A fire can be daunting when it starts. When you’re young, you want to enjoy life and have fun. Saving for retirement is important, but it seems like a distant future when you’re in your 20s. Surviving on your own is already difficult for Generation Z. Achieving financial independence seems elusive. Unfortunately, the cost of living is higher than ever due to inflation over the past few years. Housing, transportation, food and entertainment are all very expensive now. It’s hard to save when you don’t make a lot of money.
Zoomers believes that older generations had it easier and they may be right. But I don’t think FIRE is out of reach for Gen Z. Let me share my experience and offer some unsolicited advice.
The 90s were the best decade
The 90s were the best decade for fire! We had peace and prosperity. The Cold War ended, the Internet became widely used, housing became affordable, and life was simpler back then. Young Generation Xer in the 90s can live frugally and save a good amount every month.
In 1996, I graduated from university and got a full-time job. My one-bedroom apartment cost $450 a month. It was less than 10% of my income. Food and transportation were also cheap. My old Toyota Celica lasted two years and gas was just over $1 per gallon. I didn’t have any student loan debt because tuition was reasonable at the time and my parents helped me. It’s a great time to start saving and investing toward FIRE. I started investing in my 401k right away and maxed out my contributions a few years later.
Life is harder for Zoomers
Today, FIRE seems out of reach for anyone starting out. Average student loan debt in 2023 was $38,420 for all borrowers. Being in debt is not a good way to start your adult life, but that is the norm today.
Everything has become more expensive over the past few decades. These days, the average American family spends about 25% of its income on housing. A one-bedroom apartment in Portland costs about $1,500 a month today. This represents 23% of Portland’s median household income, which is $78,500. A young person starting his first job will probably have a lower than average income. Housing can easily take up more than 30% of their income. Yikes!
Food, transportation, and entertainment are also more expensive than ever. Have you looked at the price of a new car? The average price of a new car is over $48,000 in 2024. Wow, I don’t even want to think about upgrading. Hopefully, most young Zoomers have a reliable manual vehicle. Zoomers also have a lot of things to spend money on — cell phone, toys, pets, Netflix, laptops, Taylor Swift concert tickets, luxury vacations, medical bills, and more. Life is hard for young people.
Young people complain that the previous generation had it easier. Generation X was fortunate to start working when the cost of living was lower. They were able to save more and spent many good years in the stock market. Well, I’m glad I was lucky to start in the 90s, but it’s not so bad for Gen Z.
Zoomers have some advantages, too
Zoomers grew up in a turbulent time. Their family has endured the Great Recession and the COVID-19 pandemic. They watched their parents struggle. As a result, Zoomers are more financially savvy than previous generations. The average Boomer starts saving for retirement at age 22. That’s 15 years earlier than the average baby boomer. They may not be able to save much, but they know that it is important to start investing as soon as possible.
The cost of living is higher now, but young people also have more choices. It is more acceptable to live with your parents now. This is one way to save on housing and food expenses. Today, young adults can also stay on their parents’ health insurance plan until age 26. There is nothing wrong with ignoring your parents. They understand that life is harder for young people.
Most importantly, Zoomers have a youth advantage. Life may seem harder today, but it’s always hard at the starting line. They have years of complexity ahead of them. If they start saving and investing now, FIRE will become more accessible later.
Unsolicited advice for Zoomers
When times are tough, stick to the basics. This is my unsolicited advice to Generation Z.
- Live modestly. The key is to reduce lifestyle inflation when starting out. Many young workers spend a lot of money improving their lifestyle once they get their first full-time job. Instead, try living as a student for a few more years. Push your old racket into the ground, share the apartment with a roommate, and enjoy free/cheap activities.
- Increase your income. In the past, the best way to increase your income was to get bonuses and promotions. Those days are long gone. Now, the best way to increase your income is to move between jobs. In either case, it is better to specialize and excel in your field. Side hustles are just a distraction when you’re young, IMO.
- Learn how to invest. The easiest way to invest is to contribute to a Roth IRA and 401k. These tax-advantaged accounts are a great way to invest. You save on taxes and the stock market is a proven way to build wealth. You can start small and maximize the contribution over time. Young people may not be able to invest much, but compound interest will double the initial investment over many years. Also open a brokerage account and learn how to invest in passive index funds and individual stocks.
That’s it. These principles are simple, but they will build good financial habits. Fires may seem far away when you’re 22, but they’ll be much closer when you’re 35 if you follow these tips. Honestly, fire will have a different meaning to the younger generation. Early retirement isn’t for everyone Zoom users are creative and many have already found ways to generate income through unconventional means. This is the way to go. If work is fun, you won’t need to retire early. Keep investing and financial independence will become a reality one day.
Do you think it is more difficult for young people today? Do you have any advice for Generation Z?
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Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects all over the USA so check them out!
Joe also highly recommends Personal Capital to DIY investors. They have many useful tools that will help you reach financial independence.
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