. You don’t have to be rich, you don’t have to be perfect with your finances by the end of your 20, but you should be dangerous. And a dangerous means that you have liquidity. You are spending much less than you earn. You’re investing. The compounding journey has begun and is is starting to kick in into a higher gear. And you’re on a trajectory to save more and invest more in your 30s. That’s a really good milestone. If you’re if you’re looking for early financial independence and you can state that, I think you’re going to be in really good shape. In terms of net worth numbers, we think that $25 to $50,000 in in personal net worth is a good baseline for someone who’s turning 30 on the journey to financial independence. We think that strong performance would look like $75 to $150,000 in personal net worth, and you’re doing exceptionally well if you have over $200,000, especially if that $200,000 is in investible assets. And we think that a lot of Bigger Pockets money listeners who have start listening to Bigger Pockets money will hit those numbers or maybe even be far surpassing those. But I think you’re doing great if you have hit any of those numbers and are leaving your 20s with a strong momentum trajectory going into your 30s.
Mindy: Yeah, and now, Scott, we just spent a lot of time talking about your 20s, but the reason we did is because this is where the foundation starts. So if you’re in your 30s, you need to listen and and do all of the things from the 20s while combining them with your 30s. If you’re in your 40s, this still applies. If you don’t have the strong foundation, you need to create that before you can move forward. The rest of these decades are going to be a lot shorter because we need to set the foundation first.
Scott: And I’ll also call out that, Mindy, you know, one of the reasons why I I love doing this podcast with you is just the different perspectives and journeys that we had, right? When we look at like the best like best practices, you know, when we look at the like the things to do in your 20s to set yourself up for financial independence, I had the luxury of learning about all of this stuff at 23 and just following a concrete plan. And so I was able to do most of these things. I was immediately able to keep my expenses low, live with roommates, house act within a year after graduating college. I joined a startup and was able to take that bet on myself that we talked about there, and that paid off really well for me. I got very lucky by joining a company that that ended up exploding over the years. I was able to invest consistently across an order of operations after these first few years and sustained that and leave my 20s with with a really high income trajectory. I think a little over a million dollars in net worth and in a really, really strong financial position. and that’s set me up for financial independence here in my mid-30s now, I guess I’m no longer in my early 30s at 35. That was a a wonderful advantage that I had in there and that maybe maybe many other people who watch this video at an early age will have. But not everybody has that and you don’t have to do that to become financially independent. Mindy, your story is very different, I believe.
Mindy: My story is very different. My 20s were not spent as diligently as yours were building towards my financial future. It wasn’t until I got into my 30s that I really started paying attention to it. Like I said, there were no podcasts around when I was in my 20s. Scott, you had the benefit of having podcasts and the internet and all of this information available to you. Was it available to me? Yeah, I could go to the library when it was open and check out a bunch of books, but it was uh not as accessible as it is now and I am so excited for people who are discovering it now because there’s so much information out there available. And Scott, the reason that I love doing this podcast with you is because our life experiences are so different.
Mindy: With that said, you’re in your 30s. Let’s look at what people in our 30s should be accomplishing by the end of this decade.
Scott: Yeah, so I think that serious students of personal finance on the journey to financial independence should think about their 30s as a time for acceleration, stabilization, and then leverage. And this is the decade where I think systems are going to start replacing the hustle that we brought in our 20s and where small advantages start producing those massive gaps in outcomes. So it’s about compounding the journey to financial independence in your 30s. So the first milestone here is going to be become a serious, consistent investor. I think by your 30s investing should feel automatic, not aspirational. You should be consistently investing every single month, be maxing out your Roth IRA annually if you’re eligible, be contributing meaningfully to a 401k, ideally maxing it out by your late 30s, and maxing out that 401k especially in first if you’re in a higher income tax bracket. Be using an HSA as an investment vehicle if it’s available to you and you should have a clear written investment allocation strategy. You should understand your long-term return assumptions and have some practice in realizing those over the prior decade in terms of what you’ve actually seen some of the beginning of your money and capital beginning to do. And so this is when your capital starts to begin doing real work and you’re becoming an investor in addition to a good earner and saver.
Scott: The second milestone is going to be to build a fortress balance sheet. Your 30s should feel financially stable, not fragile. And so by the end of this decade, we should definitely be taking off that six plus month of living expenses, that six plus month emergency reserve. We should have no bad debt, no high interest consumer debt. We should have a positive and growing net worth and we should have our insurance boxes checked, right? We should have health insurance set up, we should have disability insurance set up, we should have renters and home owner’s insurance set up, umbrella insurance, car insurance. We should have a philosophy behind those and I I recommend for people on the journey to financial independence to carry that cash balance, that six plus month of emergency reserve and use that to feel more comfortable with high deductible insurance policies that have lower premiums. I almost never file a claim for my insurance policy because of that. I I feel very comfortable with higher deductible plans and I can use my cash position to to keep those those premiums low. And I think also by your by the end of your 30s, you should have the boxes all checked with your regards to estate planning. That means your beneficiary is basic estate planning and a will are in place, all the all those documents that govern those types of things. So this is not just about building wealth at this point, we’re also beginning to think about protecting it.
Scott: The next piece is is we need to start actually putting up points on the board that are meaningful. So some big milestone numbers I think on the journey to financial independence are going to be your first $100,000 in net worth, $250,000 in net worth, $500,000 in net worth, and a million dollars in net worth. And I think some people watching this podcast will cross that $1 million mark. That’s an exceptional achievement to do by the end of your 30s. But reaching some of those, at least the first two, $100,000 to $250,000, I think are really good aspirational targets for students of personal finance in the in the financial independence world to achieve by the end of their 30s. And those are real tangible numbers that feel big to a lot of folks. And I think that’s a really important milestone to begin targeting.
Scott: Okay, milestone number four is to turn your income into a weapon. So your 30s are your prime earning years. You should have a clear intentional career strategy, right? So maybe that’s the pivot Mindy talked about earlier, maybe you’re coming out of your 20s with that, but I think there should be a strategy here. We know what the upside is in our career and we know that we are we are chasing something real that has potential. Be known for something valuable at your company or with your skill set, put out work that builds your resume that you can point to for years to come and say, I did that. I built that. I made that contribution. This went from X to Y. Put that resume, those resume items out there into the world and make sure that you are you’re you’re really intentionally building up that resume so that it gives you optionality for better jobs as as time passes. stack rare or high demand skills, whatever that means in your in your career field, right? For me, I I think I told you this earlier in the show, that’s that CEO toolkit. All of the processes and frameworks that I use to run a business. Have negotiated multiple times, whether that’s as a manager or with your manager about raises, opportunities, promotions, flexibility, but make practice that skill. Don’t be afraid to negotiate. Be willing and and able to leave your current job for better alternatives, right? We talked with Paul Pant about the concept of best alternative to a negotiated agreement or BATNA. Know your BATNA in life and your career and have that ready to go. And then potentially look for opportunities to get serious upside. Uh serious upside looks like commissions, large bonus potential, or equity in a company or business ownership in other in other areas. And I think if you don’t have any cards played by the end of your 30s that could have some chance at potential upside. That’s a waste, that’s a missed opportunity, I think. I think you should be really looking for those and saying, where can I in addition to earning, saving, and investing, actually have some irons in the fire that could, if things go well, pay off for me. A good chunk of the time that might look like equity in a business um eventually after 10, 15, 20 years working there.
Scott: Okay, milestone five is make one or two high conviction plays. So this is the same concept we talked about in our 20s, but you should become continuously making again, putting irons in the fire that can move your financial position forward. So what are high conviction plays? Buying or scaling a business, aggressively growing a real estate portfolio, making that an intentional part of your strategy, making that play at that next, you know, taking that next opportunity at work to move into that director, maybe executive level branch at your company, building your personal brand, um maybe starting a blog or uh a social media account, doubling down on a niche, something that is interesting to you that has the potential to be at least at least a hobby, if not a business opportunity. You should feel like you’re on a path, not exploring random one-off bets with this approach. By your 30s, I think you should have a a reasonably synthesized skill set and strategy that can point you in a direction to be strong in a field of your choosing.
Scott: Okay, next up is going to be to optimize your three big expenses. I don’t know if you’re going to have to house hack for all of your 30s. I’m certainly not going to do that since I house hacked for most of my 20s. But I think you have to make a conscious decision about where you live and how you’re going to live. Are you going to rent, are you going to buy and have run the numbers? I think you have to make a conscious decision about how you’re going to get around. I think your car needs to be a reliable choice that is cost effective, not an ego-driven choice. And I think you’re going to have to start thinking about if this is in the cards for you, what child care is going to look like and what family planning considerations you need to map into your financial trajectory if that’s something again that you’re you’re planning on doing and starting a family. And I think those three categories, housing, transportation, and child care. Food is the other big one, but housing, transportation, and child care will be the really big ones to plan on in your 30s if you are starting a family.
Scott: Number seven, is going to be automate and systematize your finances. So your financial life by this point should not be a conscious decision every day. You should be making a conscious decision up front and letting that roll for years. That means that your investments should be automated, your bills should be paid automatically, you should have simple repeatable systems to track and measure your spending on a regular basis. You should have a a lifestyle that defaults to the serious accumulation of wealth and money and you should be reviewing that and making decisions on an annual or quarterly basis, that you can then implement into your automated systems.
Scott: Our favorite tool to automate your finances is Monarch. Mindy and I both use Monarch. It maps all of our credit cards, all of our bank accounts, all of our investment accounts. It maps the real estate that we own and it builds one picture of our net worth that allows me and my wife Virginia to to to have a meeting every week to go over our finances and just to look at what’s happening. We see where every expense goes. It is generally speaking, categorized correctly by the pretty intelligent AI. and we can make adjustments and fine tune uh in real time. We also know what our net worth looks like based on how investments have been performing. All of that’s a little bit less actionable than the budgeting information there. So it’s a super powerful tool. It’s available for 50 bucks, 50% off of $99 if you use the code pockets, p o c k e t s uh and want to set that up. You can also do a lot of this automation with other apps out there, but that’s our favorite one for a lot of reasons and and there’s one that that I’ve used for for many, many years with Virginia.
Mindy: I love Monarch just because it’s a look at your entire financial picture. It’s not just investing. It’s not just banking. It’s banking and credit cards and like investing and everything that you connect to this account all in one snapshot. I am a very busy person and I don’t have time to comb through every single account. I just want to look at it really quick. Oh, doing good today or ooh, market’s down. Shucks, that stinks. I’ll check in next week. So, it’s just it’s so easy once you set it up.
Scott: Okay, milestone number eight for your 30 is deepening your financial sophistication. So, in your 30s you should go from basically literate financially to strategic with your thinking financially. So this means that you understand concepts like tax optimization, like how to plan when to realize capital gains, retirement account arbitrage. You should understand asset location, if we’re going to invest in portfolios that are other than very simple accumulation portfolios, we should understand where to put the aggressive portion and where to put the conservative portion. We should understand risk management, we should understand the concepts of leverage and when to apply it, when it’s good, when it’s bad, and when it’s time to begin paying off the debt on that rental property, even though it’s only six and a quarter. We should understand opportunity cost as a basic framework with our time and our money. So this is no longer just doing the basics. This is optimization, and this is a continuation of the reading and self- education that we started in our 20s. It’s a lifetime pursuit. Milestone nine is we should clarify what enough means. I think it’s really hard for a 23 year old to discuss here’s my financial independence number. I think it’s a little different to declare that at 35 once you have a family and a house and are are are set there and your spending has been, you know, fairly consistent for a couple of years and and you’re getting into your routine what that number looks like. And I think by your late 30s, you should have a clear fire number, a rough fire timeline, a sense of the tradeoffs involved in realizing financial independence, and a vision for exactly what freedom actually looks like. And that should translate to this concept of enough. This number is enough, adjusted for inflation. That should be a good milestone by the end of your 30s.
Scott: And then last, the milestone is to exit your 30s with optionality. If we exited our 20s with momentum, by the end of our 30s, we should if not be already fully financially independent, we should have the options to survive for a year if we get laid off unexpectedly, to change careers if needed and take that job at a startup that has really promising opportunity and not run out of cash, to downshift if we want or maybe consider some version of coastfire where we we don’t have to save quite as aggressively for traditional retirement because we’ve already funded our traditional retirement and now we can take a foot off the gas a little bit and enjoy life. We’re not trapped by lifestyle inflation and we have real choices. So we’re not retired yet, but we are powerful by the end of our 30s. And what that translates to in terms of net worth targets, I think your baseline net worth target if you’re on the journey to financial independence should be around $250,000 for someone exiting the 30s, someone turning 40. I think that a strong financial position looks like something in the $400 to $600,000 personal net worth range, and an exceptional net worth is going to look like $750,000 to a million dollars or more by the time you exit your 30s. And again, many Bigger Pockets money listeners will find those numbers achievable or have already surpassed them.
Mindy: Okay, Scott, thank you for handling the 20s and the 30s. I do think you’re still closer to your 40s than I am, but I’m going to cover the 40s anyway because I’m going to give your voice a break. So your 40s are where you really start to shine. Your financial independence stops being hypothetical and it starts to feel real. You’ve set up your foundation and then you have continued to grow. So now your first milestone in your 40s is to become financially unshakable. I’m talking about 12 months of reserve. So you truly have a strong foundation and you can take some risks if they pop up. We’re done with credit card debt, we’re done with student loan debt. The only debt that you have is a low-interest mortgage payment. And you have real financial resilience. Milestone number two is high-level investing. We’re not guessing, we’re executing. You have created an investment philosophy. You have crafted a strategy and you’re following it. You’re not taking stock tips or investment advice from your best friend, sister’s, boyfriend’s, brother’s, girlfriend. You’re doing it based on your information and your research and your feelings about investing, and you’re doing it consistently. Milestone number three, compounding takes over. This is a huge shift. Your money grows faster than your efforts, than your contributions. So start tracking your net worth in addition to your spending. Watching it grow can be fascinating, especially when the compounding kicks in. I clearly remember the year that our net worth grew more than our income for that year working 40 hours a week. That was really powerful. That was really, really fun. Milestone number four, build real optionality. You don’t have to quit, you just have to be able to quit. And being able to means thinking about what you’re doing after you no longer work at the current job. Milestone number five, harvest what you planted. This is the decade where your career or business should matter. Your 40s are not the time to figure it out. Your 40s are the time to get paid for figuring it out earlier. Milestone number six, now we’re starting to optimize for taxes. We’re putting the right assets in the right accounts. We are choosing investments with tax efficiency in mind and future tax obligations in mind. Milestone number seven, we are aligning our money with our lifestyle design. What are you actually building towards and working towards? What is it that you want in your early 40s? You’re starting to think about life after FI, so that as you reach financial independence, you can make better choices about, do I quit or do I continue working for a little bit longer? Do I want a totally different job? Do I want to travel the world? You start setting yourself up for your life after you have retired. Milestone number eight is knowing your FI number, your true FI number based on your spending, based on your projections for what you want your life to look like after you have reached financial independence. Milestone number nine, you’re designing your exit. Even if you don’t take it, you’re starting to think about how you are going to exit the workforce. And milestone number 10, you’re feeling inevitable. Financial independence is inevitable, and your relationship with financial independence is very comfortable, and you are looking forward to it. And in your 40s, your net worth milestones baseline is between $500 and $750,000. Strong is between 1 and $1.5 million and exceptional is 2 million plus.
Scott: I think the theme for for your 40s here is is again this this this concept of, you know, if your 20s are about planting a foundation and your 30s are about accelerating that journey, the 40s are really about mastering money. It’s not necessarily about being super rich. It’s about really having the mental models and playbooks all in place so you feel super comfortable with exactly what you’re doing, why you’re doing it, what you want and you have a clear finish line so your 50s can just be about finishing the play. And I think that’s what the theme for your 50s is going to be here is going to be about control and choice and the theme is finishing the play. and do you want to take this one too?
Mindy: Yeah, this is where money stops being about accumulation and now it’s more about protection. Milestone number one is you’ve reached FI or you are so close you can taste it. Work becomes truly optional. I don’t think that everybody has the goal of quitting, but having the ability to quit, the option to quit is so powerful. Milestone number two, you are shifting from growth to protection. You’re shifting into bonds. You are truly assessing the risk level of your portfolio and your comfortability with that risk. I am currently totally fine with risk. I’m in some high risk options. I also have some lower risk bonds now. Thanks to Frank Vasquez. And your stress testing. You’re playing around with it, seeing if your plan works.
Scott: When when we think about this concept of shifting from growth to protection, I just want to call out that there’s kind of two themes that we’re observing in end state portfolios. One is, a good number of the FI community um are what Frank Vasquez calls hoarders, which he has a real problem with uh in there. He’s he’s a good friend of ours. He really calls this out. He has a real problem with somebody who amasses for example, five or seven or $10 million and spends $100 grand a year because none of the rules that we’re talking about with financial independence really apply in that situation. I don’t think Mindy and I have any problem with that uh and the people who choose to to pursue that, great, you’ve you’ve accumulated more wealth and if you’re happy with what you’ll spend, you can. But if you’re going to go that route, then you can keep investing aggressively, right? Because you spend so little as a fraction of your net worth base that it doesn’t really matter. We don’t need all these rules of thumb and protection rules in our financial portfolios and you can just grow for maximum legacy value or whatever it is that you want to grow for. If you are, however, closer to your fine number. Let’s say that you have two and a half million dollars and you want to spend $100 grand a year and you want to retire in your your 50s or 60s, now we really got to be smart about building a diversified portfolio that can actually survive sequence of returns risk, right? Sequence of returns risk is the risk that the market goes down or inflation rises or some combination of that happens right after you retire and that really erodes the purchasing power of your retirement nest egg. And so you need to know where you are at in your 50s, I think and understanding that and how you’re going to mitigate that risk. Are you going to mitigate it by just becoming so wealthy that it doesn’t evolve and spending so little relative to that wealth that it obviates the need for all of these traditional retirement rules of thumb or are you going to actually do the hard work of rewiring your brain from accumulation to deccumulation and build a portfolio that is capable or that is supported historically in being spent to last a retirement.
Mindy: Well, thank you for expounding, Scott. We’re going to take our final ad break and we’ll be right back with more after this.
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Mindy: Thanks for sticking with us. Milestone number three is having a real retirement plan. And I’m not talking about what you’re going to say to your boss. I’m talking about how are you going to start accessing the funds that are in your portfolio, cash flow models, healthcare. What are you doing for healthcare? How is social security going to come into play and how are you going to take it? What is your plan for taxes and tax optimization? This is what you’re starting to think of in your 50s, maybe even into your late 40s, if you’re closer to retirement in that decade. These are things that are going to have real consequences to your portfolio and your cash flow, especially if you’re not thinking about them in advance. Milestone number four, be financially bulletproof. And to me, this means you are no longer investing in super risky things or at least not a large portion of your net worth. If you want to invest in that latest Tik Tok stock tip, test it out with just a tiny little bit, but don’t put the bulk of your net worth in something that could ultimately go to zero. Milestone number five is decide what work means to you. Some people get to financial independence, retire, and never work again. And other people decide, now is the time to start my small business. Now is the time to go and be a park ranger, which doesn’t pay very much, or doesn’t pay what you were making before. What does work mean to you? Not everybody wants to quit working and then never work again. Some people want to continue, but in a different capacity. They want to work part-time. They want to do things that pay little or nothing. They want to experience different ideas. So decide what work means to you. Milestone number six, design your life, not your portfolio, but your life. What are you going to spend your days doing? And this honestly is again more early 50s and late 40s than the end of the road. You want to be figuring out what you’re going to do well in advance. Milestone number seven, have a purpose plan. Most people fail retirement because of their emotions, not because of their finances. They weren’t adequately prepared. And if this feels like I keep harping on this same subject, it’s because I do. You need to know what life after FI looks like for you. Milestone number eight, understand what enough looks like to you. If your goal is to amass a portfolio of $2.5 million, that’s your goal. And, oh, I’ll just wait till I’m 3.5. I’ll wait till I’m 5 million. I’ll wait till I’m 10 million. Have a realistic goal and understand where enough stops. And milestone number nine, exit your 50s with full agency. You’ve got everything under control, your finances, your time, your intentions, everything is yours to do with as you please. That’s what you’ve been spending the last 30 years creating, or 20 years, or 10 years. That’s what you’ve been doing this whole time is to create the life that you want.
Scott: The last milestone here, milestone 10 is I I think at this point, if we’re going to actually retire, and we’re going to actually live off our financial portfolio, I think it’s time to construct a full real, high-quality, professional financial plan. You can DIY this, you can use AI agents, or we recommend talking with a financial planner, not just any financial planner. We bias the search toward towards financial planners who do not charge AUM fees and who do not receive commissions for selling investment or insurance products. So I think that we would recommend at this point that you either build this plan yourself or get a flat fee financial planner or an advice only financial planner. A flat fee financial planner may have the advantage of also being able to manage your money for you, which is maybe not something you want to do in your 50s, but you may want them to do that in your 60s, 70s or 80s. That may be a really smart choice. And so you may want to begin thinking about that in terms of what is your professional financial planning going to look like at this point in time when the stakes are highest because we don’t have income generation to fall back on to fund our lifestyle. So that’s the last milestone here. And if you’re interested, you can go to biggerpocketsmoney.com/cfp. We have a partnership with domain money and one of the CFPs there David Jackson who is doing my personal financial plan as well. They have a flat fee model with tears based on the complexity of your situation. biggerpocketsmoney.com/cfp if you’re interested. We believe that some good baseline targets for folks looking for financial independence would be $750 to a million dollars if you’re looking for lean financial independence, $1.25 to $2 million if you’re looking for a traditional financial independence and $2.5 million or more if you’re looking for financial independence that’s beginning to bump into that chubby fire range, allowing for more middle or upper middle class annual spending.
Mindy: All right, Scott, the big takeaway here, your 20s are all about momentum. Your 30s are about acceleration. Your 40s are about inevitability and your 50s are about choice. Money isn’t the point. The point is freedom and money is the tool that you use to buy your freedom.
Scott: And I also call out that freedom is a feeling as much as it is numbers on a page and optionality that that money buys you. And so what you need to feel free may differ dramatically from the numbers that we’ve put out in today’s episode. We used them as placeholders because it’s helpful, we think to have benchmarks and hard numbers to compare something against, but they’re by no means what may work for you. You may want or need much less or much more than the numbers here and you can adjust your your timeline accordingly. We can and have and will find many examples of people who start late and crush targets on this list, people who start early and get there way ahead of time, and people who are doing just fine and don’t haven’t hit all of these numbers because they don’t command a a huge income and are loving life and thriving. So there’s room for everybody and everything in between all of the items that we discussed here. This is just one or two people’s idea of what, you know, good could look like across the decades for people working to achieve financial independence.
Mindy: Absolutely, Scott. And this was a lot of fun to do this episode with you. Thank you for bringing your point of view to the 20s, 30s, 40s, and 50s. And to our dear listeners, do you want more personal financial information? Follow us on Instagram, Facebook, and YouTube at Bigger Pockets Money or head on over to our website, biggerpocketsmoney.com to sign up for our weekly newsletter and you can also find free resources, calculators, and templates to accelerate your personal finance journey.
Mindy: All right, Scott, should we get out of here?
Scott: Let’s do it.
Mindy: That wraps up this episode of the Bigger Pockets Money Podcast. He is Scott Trench. I am Mindy Jensen, saying be sweet Parakeet.
