Not Born to Pay Bills and Die: 15 Powerful Steps You Can Take to Reach Financial Independence Faster
No matter when you start on your journey to financial independence, it’s going to take some time to reach your FI goal. If you’re new to FIRE, the prospects of being able to opt for an early retirement might seem exciting and a little scary at the same time.
So, what can you do to reach financial independence faster, besides increasing your savings? Cutting down on the latte, moving to a prepaid phone carrier, and cutting the cable are important, but can only take you so far.
To reach financial independence faster you’ll need to make some bold big moves. If people are not thinking of you as weird than you’re not pushing the gas pedal to the floor. The great news is that you can do it!
You also might not need a ton of money to get to FI. Anyone can reach financial independence without amassing a fortune. That’s because everyone’s number is different. While some are aiming for millions of dollars to consider themselves FI, others are going for a lower number due to their lifestyles.
How long is it going to take you to reach FI? That’ll be entirely up to you. If you live an average lifestyle, you might never get there. If you buckle up and follow simple, yet gigantic, steps to reduce your spending, you could get there faster than anticipated.
With that in mind, here are some steps you can put into practice to speed up your progress to financial independence.
1. Lower your housing costs
Housing is one of the big three when it comes to your biggest living expenses, but it doesn’t have to be that way. Focus on lowering this cost and one-third of the FI battle is won!
Ways to lower your housing cost are by downsizing or by buying as much house as you need. Skip the extra rooms. They can be a money leakage as you might need to keep them warm in the winter and cool in summer. With a smaller home you can invest the rest of the money instead!
If you have an extra room and don’t want to sell your home, then consider renting it out. Opt for a smaller backyard and you won’t need to spend weekends mowing the lawn or landscaping.
We’ve been renting all along and by doing so, we have a fixed housing cost. There are no surprises of something breaking and putting a dent in our income that’s set aside for investments.
2. Downsize to one car
With the cost of owning and operating a mid-sized vehicle hovering around $8,000 a year, you can save some serious money by downsizing to one car. We had paid off both cars, but decided to sell one last year since we carpool to work. That lowered our annual auto expenses by at least $1,000.
Ways to lower your car needs:
a) move closer to work
b) use public transportation
c) carpool with coworkers
d) work from home
e) rent a car only when necessary
f) bike to places
g) walk to places, use those feet! They weren’t created just to show off new shoes. 🙂
By having only one car you’ll save money on maintenance, insurance and registration. You’ll also save time as you’ll reduce your visits to the mechanic. And, you’ll need less parking space at home. In the process you’ll also learn how to compromise better with your loved ones when planning car usage.
We don’t miss the second car at all and wish we’d have sold it as soon as we moved to our current place.
3. Track your expenses
Tracking expenses is not as cumbersome as you might think. With free online budgeting apps, like Mint and Personal Capital, you can automate the tracking of your expenses after connecting your financial accounts. Try tracking your expenses for at least a month and see how you feel about your finances.
Face your financial fears once and for all. If you’re digging yourself more into a financial hole, you’ve got to stop digging at some point. Do it now! We’ve been tracking our finances for several years now and there’s no greater feeling than knowing where your money is going. Take control of your financial future.
4. Max out all tax-advantaged accounts
The best way to reach FI is by legally eliminating taxes as much as possible. Notice how I inserted legally on that first sentence? We’re not promoting tax avoidance but the use of available resources to lower your tax bill.
We make it a rule to max out our 401(k) plans every year. This way we lower our tax brackets. And we also max our Roth IRAs to eliminate taxes on future earnings. If you’re on the path to early retirement, the MadFientist has a great article on which account is right for you.
We wouldn’t have gotten to FI as fast as we did if we wouldn’t have taken advantage of tax-reducing tactics. By contributing to the 401(k), you’re basically paying yourself first before paying Uncle Sam. And with the loopholes available to early retirees, such as the Roth IRA Conversion Ladder, you might never need to pay any taxes on that money.
5. Pay off all debt
Nothing is more detrimental to your net worth than paying interest on what you own or on purchases that are now a past memory. At a time when Americans have the highest credit-card debt in U.S. history, we have 1 trillion reasons to remind ourselves of what got us in trouble back in 2008. Besides paying it off to reach FI faster, remember that all it can take is another deep recession followed by a job loss for an American to knock on the bankruptcy door.
Paying interest on credit cards will also kill any investment gains you make due to the high interest rate they charge. So if you want to reach FI faster, credit card debt must go. Car loans must go as well. All debt charging over 3% in interest must go.
I was buried in debt a few years ago, but made getting rid of all of it my first order of business. Now we pay “cash” for everything (don’t carry a credit card balance) and our net worth has been on an incredible rise thanks mostly to our revamped spending and saving habits.
6. Focus on what brings you true happiness
When I started saving, back in 2006, it didn’t mean much to me. I did it because there was a free money incentive to do so with the 401(k) match at work. After we discovered FI, savings took a whole new meaning for us. It represented our freedom. So we save as much as we can, but we understand that we must also enjoy the journey.
Reaching FI was our way to become free, but it’s important to be in the moment. Why do we preach so much about being in the moment? About checking in with yourself and seeing what really makes you happy? Because once you do, you’ll realize that the material stuff is not what brings you true happiness. The experiences and relationships are way more important for your happiness.
Mrs. Enchumbao realized that at the age of 19 and has been living a more meaningful life ever since. We live according to what brings us true happiness and have increased our quality of life, while decreasing our spending. Know your Top 5!
Focus on what makes you truly happy and make FI the universe that puts it all together for you.
7. Keep your lifestyle inflation in check
Lifestyle inflation is when you increase your spending as your income goes up. Although we don’t advocate a life of deprivation here, we strongly recommend that you don’t inflate your lifestyle when you’re in debt. When you get a raise or bonus, inflate your debt payment.
If you’re debt free, inflate your investments not your lifestyle. You can spend a little more to be more comfortable, but you shouldn’t spend it all as it comes in. Put your money to work for you until you no longer need to work for your money.
8. Invest and do it often
We love buying investments. It’s the biggest purchasing we do nowadays.
Do you like shopping for consumer products or assets that brings you passive income?
If you’re into shopping more than investing for your future, it’s a good time to revisit your priorities.
Do you really want to live just to work? That right there is a great reason to shoot for financial independence.
Change your mindset. Change your habits.
When Friday comes, instead of thinking: how am I going to spend this money? Think: how am I going to invest this money?
Even though we’re financially independent, we continue to invest in our Freedom Fund until we stop working. We enjoy buying index funds. And every time we buy a chunk of an index fund, we’re buying one more piece of our freedom. Buying our time back is the most luxurious purchase we’re making and we do it regularly.
So invest to buy your freedom and do it often. Vanguard is a great place to start investing.
9. Take advantage of all discounts before making a purchase
No matter how little you spend, you still need to make some purchases that account for living expenses. Mrs. Enchumbao does a great job at using several links to score major discounts even before making a purchase. Just a small additional step, such as checking an item online before purchasing at a store, can save you money.
The other day we were buying a pair of shoes for my dad. The store price for the one he liked was $70. Wifey suggested to check online prices and we found it for $55 and got it delivered in two days. That action kept us from spending an additional $15! Caching, caching…
10. Decrease dining out expenses
Eating out on a regular basis and ordering any drinks other than water at a restaurant will keep your dining out expenses incredibly high. Even if you can shave anywhere from $100-$150 a month off this expense, that can easily add up to $1,200-$1,800 a year in savings.
We spend an average of $275 a month on restaurants.
While that might seem high to some, we cut down at lot over the years. And yes, we spend less than the average American who spends $232 on meals (we spend $138 per person) and we’re not having McDonald’s here. Also while others eat out 3-4 times a week, we usually go out about 1-2 times a week. The higher spending is usually when we eat out while on vacation.
We spend less than the average, but we’ve been cutting down on dining out for years. The savings are helping us fund our early retirement and the purchase of our future home.
11. Remain focused on your FI goal
If you stay focused on your goal to reach financial independence you’ll get there a lot faster. Figure out how much you’d need to declare financial independence and how long it will take you to get there. There’s no “one size fits all”, so you need to figure out what works to keep you motivated.
Once you figure out how much you’d need, you can track your FI progress in the MadFientist’s FI Laboratory.
Also continue to read about FI strategies. If you go to the RockStar Directory, you’ll find most of the FI bloggers out there. They also have a feed from every blogger listed. Click on that feed and you’ll find excellent material being produced every hour!
Or if you’re into podcasts, check out ChooseFI. Brad and Jonathan are truly unlocking the secrets to financial independence with their phenomenal podcast.
These resources will help you stay motivated and will provide you with ammunition for your happy journey.
12. Move closer to work
There are so many benefits to having a short commute. Not only do you save time by cutting down on the commute, but you’ll improve your quality of life by moving closer to your job.
It feels like centuries ago when we had to deal with a nasty commute to work. Just a few years ago, we had to either leave earlier than others or wait out the traffic during our workdays.
A year after moving we analyzed our expenses and outlined all the benefits that we got from moving within a few minutes from work. It was one of the best moves we made on the path to FI.
13. Start new traditions and avoid holiday spending guidelines
It’s only September and people are starting to stress out about the holidays. The best gift you can give to a friend or family member is your time. Stressing out for months to buy gifts that doesn’t advance your happiness is a waste of your most valuable resource.
We got away from gift exchanging and do other things instead, such as spending quality time with our loved ones. Holidays are not even a bit of stress for us. Besides, if we need something, we just buy it throughout the year and don’t bother to wait to put it on a holiday list.
We also do Valentine’s differently. We don’t go out to restaurants on that day and don’t bother to buy expensive flowers and chocolate. I leave that for the One-Day Romeos. Instead I make a special romantic dinner at home for my wife and give her a handwritten note.
Why not try something new and become a trendsetter? Instead of following the masses with traditions that were set centuries ago, why not start your own?
Back in 1993, I started a birthday tradition. There’s one song that I really enjoy and it makes me think about my life. So ever since then, I play it every year on my birthday. It’s one of my first birthday rituals, if not the only one. I don’t play the song throughout the year, so this makes it very special. This doesn’t cost me any money, but brings me great joy.
Do you have any birthday rituals?
You can start new holiday traditions with your family, friends, and significant others. Lead the tribe!
14. Delay your purchases
Joe from Retireby40 doesn’t subscribe to Amazon Prime, which means that he needs to wait until he has $25 in his shopping cart to get free shipping. By the time he’s ready to check out, he deletes the items that he no longer desires. What a great way to avoid impulse purchases online!
“Delayed gratification is a great strategy that everyone should adopt.” – Joe from Retireby40.
We have Amazon Prime, but I do the same as Joe with unnecessary items. I’d put them in the cart and leave them there for days, or even weeks, and I find myself deleting some of the items or delaying the purchase enough to see if it’s really going to add any value to our happiness. If it doesn’t, I simply delete it!
Procrastination is great when it comes to shopping. Need more proof? The Penny Hoarder hit the nail on the head with this post: Buy It Later: 5 Incredible Ways Procrastination Helps You Save Money. Check it out!
15. Buy a rental property first, dream home later
If my wife and I would have concentrated on buying the dream home that we’re now saving for before trying to reach financial independence, we wouldn’t have reached FI so fast. The home would have consumed too much of our income. Instead of plowing money into painting walls and replacing floors, we bought index funds. We decided to first invest the money in our freedom and then save some for a house.
We kept a rental property that I owned before we got married and the profits helped fuel our FI goal. Also, renting while owning kept us flexible and mobile. If we needed to change jobs, we could just move.
Now, we understand that when it comes to housing, everyone’s situation is different. If you live in an area where rent is high, it might make more sense to buy. If you play your cards right, you can also reach your FI destination without any delays by buying.
Do you know that you can live for free by house hacking?
You can buy a multi-unit building, live in one, rent the rest and have the property income pay for your housing. In The House Hacking Guide – How to “Hack” Your Housing, Live For Free, & Start Investing in Real Estate, Coach Carson created an awesome guide, so that you can also take advantage of this strategy.
And one more tip! Choose the right partner
Don’t you love it when you forget a very important tip? 🙂 If you’re still single, try to choose someone who shares your goals or at least find a saver. I feel that it’s a lot harder to change the mindset of a big spender who loves material things. Besides compatibility, if you look for someone who likes to save, half of the battle is won. You just need to convert them to the FI mindset.
I also feel that people who like to spend on experiences instead of material possessions are easier to convert because, at least, they find happiness in the right places. They won’t need much convincing on the why of financial independence. With a little fine-tuning these can become awesome FI partners.
Wifey and I met at work and we got to FI a lot faster because we got on the same page right away. The fact that we both have similar income helped us get there in half the time than if we were single.
By no means is this a rocket-science list, but you don’t need to be a rocket scientist to become a millionaire. Just by following simple, yet powerful, steps, you’ll reach your FI goal in no time. Whatever that number is should only matter to you. Stick to it like Forrest Gump stuck to shrimps and a fruit company and you will get there.
Some steps might fit your situation while others won’t. Be like a sponge when it comes to FI. Keep your eyes and ears open to suggestions, but above all, keep spending less and investing more. That’s the surest way to guarantee your freedom.
There are more fun things to do out there than just work to pay the bills and becoming financially independent is the key to unlocking the fun. Cheers to your FI journey!