This 26-Year-Old Has Enough Money to Retire Next Year. This Is the Formula She Uses To Calculate Her Investments – NextAdvisor

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Tori Dunlap is 26 years old and on track to retire earlier than people twice her age in fact, if she wanted to, she could retire next year.

But that isnt her plan. She wants to continue to use her platform to educate women on investing and reaching financial independence. Everyones going to say, But why are you retiring? Im not planning on retiring. I own a business that changes womens lives, says Dunlap. I dont plan on retiring any time soon.

As the founder of a financial education business, Her First $100k, Dunlap says she has taught 1.5 million women (and some men) about saving money, building long-term wealth, and investing for retirement. She sells financial education courses, and says her business is on track to earn seven figures this year. By next year, she will be financially independent, meaning her investments will earn enough interest for her to live off of and she wouldnt have to work another day if she didnt want to.

Dunlap launched her side hustle-turned-main-hustle in 2016 when she was 22 to document her personal finance journey. She had a plan to save $100,000 by age 25 and reached her goal in 2019. By the time Dunlap hits retirement age, she projects shell have $6 million invested in the stock market.

Unlike many other investors, Dunlap isnt all that interested in get-rich-quick ideas or fads of the moment. Investing shouldnt be sexy. It should be index funds over a period of decades. The sexy part is me building wealth and being able to retire and being financially independent, says Dunlap.

With her podcast Financial Feminist often hitting the number one spot on Apples business podcast rankings, beating out more established names like Dave Ramsey and Joe Rogan, and a forthcoming book with HarperCollins set for a 2022 release, Dunlap is on top of the personal finance world. Her main mission is building her business, investing for the future, and helping her community fight the patriarchy by learning how to invest and save for the future.

Dunlap shared the biggest mistakes she sees young investors make read on to not make these mistakes yourself.

Dunlaps investment portfolio consists of three accounts: a Roth IRA, a SEP IRA which she is actively converting to a solo 401(k), and an individual brokerage account. Dunlap also has a dedicated health savings account (HSA) for health-related expenses.

Dunlap calculates the growth of her investments by using the Rule of 72. The Rule of 72 is a popular shortcut to calculate the enormous benefits of compound interest. According to Dunlap, its the best way to predict how much your money will grow once its invested, and can help you keep your savings goals on track.

Years to Double = 72 Interest Rate

Where: Interest Rate = the rate of return on an investment

You begin with the number 72 and divide it by the average annual rate of return you can expect from the stock market. Dunlap says she estimates on the more conservative side, which is 7%. Other people might push their estimate to 10%. This number assumes that you invest in index funds, a recommended strategy in which you buy a broad bundle of stocks that represent the entire market.

Dunlap puts her numbers to the test: 72 divided by 7 equals about 10. Thats 10 years for your money to double, she says. Her First $100k started because I had saved $100,000 at 25. Using the rule of 72, I could calculate how much money that $100,000 at 25 will turn into by the time Im 65 and set to retire. If Im 25 years old with $100,000, at 45 Ill have $400,000, and at 55, Ill have $800,000. And then well have $1.6 million by 65. The Rule of 72 is a simple way to see how your investments increase over time.

Dunlap calculates her $6 million retirement figure based on how much money she currently has invested. Regarding retirement, she says, Thats the only thing Im saving for right now. Thats the only financial goal I have other than continuing to grow my business.

Dunlap grew up talking about money. Her parents openly communicated with her about saving, avoiding debt, and negotiating salaries, a privilege she acknowledges not everyone has. She began having money conversations with her friends and realized that her background was not the norm.

Only when I started having these conversations did I realize I was the friend all of my female friends were coming to for advice, says Dunlap. This privilege of a financial education came with a responsibility, and the responsibility was to educate others. Thats what I believe I was put on this earth to do.

Dunlap says in her experience, she sees women waiting to invest. Yet women are expected to live seven years longer than men on average, according to the U.S. Census Bureau.

Starting your investment portfolio early is the key to taking advantage of the magic of compound interest. Since women typically live longer than men, its crucial women start investing as soon as possible.

As women, were either waiting longer to invest or not investing at all, says Dunlap. If you talk to any financial advisor, and youre telling them, Hey, Im expected to be in the stock market seven years longer, thats going to be a different investment strategy, but were not talking about it like it is.

Through her quirky and actionable TikTok and Instagram videos, Dunlap aims to make investing in the stock market less daunting. She posts constantly about how finance should be and can be accessible to women.

Investing is our best form of protest as women, Dunlap says. For me, investing means taking care of Retired Me whos going to be drinking Chardonnay at lunch and flirting with her much younger instructor thats the plan.

One of the biggest mistakes Dunlap says she sees in young investors is simply not getting started. She calls this analysis paralysis, where overanalyzing a situation and all its options prevents a person from moving forward.

Youre like, OK, I have to know everything about the stock market before I can proceed, but its impossible to know everything, she points out. Her message is simple: You get rich by investing in the stock market, she says. Its so important that women start investing. It is the best way to grow wealth.

Still, Dunlap suggests doing a few things before diving into investing. First, Dunlap stresses the importance of having an emergency fund with three to six months of expenses in it. Get three months of living expenses in your emergency fund before you move on to the other steps, Dunlap says. We dont want you going deeper into debt trying to pay for an emergency.

Dunlap suggests keeping your emergency fund in an FDIC-insured high-yield savings account. Its where your emergency fund should live, as well as separate accounts for every short-term goal, she says.

Next, she says, pay down toxic debt like credit card debt. There are three ways to pay off credit card debt. Theres the avalanche method, which involves paying off the card with the highest interest rate first; the snowball method, which involves paying off the card with the lowest balance first; and the landslide method, which involves paying down the most recently opened credit card, a strategy that can repair your credit score quickly.

Each is efficient in paying down toxic credit card debt, but Dunlap suggests using the avalanche method first. Its all about the interest rate. Prioritizing paying down the debt that has the highest interest rate because its costing you the most money, she says.

Investing is a two-step process, Dunlap says. You put your money into an account, like a 401(k), IRA, or brokerage. But then you have to do something with that money, whether thats buying index funds or stocks. Whatever you do, dont let it fall into what Dunlap calls financial purgatory.

When you dont invest your money, Dunlap says, its like putting money on a gift card, but youre not spending the money.

As a warning, Dunlap shares a story about a teacher named Rose who opened up a Roth IRA. Every month, Rose moved money into her retirement savings, exactly as we are all taught to do. After many years, Rose had deposited thousands of dollars in her account but she made a big mistake. She didnt invest her money and lost out on hundreds of thousands of dollars in compound interest. This is why financial education is so important. Rose put in money every single month for her entire adult life, but never actually invested the money, says Dunlap. It just sat there and didnt earn her any interest because it was waiting to be invested. Thats heartbreaking.

Dunlap wants to break the intimidation factor and says even investing a small amount will benefit you in the long run. Even a couple hundred dollars when youre 20 is going to turn into thousands, if not tens of thousands of dollars later, she says. Its really important that you get started, even if it feels a little bit scary.

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This 26-Year-Old Has Enough Money to Retire Next Year. This Is the Formula She Uses To Calculate Her Investments - NextAdvisor