1. Spending More Than You Earn

The Problem: Living beyond your means, whether through excess discretionary spending, lifestyle inflation, or impulse purchases keeps you in a cycle of debt. Lifestyle inflation is particularly dangerous—lifestyle inflation refers to increasing your spending as your income rises. This is a trap that many people fall into. When they get a raise or bonus, they increase their standard of living, by buying nicer cars, houses, clothes, etc. Furthermore, once you increase your standard of living it’s very hard to downgrade your lifestyle. Even though you may be making more money, you’re spending more money and that prevents you from building true wealth and making progress towards financial freedom.

How to Fix It: Oftentimes people that are spending beyond their means simply don’t have a good picture of how much money is coming in and going out. Use a budgeting app like  tools like Empower or Rocket Money to track where your money is going and how much is coming in. Stick to a budget using the 50/30/20 rule, which allocates 50% of your monthly income to needs, 30% to wants, and 20% to financial goals like saving and investing. This ensures that you are living within your means and not spending more than you earn. 

When you get a raise, avoid immediately looking for new things to buy or upgrade—instead, allocate at least a portion of it, say 30-50%, toward savings, investing, or debt repayment. Ask yourself: Will this expense truly provide value and happiness to me, or am I buying it just because I’m making more money and have more money to spend?

2. Relying on Debt for Everyday Expenses

The Problem: Using credit cards or BNPL services for daily expenses leads to high-interest debt that’s difficult to escape. It’s possible to use credit cards properly to accrue points and cashback, but if you are paying interest on credit cards or BNPLs, any rewards you might get are meaningless. It will create a dangerous cycle where you’re constantly making payments while interest continues to accumulate. We previously wrote about the hidden costs of BNPLs, if you’d like a deeper dive on why utilizing BNPLs can be dangerous.

How to Fix It: Build up an emergency fund and focus on paying off high-interest debt. For a more in-depth guide, we previously wrote about how to get out of debt. 

If you can’t afford something without going into debt, consider whether it’s truly necessary. If you have trouble staying out of debt, try sticking to cash or debit cards for everyday purchases to keep your spending in check. If you eventually want to use credit cards to earn points and rewards, be sure you can pay off your balance in full every month before getting started.

3. Not Investing

The Problem: Even if you are spending less than you earn and are saving money every month, if you don’t invest, your money will lose value every year and you’ll be missing out on compound growth. Many people simply save money in a regular savings account earning less than 1% interest per year, which is less than inflation.

How to Fix It: Automate investments by setting up automatic transfers to retirement accounts like your IRA or 401k. Even if you start with just $100 a month, it can add up considerably over time with compound interest. Simply invest in ETFs that track the S&P 500 or overall market, and let it grow over time. We previously discussed in depth how to get rich with stocks in your 20s.

4. Ignoring Financial Education

The Problem: Not understanding how money works can lead to poor financial decisions, from overspending and getting into debt to bad investments. Many people don’t take the time to learn about personal finances because they find it intimidating or think it’s something that only rich people need to learn about. However, without a solid understanding of money management, it’s easy to miss out on simple ways to build wealth.

How to Fix It: Read personal finance books, listen to personal finance podcasts, and follow blogs like ours that share practical and insightful advice. The more informed you are, the better financial decisions you’ll be able to make. Knowledge is power when it comes to financial freedom.

5. Not Having a Financial Plan

The Problem: Without clear financial goals, it’s easy to coast through life spending every cent that’s coming in and without building wealth. Many people live paycheck to paycheck simply because they haven’t dedicated the time to creating a clear financial roadmap. Without goals, saving and investing often take a backseat to short-term desires.

How to Fix It: Think about the future you want to build, and set your goals from there. Check out our post on 5 impactful financial goals for Gen Z in 2025, for some inspiration. Whether it’s paying off debt, saving for a house, or reaching an investment goal, having a roadmap keeps you accountable and on track. Break bigger long term goals into smaller milestones to track progress and stay motivated. 

Final Thoughts

Your financial future is shaped by your daily habits. Breaking bad habits doesn’t happen overnight, but small and consistent changes can lead to huge results. The key is to be intentional with where every dollar is going, educate yourself, and make decisions that set you up for long-term success. By addressing these common financial pitfalls and making smarter choices, you can work toward financial stability and independence.

Disclaimer: The content provided on this blog (Zooming to Fire) is for informational and educational purposes only. It represents the opinions and perspectives of the authors and should not be considered as financial advice. The authors are not licensed financial advisors, and no content on this blog should be in any way interpreted as professional financial counsel or advice. See more here.

Encourages Overspending

The main problem with buy now, pay later services is that they make it extremely easy to spend money that you don’t have. By breaking purchases into smaller payments, it’s easy to fall into a trap where you think you can afford expensive items just because you think you can afford the monthly payments. 

This can quickly lead to living beyond your means and thinking you can afford things that you really should not be buying. Like credit cards, BNPL services can hide the psychological pain that may be associated with paying for things on a debit card or cash. It’s easy to forget about where the money will actually come from and leave it as a problem for future you. 

Possibility to Accumulate Multiple Payments

It’s also remarkably easy to have many BNPL plans going at once, and to keep signing up for them. With credit cards, you’ll see one unified balance per credit card which makes things much easier to track. While of course you can have many credit cards that may be split over different platforms, typically lenders won’t continue offering you cards if you’re already in a lot of debt (unless they are particularly predatory). The amount of balances and due dates to track is much smaller and if you use a tool like Empower or Rocket Money, you can quickly and easily see the balances and due dates on all your cards.

BNPL balances may be spread between multiple different platforms like Klarna, Affirm, and After Pay, and it’s much more difficult to manage one payment per purchase with a different due date and balance on each purchase. Before you know it, you can have many payment plans going at once and a significant amount of your monthly income can be tied up.

High Fees for Missed Payments

Although BNPL services tout “interest-free” payments, they often charge hefty late fees of upwards of 25% of the whole purchase price if you miss a payment. Credit cards can also charge 25%-30% interest, but this is over an entire year, whereas BNPL payment plans typically can be over a much shorter time period. These late fees can quickly add up especially if you have a lot of payments at once. If you are miss a payment on any one of them it can quickly spiral out 

The Lie of “Interest-Free”

Similarly, although many BNPL services don’t actually charge interest for a certain period of time, if you don’t pay off the entire balance by the end of that period, you may have to pay interest for the entire time period. This can be a huge sum of money that you might not be expecting.

Like Credit Cards, But Worse

BNPL services share many negatives with credit cards, when it comes to promoting bad spending habits and accumulating debt. However, if you are disciplined and don’t spend more than you can afford, BNPL services are simply worse than credit cards in almost all aspects. Credit cards also give you a grace period of ~2 months before your purchases start accruing interest, as long as you don’t carry a balance month to month. This is similar to the length of many shorter term BNPL payment plans.

In addition, credit cards offer many benefits over BNPLs:

• Credit cards offer robust consumer protections. You can dispute charges for things like fraud, scams, unsatisfactory goods or services, etc. Thus you can get your money back if something were to go wrong. BNPLs do not offer anything of that sort and you are most likely screwed if something happens
• Credit cards accrue points. If you’re responsible with your spending, you can get points or cashback worth 1-5% on your credit card purchases. Whereas for BNPL purchases you won’t get anything. Though keep in mind if you end up paying interest on your credit card, no amount of points will matter.
• Credit cards can also offer perks and benefits like airport lounge access and dining credits on credit cards with higher annual fees. But even on credit cards with no annual fee, you can often get purchase protection or extended warranty, which can be worth a lot of money especially for expensive electronics.

What to Do Instead

If you’re tempted to use BNPL services for expensive purchases that you may not be able to afford, consider these alternatives:

1. Save Up for Purchases: Make sure you actually have enough money to buy something, before you buy it. 
2. Use a Budget: Consider allocating future funds to certain large purchases that you want to make. Planning will help you keep yourself accountable and prevent yourself from falling into a cycle of debt.
3. Use a Credit Card Wisely: Credit cards can be very useful if used wisely. They can help you with cash flow and earning rewards on your purchases. However, make sure you budget wisely and can fully pay off your credit card balance every single month. 

Final Thoughts

BNPL services may appear convenient and useful, but they often come with hidden costs and risks that can harm your financial health. By understanding the pitfalls and adopting smarter spending habits, you can avoid the debt traps that utilizing BNPLs can create. Credit cards are often a better choice and provide many benefits over BNPLs. However, remember that what’s most important is to spend money you actually have and to live within your means. If you can’t control your spending you should avoid both BNPL services and credit cards.

Disclaimer: The content provided on this blog (Zooming to Fire) is for informational and educational purposes only. It represents the opinions and perspectives of the authors and should not be considered as financial advice. The authors are not licensed financial advisors, and no content on this blog should be in any way interpreted as professional financial counsel or advice. See more here.

1. Understand your situation

The first step to getting out of debt is figuring out how much you owe, and what the interest rate is for each piece of debt. Create a list of your debts that you want to pay down and write down the following:

• Total balance owed
• Interest rate
• Minimum monthly payment

This list will be essential to your plan to get out of debt. You don’t necessarily have to aggressively pay down lower interest rate debts (<5%), such as mortgages, if you have them. This is because typically you can achieve a higher return in the stock market than the interest rates on your loans. But things like credit card debt which can have interest rates of 20% or more should be paid down aggressively.

2. Stop accumulating new debt

While it’s better to not get into high interest debt in the first place, we can’t change what’s already happened. It becomes exponentially harder to get out of debt if you’re continuing to add to it. Stop using credit cards and avoid taking on new loans, such as for a car or house. While mortgages are typically seen as “good debt” and help you buy a house, you should make sure your financial habits and health are improved before buying a house or car.

Focus on living within your means and only spending money you actually have. 

3. Stick to a smart budget

Sticking to a budget is essential to paying down your debt. It ensures that you are not spending more money than you’re bringing in every month, which means you won’t be accumulating more debt. But simply not accumulating debt is not enough to get out of debt. You need to have money to actually pay down the debt, which you should budget for.

Track your income and expenses, using tools like Empower or Rocket Money, to identify areas where you can cut back and stick to a smart budget. Depending on the extent of your debts, it may be wise to cut back heavily on your discretionary spending. We have discussed the 50/30/20 budgeting method in the past, which allocates 20% to financial goals and 30% to wants. However, if you have a lot of debt it would be prudent to aim for a savings rate of 30% or more of your monthly take home pay, and cut spending on “wants” to 10% or even lower, depending on how extreme you want to get. This may be painful in the short term, but it will pay off greatly in the long run, and gives you a good amount of money to start attacking your debt. 

4. Pay down the debt

There are two popular methodologies for paying down debt:

• Debt Snowball Method: Pay off the debts from smallest to largest, while making minimum payments on the others. This method is useful for building motivation and the psychological benefit that you can get after paying off one piece of debt.
• Debt Avalanche Method: Pay off the debts from highest interest rate to lowest interest rate, while making minimum payments on the other debts. This will save you the most money over time, since the highest interest rate debts accrue more interest over time

Depending on the specific details of your debts, these methods may look very similar or very different. From a pure numbers perspective, the debt avalanche method is the best for paying the least amount of interest, but the mental benefits of paying off loans may make the debt snowball method more attractive. Pick the one that you will stick with and that enables you to follow through and pay off all your high interest debt.

5. Stay committed

Having a good plan and starting to pay down your debt means nothing if you don’t follow through. Depending on how much debt you have, this process could take months or even years. Make sure to stay committed to your goals and continue to keep chipping away at the debt. Be sure to celebrate your progress along the way and keep sight of your financial future.

Final Thoughts

Paying off high-interest rate debt is one of the best early financial moves you can make. By following these steps, staying committed, and prioritizing your financial well-being, you’ll be well on your way to paying off your debt.

Disclaimer: The content provided on this blog (Zooming to Fire) is for informational and educational purposes only. It represents the opinions and perspectives of the authors and should not be considered as financial advice. The authors are not licensed financial advisors, and no content on this blog should be in any way interpreted as professional financial counsel or advice. See more here.

1. Build a Robust Emergency Fund

Life is unpredictable and you never know what will happen. Having a robust emergency fund is as important as having health insurance and car insurance. It ensures you’re financially prepared for any unexpected circumstances like medical bills, sudden job loss, car repairs, or home repairs that could lead to large unexpected expenditures. Most Americans don’t have enough savings to cover a $1,000 unexpected expense, don’t let that be you!

You should aim to have at least 3-6 months worth of living expenses in a high-yield savings account. This should be the amount you need to survive on and should only factor in necessity expenses, though if you want to add more money, nobody is stopping you. If it sounds difficult to pull together that much money, that’s because it is! It’s not easy, but it is straightforward. Start small and try to automatically take money from your paycheck and put it towards your emergency fund. You can start small, but make sure to contribute a bit every month. This is called paying yourself first, which ensures you’ll actually save for your goals, rather than spending your money first and then worrying about saving at the end of the month.

This financial cushion protects you from needing to rely on credit cards or short term loans,  which can have astronomical interest rates of 20% or higher, in the event of unexpected expenses. It will help keep you on track toward long-term financial stability. Read our post on emergency funds for more in depth information, and consider making an emergency fund part of your 2025 resolutions!

2. Avoid High-Interest Debt

High-interest debt, particularly from credit cards or short term loans like personal loans or payday loans have extremely high interest rates. While you may know from our previous post that compound interest can work greatly in your favor given a long time horizon, it can also work against you when it comes to debt. High-interest debt can and will accumulate quickly over time and cost you more over time. If you continue to make minimum payments and let the debt accumulate, it becomes overwhelming and extremely hard to manage.

Your first priority should be making sure that you don’t get into high interest debt in the first place. Building an emergency fund is a great start towards avoiding high interest debt. Next, you should aim to spend less than you make and certainly do not borrow money for non necessities like clothing, technology, etc. Buy-now-pay-later services are especially prevalent nowadays for purchases and are a very easy way to get into a lot of consumer debt. Avoid impulse buying and spending more money than you actually have.

If you already have high interest debt, you should focus on paying them down as quickly as possible. Paying the minimum balance is not enough and will just result in an ever-increasing balance. There are two main methods for paying down your debt, which are the debt snowball method and the debt avalanche method. The debt snowball method involves paying down debt from smallest to largest balance, which can provide psychological benefits by seeing progress being made. The debt avalanche method focuses on simply paying down your debt from highest interest rate to lowest interest rate, which mathematically makes the most sense since you will pay the least interest. I would suggest the debt avalanche method, but whichever one you pick you will be well on your way to a better financial future.

3. Create and Stick to a Sustainable Budget

A sustainable budget is the backbone of financial success. If you spend all of your money every month, you’ll never be able to save up for an emergency fund, a house, or a car, and you certainly won’t be able to invest. Creating a budget is essential to being able to plan for your future financial success. Creating a budget doesn’t mean you have to give up your quality of life and all of your favorite things—it’s about being intentional with where your money is going. An important tip is to figure out where money has the most value to you. It may be travel, food, technology or anything else, but you should prioritize what makes you happy and try to cut back on the things that are unnecessary and/or don’t provide you a ton of happiness or value.

A simple budget to follow is the 50/30/20 rule, which allocates percentages of your after-tax income.

• 50% for necessities (housing, food, transportation)
• 30% for wants (entertainment, dining out, clothing)
• 20% for financial goals (savings, investments, debt repayment)

Use budgeting tools like Empower or Rocket Money to track your spending and expenses. A well-planned budget keeps your future financial goals in check while allowing you to enjoy life now.

4. Start Investing Early

While saving is essential to getting yourself out of debt and building an emergency fund, saving alone is not enough to set yourself up for a prosperous financial future and retirement. In order to build wealth and retire (either early or at a traditional retirement age), you need to invest and take full advantage of compound interest.

The sooner you invest the more time your money will have to compound and the better off you will be in the future. Set up automated transfers to your investment accounts and prioritize tax efficient accounts like your 401k and Roth IRA. Then just invest in broad market ETFs, like VOO and VTI, and set it and forget it. Read our post on getting rich with stocks in your 20s for a full overview of the basics of stocks and tax efficient accounts.

5. Plan for the Future

Financial freedom and security doesn’t just happen on its own—it’s built through discipline and smart planning. Just by reading this post, you’re already thinking about your financial future, which is a great start. Continue to set long-term financial goals that are both achievable and ambitious like saving for retirement or for a home. By setting goals that are ambitious, but achievable, you’ll ensure that your goals are actually meaningful and can push you to continuously improve and grow.

Don’t forget to plan beyond just your finances—develop a roadmap for personal and career growth, and ensure you’re living life to the fullest. The earlier you start on any goals, the easier it is to achieve them and create a better future for yourself.

Wrapping up

With this knowledge, you have the ability to take control of your financial future in 2025 by focusing on these five key goals: building an emergency fund, avoiding high interest debt, budgeting, investing early, and planning for the future. By prioritizing these areas, you can create a strong financial foundation and build towards financial security and prosperity. Start small, stay consistent, and keep your goals in mind. Every decision you make today will affect your future self, but remember to maintain balance and not go too overboard on saving or spending.

Disclaimer: The content provided on this blog (Zooming to Fire) is for informational and educational purposes only. It represents the opinions and perspectives of the authors and should not be considered as financial advice. The authors are not licensed financial advisors, and no content on this blog should be in any way interpreted as professional financial counsel or advice. See more here.

1. Understand the Different Types of 401(k)s

The first thing you’ll want to understand is the difference between the various types of 401(k) plans. There are a few types of 401(k) plans but some are only relevant if you own your own business, so we won’t cover those.

The two main types of plans that most people will encounter are the Traditional 401(k) and Roth 401(k). They each come with their own benefits and trade-offs, but the main difference comes down to how they are treated for tax purposes. For both types of accounts, generally, you will need to wait until you are at least 59 ½ years old to make withdrawals without incurring penalties.

Traditional 401(k) 

• Contributions are made using pre-tax dollars, which means you’ll get a tax deduction for the year and reduce your taxable income. 
• Investments will continue to grow tax-deferred, which essentially means that you won’t pay taxes on any of the money, including the gains until you withdraw from your 401(k) during retirement. 
• This can help you save a significant amount on your taxes in your working years and is especially powerful during your highest earning years.

Roth 401(k)

• Contributions are made with after-tax dollars, so you won’t get any immediate tax breaks. 
• Investments will grow completely tax-free and withdrawals during retirement are tax-free as well. However, you must have had your account open for at least 5 years in order to make penalty-free withdrawals.
• This can be beneficial if you have a long period to compound your money and if you are currently in your lower earning years.

2. Choose your 401(k) type wisely

While the choice between a Roth and Traditional 401(k) is not super straightforward, here are some general guidelines to follow:

• If you expect to be in a higher tax bracket during retirement, you should be contributing to a Roth 401(k). This is typically the case if you are younger since you are likely not at the peak earning years of your career. 
• If you expect to be in a lower tax bracket during retirement, you should be contributing to a Traditional 401(k).
• As well, if you are young your money has a lot more time to compound, so the tax-free withdrawal treatment of a Roth 401(k) can be very valuable. For young people, it typically makes sense to contribute to a Roth 401(k).

Ultimately, it’s very hard to predict future tax conditions so for younger people in general a Roth 401(k) is a good choice, but you could also consider investing in a Roth 401(k) as well as a Traditional IRA, or vice versa to diversify the tax treatments of your investments. You can also use an online calculator to compare the options.

If you end up contributing to a Traditional 401(k) it’s also wise to invest the tax savings that you get from contributing to a Traditional 401(k). This is because the Roth 401(k) option essentially forces you to invest those tax savings you would’ve got, whereas with the Traditional 401(k) its possible to spend those tax savings instead.

3. Start Early and Contribute Consistently

Optimizing for the best type of account means nothing if you aren’t consistently contributing to your account and investing wisely. Make sure that you allocate some amount of every paycheck to your 401(k). Contributing just $500 a month for 40 years means you will have over $1.5 million. If you were contributing to a Roth 401(k) that $1.5 million would be completely tax-free and you would be able to retire. However, if you start contributing 10 years later, $500 a month for 30 years would result in $680,000, a far cry from $1.5 million. Be sure to start early and invest consistently. It takes a lot of discipline and dedication, but your future self will be truly grateful.

4. Take Full Advantage of Employer Matching

Make sure to research your employer match fully. This is one of the only times you’ll get free money and you should take full advantage. The way your employer matches contributions will vary by employer, but typically they’ll match some percentage of your contributions, up to a yearly cap based on your salary. However, make sure that you fully understand how your employer match works, as certain companies may only match up to a certain amount every paycheck, so if you max out your 401k early you might be leaving money on the table.

If you take advantage of the employer match every year for many years, it can quickly start to grow and snowball. This combined with the tax-advantaged nature of the 401k will eventually mean that you’ll have a very large sum of money during retirement.

4. Understand Your Investment Options

Usually, the investment options in your 401(k) plan are pretty limited and are dictated by your employer. This is typically good for most people since it prevents people from investing in individual stocks and losing a lot of money. Investments can range from target-date retirement funds to small-cap and large-cap funds. If you want to pick an investment and never think about it again, a target-date retirement fund can be good. Or you can try to find a total market index fund or S&P 500 index fund, which are good options for long-term investors. 

The main thing to be wary of is high expense ratios. Target-date retirement funds may have a higher expense ratio than a simple total market index fund. And these expense ratios add up over time and can greatly impact your long-term gains. So choose wisely and aim for lower expense ratios.

5. Increase Contributions Over Time

You may not be able to max out your 401k at first but aim to contribute enough to at least max out your company match. When your income increases over time, make sure you are contributing some of that increased pay to your 401k. Many people make the mistake of increasing their spending every time they get a raise.

While you can certainly treat yourself and increase your spending, be sure to consistently invest and even automate the process by automatically contributing a certain percentage of your income to your 401k. By setting aside money to invest before everything else, you won’t fall into the trap many people fall into of spending first and then having no money left to invest at the end of the month.

Increasing your contributions incrementally can have a significant impact on your retirement savings without drastically affecting your current lifestyle. If you receive a 5% raise, you might allocate half of that increase to your 401k and the remaining half for other expenses. This approach allows you to steadily build your retirement fund while also enjoying some of your income growth.

Conclusion

Maximizing the benefits of your 401(k) is a critical component of building a secure financial future. By starting early, taking full advantage of employer matching, understanding your investment options, and contributing consistently, you can make the most of your 401(k) and ensure a comfortable retirement. Make sure you’re investing in low-cost funds, increase contributions over time, and avoid early withdrawals to keep your retirement savings on track. With these tips, you’re securely on track to achieving financial independence and a comfortable retirement.

Disclaimer: The content provided on this blog (Zooming to Fire) is for informational and educational purposes only. It represents the opinions and perspectives of the authors and should not be considered as financial advice. The authors are not licensed financial advisors, and no content on this blog should be in any way interpreted as professional financial counsel or advice. See more here.

Start Early and Be Consistent

The most important thing to remember is that starting early is the most important thing you can do. The earlier you start investing, the more time your money has to grow and compound. For instance, if you invest $500 a month until you’re 60, starting at 25 instead of 35 will leave you with an extra $600,000. You might not be super rich in your 20s, but you can set yourself up to be very well off as you get older.

Investing early and consistently can lead to a significant accumulation of wealth over time. Aim to invest a portion of your income regularly, regardless of market conditions. Try not to let emotions or fear play into when you decide to invest, since generally the longer you are invested the better you will perform. Budget your money wisely and keep in mind how powerful investing can be when you are young. Just get started with a smaller amount first to get over the initial fear, and keep investing consistently. The consistency of your investments will pay off in the long run. You’ll thank yourself for having started early.

Invest in Low-Cost Index Funds and ETFs

Some people who are hesitant to invest are scared of the apparent risk that investing in stocks can bring. While stock investments do carry risk in general, index funds and ETFs that track the broader US or world market are excellent options for investors with a long time horizon. For instance, the S&P 500 index, which tracks the top 500 largest US companies, has returned around 10% with dividends reinvested over its entire history. It may not return 10% exactly every year, some years it will go up a lot more than 10%, and some years it will lose a large amount, but over the long term, you will make money.

Index funds and ETFs are just investment vehicles that invest in a large basket of stocks. The difference between ETFs and index funds is that ETFs can be bought and sold just like stocks, whereas index funds can only be traded once a day. Be sure to avoid ETFs that have high expense ratios, which is essentially the fee you are charged each year to own a fund. Try to aim for expense ratios under 0.5%.

Some good low-cost ETFs are VOO, which tracks the S&P 500 and has an expense ratio of 0.03%, and VTI which tracks the total US stock market and has an expense ratio of 0.05%. High fees can greatly lower your overall return in the long run since it can take away from your compounding. Investing in these broad market funds provides an easy way to diversify your investments and often provides better returns and less risk than trying to pick individual stocks.

Take Advantage of Tax-Advantaged Retirement Accounts

The simplest way to invest is in a taxable brokerage account, but tax-advantaged retirement accounts can boost your returns drastically by providing either tax savings today or tax savings during your retirement. While retirement may seem too far away in your 20s, being able to compound your money tax-free is immensely powerful. And even though you can’t withdraw from retirement accounts until you’re 59 and a half normally, there are various ways to withdraw money if you need it earlier or you are retiring early.

We will cover retirement accounts at much greater length in later posts, but we’ll give a general overview now. Most people will have access to a workplace-sponsored retirement plan like a 401k or 403b, and also an individual retirement account (IRA). There are two main types of retirement accounts Traditional 401ks/IRAs or Roth 401ks/IRAs. The main difference is the tax treatment.

For traditional accounts, you will get a tax deduction in the year you contribute, so you won’t pay income tax on that money. But then when you withdraw the money you will pay income tax on the amount you withdraw, including any growth. For Roth accounts, you will pay income tax on the money going in, but you won’t pay any taxes on the money you withdraw, including any growth. This makes Roth accounts very favorable for young people who are likely in a lower tax bracket, and have a very long time to compound their money.

So, contribute as much as you can to these tax-advantaged retirement accounts and make sure to select the right investments as we described above. As well, be sure to take advantage of any 401k matching your employer might offer, since that is quite literally free money.

Reinvest Dividends

One important thing to ensure is that you are reinvesting your dividends. Dividends are payments that companies make to their shareholders just for holding their stock. This is one of the only truly passive income sources that one can have, and it can also give you some mental motivation by showing you that your investments are paying off.

However, make sure that you are reinvesting your dividends back into stocks since you don’t want to be leaving that in cash and it can significantly hinder your returns in the long run. Many firms like Fidelity and Vanguard have dividend reinvestment plans (DRIPs), that will automatically reinvest dividends either into the same stock or ETF or you can pick an entirely different one.

Build an Emergency Fund

You must build up an emergency fund to be able to sustain your needs if you were to lose your job or have some kind of emergency. It would not be a good time if you were unable to make income and the markets were down. Selling your investments at a loss when the markets are low is not something that you want to take lightly.

Be sure to have a comfortable cushion of cash, so you can have that peace of mind to keep investing aggressively and often. Try to maximize your employer match on your 401k first, but then building an emergency fund is a great next step. We discussed building up your emergency fund in more depth in a previous post, so make sure to check it out!

Conclusion

Taking control of your financial future in your 20s by investing in stocks is one of the smartest moves you can make. By starting early and consistently investing, leveraging low-cost index funds and ETFs, utilizing tax-advantaged retirement accounts, reinvesting dividends, and building a robust emergency fund, you are setting a great foundation for your future wealth accumulation.

These steps are simple but require considerable dedication, sacrifice, and discipline. The earlier you start, the more you benefit from the power of compound interest and market growth, positioning yourself for significant financial success in the years to come. The journey to wealth is a marathon, not a sprint, and your sacrifices and efforts today will certainly pay off immensely in the future.

Disclaimer: The content provided on this blog (Zooming to Fire) is for informational and educational purposes only. It represents the opinions and perspectives of the authors and should not be considered as financial advice. The authors are not licensed financial advisors, and no content on this blog should be in any way interpreted as professional financial counsel or advice. See more here.

With that in mind, we’re going to cover 3 simple steps to set yourself up for financial success and wealth in the future. While it may be “simple” to get rich, it certainly is not easy. It takes a lot of dedication, willpower, hard work, and certainly some luck, but it is relatively straightforward and doesn’t require you to be born with a silver spoon or to win the lottery. With that all in mind, let’s dive into the only 3 things you need to do to get rich in your 20s.

Set Clear Financial Goals

Certainly, a big part of becoming rich and financially prosperous is simply seeing a large number in your bank and investment accounts, and owning a nice house and car. However,  getting rich isn’t just about money; a large part of being “rich” is personal. That requires defining what having a fulfilling and rich life means to you. What use is having a ton of money if you’re not happy or satisfied with the outcome. 

Start by clarifying your financial goals. You don’t have to lock down a specific amount of money that would allow you to retire but try to figure out a ballpark range that would make you feel like you’ve made it. There is a large difference in the amount of investment required to get to a million dollars versus say five million dollars. And accordingly, the lifestyle that can be achieved is much different. Work backward and think about your current lifestyle and what you are trying to achieve. This can set the tone for your financial journey, and help set concrete milestones that will keep you going towards the end goal.

Craft a Budget with Purpose

Now that you’ve established your goals and milestones you need to craft a budget that can help you achieve those goals. Having goals and a purpose for your budget is the key to your financial success. 

Start by categorizing your monthly expenses into essential and non-essential spending. Things like housing, transportation, groceries, utilities, and wellness are all essentials. Though you can certainly overspend on “essentials” by getting an expensive car or expensive groceries, these expenses are usually unavoidable. At a bare minimum, your monthly income needs to be able to cover your essentials. Then you have room for the non-essentials, like eating out and buying clothes.

Once you’ve broken down your expenses, work backward and allocate money to investing and saving for your future goals. By allocating this money first, it makes it a lot harder to squander it on unnecessary things. You can also set up an automatic transfer to your retirement account or savings account every paycheck, which can help take away the mental toil of doing so manually.

Invest Early and Invest Wisely

Simply saving money every month won’t make you rich. You need to invest your money. We’ll cover investing more in-depth in future posts, but the gist of it is that you cannot simply hold your money in cash earning a measly 1 or 2 percent per year. If you remember compound interest, just a few extra percent per year can net you a gigantic difference over a 40-year time horizon. Since you’re still in your 20s, you have a ton of time for your money to compound and grow exponentially. You also can wait out any economic downturns and see your money balloon over time. 

Do not get into the hype of trading or following random people online who claim they can double your money in a year. If someone is truly able to double their money every year, why would they sell that information instead of doing it themselves? They would be able to turn $100 into $100 million in 20 years. All you need to do is invest in the broader market, through index funds or ETFs like VOO, SPY, QQQ, etc. Just keep buying and holding. There will be periods of time when you are losing money, but do not panic and remember that over the long term, the broader stock market tends to go up.

Conclusion

Setting yourself up to get rich in your 20s is more than just a goal; it’s an achievable reality with the right mindset and strategic steps. While it may not be possible for everyone to achieve these goals in their 20s, depending on your income level, taking these steps in your 20s will set you up for financial success for the rest of your life, and can ensure that you have a very comfortable traditional or even early retirement. These three simple things are all you need to begin and kickstart your journey to wealth. Let’s make your 20s a decade of financial empowerment.

Disclaimer: The content provided on this blog (Zooming to Fire) is for informational and educational purposes only. It represents the opinions and perspectives of the authors and should not be considered as financial advice. The authors are not licensed financial advisors, and no content on this blog should be in any way interpreted as professional financial counsel or advice. See more here.

Saving and investing your money is crucial to building a solid financial future. However, it’s equally as important not to go overboard and live off of beans and rice. Let’s take a look through a few creative approaches you can take now to start cutting down on your monthly expenses, while also maintaining your lifestyle standards. 

Optimize Your Monthly Bills and Subscriptions

In recent years, many products and services have been moving towards the subscription business model. Instead of paying a one-time fee for something, we end up paying every month and paying significantly more in the long run. Even worse, we can sometimes forget that we’ve subscribed to something or forget to cancel that pesky free trial, so we end up paying for months for something that we never use.

Have Only One Subscription of Each Type

Consider looking through your credit card bills and evaluating the subscriptions you see. If you see something you haven’t used in a while, just cancel it! There’s almost always no harm in canceling a service since you can just re-subscribe later.

Some core services are necessary like one music service, one TV show service, and maybe a storage service. However, you don’t need multiple of the same type of service, i.e. you should never have HBO, Netflix, and Hulu all at the same time. You can subscribe to one service at a time, watch all the shows you want, and then cancel and move on to the next service. Watch all the Netflix shows you want, cancel Netflix, and then subscribe to Hulu and watch all the shows you want there.

Look for Lower Phone and Internet Bills

Additionally, look for opportunities to cut down on and optimize your technology expenses like phone and internet bills. One easy thing to try is just simply calling up your cellphone or internet provider and asking if there are any loyalty discounts they can offer you. This likely won’t work in a lot of cases, but if you’ve been with the same provider for a long time it might save you $10 or $15 bucks a month here and there, which can add up!

The main method to lower your bills on cell phone and internet plans is to look for better deals from other competing companies and switch. You can also combine this with the timing of your cellphone upgrade since many mobile providers will give you huge discounts on new phones if you are adding a new line. For instance, you may get $500 or more off of a new phone when trading in your old one and switching to a new carrier. Then when you factor in the monthly savings on your phone bill, this can provide significant savings.

Switching cell phone or internet providers is kind of a hassle, but if you do it every few years it can save you a ton of money in the long run, since saving $20-30 bucks a month on each bill can save you hundreds of dollars over a few years. 

Cashback Rewards: Maximize Your Buying Power with Portals and Rewards Sites

There is only so much you can do to reduce your required spending, and you still need to live and have a nice life, so some spending is unavoidable. However, there are some strategies to get a bit of money back on your everyday spending! The main thing that you can implement today is using cashback portals or rewards sites. Services like Topcashback and Rakuten, allow you to earn cashback on your purchases. Essentially, whenever you shop online you click through the link on their portal and shop as you normally would. Then they will give you some cashback in return. 

An alternative to cashback portals is gift card marketplaces. These allow you to buy gift cards for stores and websites you are shopping at but either give you a discount or cashback for future purchases. One marketplace we like to use is Raise which allows you to get upwards of 5-10% cashback on certain gift cards. Using our link, you can get $5 off your first purchase of $25 or more. If you combine this cashback with your credit card cashback of 2-3%, you can save a lot on your purchases. The only downside to consider is that you won’t get purchase protection and returns are more annoying, since gift cards are hard to refund.

Next time you check out online, see if your favorite retailer is listed on Topcashback or Raise. This simple step can accumulate significant savings over time, putting money back into your pocket

Smart Housing Savings: Live with Roommates or at Home

The most significant monthly expense for a vast majority of people is housing. Given that we’re Gen Z and relatively young, most of us are renting or would need to rent in the future. A great way to effectively eliminate your monthly housing expenses is to live at home with your parents if possible. If you need to move to a different city or your relationship with your parents isn’t great, then there’s no way to achieve that. But, if it’s feasible to live at home, you can save a significant amount on rent every month and contribute to the household expenses in other ways.

Some people consider living at home to be a social killer or taboo, but it’s becoming more common and acceptable. Being able to save $2000 a month on rent every month can put you well on your way to maxing out your 401k or saving up for a house. It’s hard to pass up an opportunity to set yourself up for life since compound interest has such a profound impact if you start investing in your 20s.

The other main option is to live with roommates. While this may not seem like an ideal living situation, especially if you like to have your own space, you can still have your own bedroom but pay significantly less than if you’re living in a 1 bedroom or studio. This can save you many hundreds or even thousands of dollars a month. Consider, in NYC a decent studio might cost you $3300 a month, whereas a 2 bedroom 1 bathroom might cost $5000, but split between two people, you would only pay $2500 a month. This is just an illustrative example, but in most cases, it works out to be cheaper if you split a larger apartment between people.

So, consider your various living arrangement options and try to strike a balance between cost savings, as well as freedom, quality of life, location, and other factors.

Meal Prep Magic: Plan, Cook, and Save

One of the other major recurring costs is food. We need to eat to survive, but there are many options, some more budget-friendly than others. Meal prepping and cooking at home is a game-changer for both your budget and your health. Eating out once or twice a week can be a great change of pace and can bring a lot of enjoyment to your life. However, it’s easy to lose track of the toll on your physical and financial health that eating out too often can cause.

Invest time over the weekend in planning out your meals for the week and pre-cooking some of your food in batches.  Portion your meals into reusable containers for easy access throughout the week. By preparing your meals in advance, you can also save by buying in bulk, as we discuss in the next point, but it also enables you to make healthier choices. As an alternative to buying takeout, this also helps to alleviate some of the stress and mental energy that comes with preparing and cooking food during the work week. Experiment with diverse recipes to keep your meals exciting, and watch how this simple strategy can transform your budget and health.

Buy In Bulk: Stock Up On Necessities

Shopping in bulk is a timeless strategy for cutting costs. Admittedly, it’s hard to buy food in bulk if you’re living alone, but it still can be useful or non-perishable items. Try to take advantage of the bulk discounts and reduce the frequency of your shopping trips. Buy non-perishable items that you will always need, such as toiletries, cleaning supplies, vitamins, and batteries in bulk. Especially if these items are further discounted, you can stock up.

Make a list of commonly used items and explore options for buying in bulk that can make your budget go further. This might have a larger upfront cost than simply buying what you need, but in the long run, you can save a lot. The per-unit price is significantly lower, resulting in substantial savings over time. 

Start Saving Now!

Implementing these creative approaches and strategies to cut your monthly expenses can help you cultivate financial discipline, but will also foster a mindful and intentional approach to spending and saving. As you embark on this journey to financial freedom in your 20s, remember that small changes today can pave the way for a more prosperous tomorrow. Try out some of these approaches and find a balance between savings and your quality of life. It’s essential to not go overboard on saving or spending and to find a balance that works for you. Stay tuned for more insights on financial independence and savvy budgeting for Gen Z at Zooming to FIRE!

Disclaimer: The content provided on this blog (Zooming to Fire) is for informational and educational purposes only. It represents the opinions and perspectives of the authors and should not be considered as financial advice. The authors are not licensed financial advisors, and no content on this blog should be in any way interpreted as professional financial counsel or advice. See more here.

The Benefits of Remote Work For Gen Z

Obvious Cost Savings 

The most obvious benefits are the cost savings associated with remote work. Clearly, if you work remotely you don’t have to pay for commuting expenses, which can add up significantly, whether it’s train and bus tickets or car payments, car insurance, and parking. We did discuss some ways to save on your commute expenses, but if you can avoid them entirely that will go further. 

The less apparent cost savings are related to the hidden costs we’ve discussed previously. These hidden costs can add up greatly. Think about all the lunches and coffees you’ve bought when going to the office. As well, you won’t need to maintain an expensive formalwear wardrobe. 

Geographic Freedom and Arbitrage

Remote work empowers Gen Z to break free from the geographic constraints of an office job and grants you geographic freedom. You’re no longer confined to living in costly urban centers and you can explore more affordable regions. This is called geographic arbitrage. Remote jobs usually pay the same no matter where in the US you live, so you can be closer to your family or live in a lower-cost-of-living area and save considerably more than you could have if you lived in a big city perhaps. 

Beyond the immediate financial savings on your monthly housing cost, living in a cheaper region will also lower your overall cost of living. Thus you can achieve a higher standard of living for the same or lower cost than in a big city.

Work-Life Balance: Prioritizing Wellbeing

Possibly the biggest benefit of remote work is the opportunity to improve your work-life balance. We have discussed work-life balance before, but working remotely can greatly improve it. Remote work enables you to structure your day however you would like, as long as you get all your work done. This can reduce stress and improve your mental health. You can utilize your time more effectively if you don’t have to commute every day, which gives you more time to prioritize yourself and your personal life.

However, it’s important to remember that the lack of a commute and other time savings don’t automatically improve your work-life balance. One downside is that you can start to lose the clear separation of work and personal time that commuting to an office gives you. It’s easy to feel like you need to work more or can’t separate yourself from the grind of work. Be sure to prioritize yourself and your personal life once you’re done for the day.

Diverse Job Opportunities For Gen Z

Remote work uncovers a vast expanse of job opportunities for Gen Z. Beyond the financial considerations of remote work, it opens up many job opportunities you might not have had access to before. This extends beyond just geographic freedom, it offers you the chance to live in any part of the country and work at a company headquartered in any other part of the country or even in another country. The breadth of opportunities allows for a diverse career path and a wealth of career opportunities. It exposes Gen Z to unique experiences, challenges, and professional growth opportunities that might not have been feasible within an in-office work environment.

The Downsides

Networking and Isolation Challenges: Strategically Building Connections

One downside of working remotely is that building and fostering professional connections can be extremely challenging. There’s no water cooler or lunch chats where you can network and get to know your coworkers. Overcoming the challenges of networking as a remote employee involves intentional investments. Look for ways to connect with your coworkers and meet other remote employees. You can also attend virtual conferences or talk with coworkers on Slack. It’s harder for sure, but if you’re intentional you can still achieve similar results. 

While enjoying the flexibility of remote work, be mindful of the potential isolation costs. Try to invest in a nice home office setup and separate your workspace from your home space. Set up fun activities with your coworkers or friends and family. These investments, both in time and resources, contribute not only to work productivity but also to your social capital, ensuring that remote work doesn’t compromise your personal life. 

The Best of Both Worlds: Hybrid Work

Hybrid work helps to bridge both worlds and gives you the benefits from both. You can save on commute time and financial costs multiple times a week, but you can also benefit from the social and professional connections that can be more easily fostered through in-person work. It can also help you stay productive if you are stuck in a rut doing the same thing every day and starting to experience burnout. Being around other people can often motivate you and inspire you. Although, you will no longer have the geographic freedom to work from wherever you want. These are all important factors to consider and hybrid work seems to be the route many companies are taking for the future.

Finishing Up

In the ever-evolving professional environment, remote work has become a transformative force for Gen Z individuals pursuing financial independence. The advantages of remote work, such as cost savings, geographic freedom, improved work-life balance, and diverse job opportunities, present opportunities to shape your career and financial path. However, there are certainly challenges, notably in networking and potential isolation. Through strategic investments in virtual connections and a balanced approach to work and life, you can overcome these challenges. As you venture into a remote work journey, take advantage of the benefits and strive to address the challenges to drive your professional success and balanced lifestyle. 

Disclaimer: The content provided on this blog (Zooming to Fire) is for informational and educational purposes only. It represents the opinions and perspectives of the authors and should not be considered as financial advice. The authors are not licensed financial advisors, and no content on this blog should be in any way interpreted as professional financial counsel or advice. See more here.

Join us in unraveling the delicate dance between career pursuits and your personal time and life, as well as how work might impact your finances negatively as opposed to positively in some cases. We’ll explore how to invest in your personal well-being, the importance of saying no, and how to figure out a lifestyle that can advance your personal and professional lives without breaking the bank. Let’s dive into the intricate dance between work, life, and money, exploring how balance can be found.

Work-Life Balance

We spend a large portion of our waking hours at work or commuting to and from work. The impact on our personal lives and well-being can be profound. Finding a good balance isn’t just about logging off at 5 PM sharp, but optimizing the quality of your hours in and out of work. Efficient work habits can help you have more productivity during the day and can contribute to a better work-life balance. This can also lead to overall gains in impact and work performance.

One great strategy to improve your productivity is removing distractions like your phone, especially when working from home. Try to focus for a longer period of time and then take a break, and repeat. Depending on your role, there also may be things you can automate or speed up through the use of programs, keyboard shortcuts, scripts, etc. This can eliminate some of the tedious work and allow you to focus more on what’s important and impactful. 

Also sometimes, saying no to more tasks or work if you don’t have enough bandwidth is very important. Taking on too much work can negatively impact your performance overall and can lead to working extreme hours. Utilizing some of these tips can hopefully improve your productivity and thus your work-life balance.

The Hidden Costs of Your Job

The most obvious cost of a job, especially with many people returning to the office, is the commute. This costs you both time and money. If you take public transit you can reduce this cost through commuter benefits, as we discussed in our previous post: “The 6 Most Important Job Benefits For Gen Z’s Financial Success”. Or you might have a car that is a depreciating asset and also has maintenance and parking costs, though you can also use your parking benefits. 

Another obvious cost is the possibility of paying for meals. Some companies may provide free lunch, but if you don’t you might have to bring lunch from home or buy a costly lunch every day. Especially if you are working long hours, you might not have the motivation to pack lunch and you might also spend extra buying takeout for dinner since you are too swamped with work. This can add up quickly if you spend 15 bucks on lunch and 20 dollars on dinner here and there.

One cost that can depend on the job is the social pressure and norms. In some industries, buying expensive formalwear to wear to work may be common. You might also have expensive events and dinners to attend, along with drinks with coworkers. This social pressure can lead to excess spending and bad habits.

The final hidden cost of your job is the mental and physical toll. It’s very understandable to want to work hard and push the limits of your impact. But it’s essential to weigh the impact on your mental and physical health from overworking yourself. There’s a fine line between being ambitious in your craft versus neglecting your health. These health costs will eventually manifest themselves as higher healthcare costs if you are not careful. 

Budgeting for a Balanced Life: Personal Life and Financial Success

Budgeting is key to both our personal life and financial success. Think about budgeting your time in addition to your money. Prioritize what’s important to you and allocate your time wisely, since our time is finite. As we discussed before, don’t allocate all your time towards work, and be sure to set aside time for both your physical and mental health. By budgeting our time wisely, we can make more effective use of our time and increase our productivity and health.

Financial success isn’t entirely about earning more. It’s also about how well we manage and allocate our resources. A balanced life requires a balanced budget and lifestyle. It’s essential to have financial goals and align them with your personal and professional lives. Having goals for your finances and lifestyle can provide a roadmap for sustainable spending and saving. This can also help keep you on track for your future.

Conclusion: Navigating the Interplay

As we navigate the intricate interactions between work and life, the harmony with which we can align these two aspects plays a huge role in our overall well-being. Achieving a harmonious work-life balance is not just about being lazy, it’s a push towards mental and physical health, as well as financial well-being. These can all be a strategy to avoid burnout and set yourself up for long-term success. By managing your finances and time strategically, by carving out time for the things that truly matter, you’re not just crafting a long career but also a life that can align closely with your goals.

Remember, that being financially well-off isn’t just about how much money you make every month. It’s about the holistic approach which encompasses your professional, personal, and social life as well as your physical, mental, and emotional health. As a Gen Z professional, you have the tools and the mindset to redefine the expectations, creating a life where your work can complement your personal and financial goals, rather than hindering them. In the delicate balance between work and life, you have all the power and tools you need to shape your future and strive for greatness.

Disclaimer: The content provided on this blog (Zooming to Fire) is for informational and educational purposes only. It represents the opinions and perspectives of the authors and should not be considered as financial advice. The authors are not licensed financial advisors, and no content on this blog should be in any way interpreted as professional financial counsel or advice. See more here.