Question

Make me a millionaire. Assume that you are a financial advisor. I have come to you because I want to develop a plan for retiring early.

I am currently 24 years old and I want to retire by age 55. That gives me 31 years to build wealth. I have just graduated from college and obtained my first job as an urban planner with a local city, earning $32,000 per year. People in this field usually top out at about $60,000 after 10-15 years. I have student loans totaling $43,000 at 5% interest, and a credit card balance of $3,600 at 24% interest. The city I work for has a 401K retirement program which allows me to invest part of my paycheck each month, pre-tax. I own an older car outright, and it runs okay for now. I just signed a one year lease on a modest apartment. I am not married yet. I have practically no savings.

Write me a brief plan for achieving my goal of early retirement. Write no more than one page in a Word document. When complete, submit through the dropbox titled "Financial Plan."

Your plan must address the issues of:

1. living below your means (frugality)
2. avoiding (and paying off) credit card debt
3. buying a house (that is easily affordable)
4. saving at least 10% (or more) of my income and investing in mutual funds

Answer 1

Financial Plan

Objectives :

• To retire early as a millionaire

Risk profile : above average

Time horizon : 30 years

Liquidity : Student loan $43,000 and credit card outstanding $3,600

• The current monthly income of $32,000 per annum is more than sufficient for living expenses, provided that unnecessary expenses are avoided and care is taken to live with one's means. While not compromising on basic necessities, avoidable or deferrable expenses need to be watched

• Credit card debt is a vicious cycle which can be difficult to get out of. Hence credit card debt should be avoided at all costs. Any existing credit card debt must be paid off as soon as possible to avoid interest and credit card charges

• Although paying monthly rent cannot be avoided for now, buying a house when one can afford it is essential. This is because paying monthly rent creates no asset, whereas paying monthly installment on a housing mortgage will ultimately result in one owning the house

• Saving at least 15% of monthly income should be an achievable target to aspire for. This can be invested in financial assets such as mutual funds for long-term wealth creation