Many millennials have a new idea of the American Dream, one that centers around financial independence. How attainable is it?
We’re used to hearing about the “traditional” American Dream. Big house in the suburbs with a high-end car. All this achieved, of course, after attending college and getting a degree so you can settle into a solid job.
There’s nothing wrong with this dream if it suits your idea of what matters and it makes you happy. For many, though, the traditional American Dream is no longer the focus. Instead, more people seem to be chasing a dream that’s more tailored to their own preferences and lifestyles.
The Traditional American Dream: Debt and Work
One reason the traditional American Dream seems to be falling to the wayside is that it is predicated on the idea that you’ll be in debt for decades with a mortgage while you work at a job that may or may not be soul-sucking.
For years, the American Dream has assumed a “traditional” 9-to-5 white collar job to make mortgage and car payments–and maybe a family vacation once a year. It also comes with credit card debt as consumers make sure they have the latest gadgets to fill their homes and the best extracurricular activities for their children.
To some, even without the credit card debt, the idea of working for 30 or 40 years while paying off mortgage debt, only to retire at age 60 (or older) and really start living freely feels like a poor trade-off. This is where the new American Dream is starting to take hold.
The New American Dream: Flexibility and Financial Independence
Many millennials have another view of the American Dream. Rather than working a “regular” job, they might be interested in freelancing or consulting. Perhaps they have their own online business. Or, if they do work for someone else, someone looking for the new American Dream is likely to focus on jobs that offer flexible hours and may even allow telecommuting.
Being able to set your own hours and take longer vacations is a strong pull when it comes to the new American Dream. As a freelancer, I can work from home–or from the beach. I travel several times a year, and I can go to the salon in the middle of the week. This freedom and flexibility allows me to create a lifestyle I enjoy, leaving room to spend time with my son and volunteer in my community.
Other aspects of the new American Dream also include the idea of financial independence. For those involved in the FIRE (financial independence/retire early) movement, basic principles involve:
- Downsizing so life isn’t so expensive
- Aggressive saving and investing for a few years
- Paying off all debt (including car loans and mortgages) as quickly as possible
- Emphasizing financial management and developing useful skills rather than insisting on a traditional four-year degree
Everyone has a different approach that works well for them, but the main idea behind the FIRE movement is spend a few years living frugally while saving and investing in order to retire in your 30s or 40s. With the freedom and flexibility afforded by early financial independence, members of the FIRE movement hope to spend most of their lives doing fulfilling work, volunteering, traveling, and spending time with loved ones.
Principles That Can Help You Achieve the New American Dream
If you’re interested in creating your own American Dream, whatever that looks like for you, there are a few things you can do to increase your chances of making it happen.
Decide on Your Values and Goals
Start by figuring out what matters to you. What do you value in life? How can you set goals that will help you live a life that aligns with your values?
Use an app like Mint or Personal Capital to track your spending. Where is the money going? Are you spending your money in a way that reflects your future goals? Understanding how you might be wasting your money can go a long way toward helping you adjust your spending.
If you have a partner, an app like Twine can help you work toward those goals together.
Pay Down Debt
Paying down high interest debt is a must if you want to achieve the new American Dream. Start with credit cards, since the longer you carry balances, the more money you waste on interest payments. A good 0% APR balance transfer card can help you tackle that debt faster, since your entire monthly payment will go toward reducing the principal.
There is debate over whether “good” debt, like student loans and mortgages, needs to be tackled quite as quickly as credit card and car loan debt. For example, my student loan interest rate is 1.9%. Rather than paying off my student loans early, I take the small tax deduction for the interest paid and invest what I would have paid toward the loans. I get a much better bang for my buck.
However, it’s up to you to decide what makes the most sense.
Save and Invest
An essential step for achieving any American Dream is saving and investing. Using a tax-advantaged retirement account can be a good way to get more from your money. However, if you plan to retire early, you do need to have some of your investments in taxable accounts. A plan for building your nest egg, and then how to withdraw the money penalty-free, is essential.
While you can use some of the best savings accounts for money you want to be liquid, there are other ways to invest for the future and earn better returns. Here are some ideas for putting your money to work for you:
- Betterment: You can open an IRA (tax-advantaged), as well as invest in taxable accounts. Set up accounts for different goals, including a high-yield savings account comprised mainly of bonds.
- Acorns: If you feel like you don’t have a lot of money to invest just yet, Acorns rounds up your purchases and invests the money. It’s one way to get started.
- Robinhood: For those interested in fee-free trading, Robinhood has low minimums and can be a solid choice for learning how to invest.
- Lively: Hoping to save for healthcare costs? An HSA with Lively comes with no fees, and the ability to invest funds. You get a tax deduction for your contributions, and the withdrawals are tax-free as well–provided you use the money for qualified healthcare expenses.
Depending on your goals, using the right investments can go a long way toward helping you build the life you want.
Finally, smart spending is required. Fund your long-term goals, like education and retirement, but also be careful about what you spend today. Some of those in the FIRE movement are extremely frugal for a few years so they can retire earlier. Others, though, are fine spending on a few items and experiences that enrich their lives–even if it means they take a little longer to retire.
Look at whether your spending is helping you live your version of the American Dream and cut out the things that don’t move you forward. A service like Trim can help you figure out which items are unnecessary and can even do the heavy lifting of canceling unwanted subscriptions.
Today, there are many paths to the American Dream–and the American Dream is as diverse as Americans themselves. In the end, the idea is to create a life that you enjoy living, whether that includes a house in the suburbs or a small apartment in the city.Topics: Budget • Careers • debt • Money and Life • Personal Finance