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Do you think you have what it takes to achieve financial independence and retire early? We’ll give you the 101 so you can stop wondering how to reach FIRE.
Have you ever thought about working for all your life?
I mean, do you really want to do it all the way up until your last breath?
I admit this is an awful way to start off the post, but maybe you need some TOUGH LOVE!
I know, I did.
Instead of saving and investing for 40 years to become rich, you can become rich by building a successful business, according to The Millionaire Fastlane.
A plethora of people share the view of how they’d like to have more money or go for a better job to stop worrying about finances. But do you think it’s really the secret behind getting rich or reaching a phase in life, where there is no need of having to work?
Well, I would say, NO!
What is financial independence?
You should know that learning how to be financially independent is a talent and a small percentage of people actually understands its seriousness. For those who do, it’s superb.
And that’s what the main agenda of this post is. So listen up, to make yourself achieve financial freedom.
How to reach financial independence?
To begin with, you need to realize that wealth is not what you earn, it is what you have.
For instance, an individual making $400,000 annually could be less wealthy as compared to a person who only makes $40,000. How?
A person earning $400K spends $300K of the yearly income on whatever, whereas the $40K earner spends only half of his yearly income – $20K. On an average, one is saving 25%, while the other is saving 50% of the total income. A noticeable difference indeed.
Keeping it on the interesting side, let’s try to answer the following.
- Who will be the first one to run out of funds?
- Who will be able to maintain their lifestyle for longer?
- Who will make it to the financial independence first?
Well, if you choose the $50K earner, then you are right.
For personal finance, the rule of thumb is:
Earnings > Expenses
You didn’t expect it to be so technical. Or did you?
Surviving paycheck to paycheck is how myriad of people tend to live, and it’s a road to disaster land. Remember, the difference between your earnings and your expenses should always be bigger.
How can I lower my expenses?
There are lots of ways to cut expenses every month that will save you money.
Some simple yet effective ways to save this month are:
- Shop around for car and home insurance– you should be doing this generally speaking every 3-5 years. You wouldn’t rent a new apartment without researching rent rates in your area, perhaps using a report like this or using a rent affordability calculator, so why not do it for the rest of your expenses?
- Increase insurance deductibles (as long as you can afford to pay the deductible)
- Cancel gym memberships you don’t use
- Cancel subscription services you don’t need (paid radio, audiobooks, auto mail order services, magazines, etc). These things may only be a few dollars a month a piece but it adds up by the end of the month and year.
- Cancel cable or lower your package– you can also potentially save money if you call to cancel. This will depend on your service provider.
- Lower data limits– you do not need a smartphone but just about everyone has one nowadays. You do not need unlimited data and can save quite a bit with a lower limit. You will have to monitor your usage but it’s all about priorities. Do you want to listen to streaming music all the time or save money?
- Quit eating out– eating out whether it’s fast food or restaurants is a huge expense. When I first started tracking our expenses, this was the highest category. I was spending so much at the grocery store and we were still eating out all the time. You do not have to cut it out completely but evaluate what you are spending and decide if it’s a priority for you or not.
How can I make saving easier?
There are so many apps now that will allow you to automatically save your change. Companies like Acorns link to your bank account and roll up to the next dollar and invest your change. There are other companies that to the same thing but it can be put in a savings account instead of invested.
Digit lets you automatically save money and pay off debt and gives you a cash back reward.
You can also have an auto draft set up with your checking account and savings account. You can have the money drafted every payday to go directly into the savings account.
Some employers will even divide your check into different deposits. So, you can have your check deposited into savings and checking.
There is an app for everything nowadays. You can save money on just about everything if you look hard enough with money saving apps.
Some apps & extensions that can save you money on purchases
- Retailmenot is an app to find codes for major retail stores.
- Shopular is an app to find coupon codes and discounts at major retail stores.
- Scoutmob is an app for local deals and is primarily in major cities.
- Honey is a browser extension that helps you find coupon codes without having to look all over the internet for them. It automatically applies the savings when you checkout.
- Target cartwheel app lets you add in coupon codes in the app to scan at checkout.
- If you wanted to save money on long term care insurance or disability insurance, you can reach out to a trusted insurance broker.
- Dosh is an app that earns you cash back
- Swagbucks is great because you can make money doing surveys and cashback on purchases.
- Rakuten also lets you earn cashback on purchases.
- Walmart Savings Catcher lets you earn money back on purchases at Walmart
- Ibotta lets you earn cash back at your favorite stores.
How much do I need to reach financial independence?
So while you may try to aim at a few noticeable “expenses” and trim them down a bit, a more financially focused individual plans on how to grow the “income”.
Why? The reason is simple. While you might be able to cut down your expenses, but by no means, you’ll be able to take them down to nil. No doubt you can and should try your best to keep them as grounded as possible, but sooner or later you’ll have a quality of life that you will need to sustain.
Whereas, on the income side, the sky is the limit!
You might be wondering that how can I make such an eccentric statement? Because you need to recognize the fact that income has numerous shapes and forms.
If you think that your income is limited by your job, you are sadly mistaken.
Yes, it’s true.
You must realize that you are not bound by the money you earn (even though that’s the direction most of us will ever follow when it comes to our finances).
It could be so much more. Your income could find countless ways to drop in:
- Find ways to make money fast.
- Investments owned by you.
- Businesses and assets that you own.
- Passive income websites and other methods.
The ones who actually know the importance of money in life can aim at any number of such opportunities as a straight way towards achieving financial freedom.
For example, you probably already familiar with the fact that saving for your retirement is crucial. But do you know the reason behind it?
Theoretically, if you were able to make your retirement reach $1,000,000, then you should be able to take out approximately $30,000 from that stack of money every year for the rest of your life, which means you don’t need to ever work again.
Just give it thought and try to measure its awesomeness.
You’d basically be crafting a machine that pumps out money for the rest of your life.
But none of this is ever going to turn into reality until you stop putting yourself into the hands of debt by using credit cards excessively, leaving your apartment and buying over-sized houses, going on unnecessary vacations every now and then, etc. All these things might make you feel like on the top of the world, but you should keep in mind that the fall is going to be as hard as the height will be. Meaning, a lifestyle only makes sense as long as an individual is able to sustain it for life.
You can achieve all this once you are out in the open and begin your life as a financially independent person. For this, you need to accumulate a debt management plan and make sure that you follow it through till the very end of its objective. It’s not enough to understand how to gain financial freedom, but you, in fact, have to live that plan every single day. You have to involve yourself in it and make it work, sometimes even when you lose heart and you don’t want to.
It doesn’t matter when you start your journey of getting out of debt and begin the process of saving for your retirement. All that matter is that you do recognize the fact that the best time is now. Take help of your friends and family to keep you motivated when you go through your plan and even after you accomplish it. You need to make yourself understand that you need to do it by hook or by crook.
Even though all these are hard things to follow, but trust me they are all worth it. Sacrifice now to enjoy life to the fullest in the future.
Ending on the same note of tough love, don’t be a loser. Make yourself stand out from the crowd by achieving financial independence.
Plan it, Make it, Own it.