Achieving financial independence or FI is not going to happen overnight. You’re typically not going to simply wake up one day financially independent without previously taking some kind of action. But in order to know what action to take in the beginning, you need to have some simple information. Getting to FI is mostly a get-rich-slow event that takes time. And if you’re not in it for the long haul or ready to make some sacrifices in your life, FI might not be for you.
If you’re just getting started or if you’ve started before and for some reason wasn’t successful here’s the simple high-level approach. Everyone will have their own details and tactical actions but try to keep it simple at first. Keeping it simple will allow you to implement changes that aren’t a shock to the system unless you happen to be a rip the band-aid off kind of person that’s okay with making swooping changes in your life.
What’s required:
In the theme of keeping it simple here are 3 things to focus on in your FI journey.
- You must get out of debt (the bad kind)
- You must take control of your spending
- You must make your money work for you
The list is small but the task of getting just one of these turned in your favor is humungous and stops some people died in their tracks.
Getting out of debt
If this was easy everyone would do it right? According to a 2021 CNBC report, the average American has over $90K in debt. This includes debt products like credit cards, personal loans, mortgages, and student debt.
The average amount of debt by generation in 2020:
- Gen Z (ages 18 to 23): $16,043
- Millennials (ages 24 to 39): $87,448
- Gen X (ages 40 to 55): $140,643
- Baby boomers (ages 56 to 74): $97,290
- Silent generation (ages 75 and above): $41,281
Source: https://www.debt.org/faqs/americans-in-debt/demographics/
Not all debt is created equally but if the debt is not making you money it’s costing you money, plain and simple!
Take control of your spending
If you’re not tracking what you’re spending your money on it’s probably a good bet that you’re spending too much on the things that will stunt, if not kill, your dream of becoming financially independent.
Tracking your spending allows you to measure progress, good or bad, on your FI journey. It also provides insights into where you can make changes that reduce wasteful spend so that money can be put to better use.
Make your money work for you
Once you’ve removed debt and optimized your spending it’s time to put that extra money to work. This doesn’t mean simply putting your extra cash in a savings or checking account. You want to invest that money in things like stocks, bonds, business, and real estate. If you follow the F.I.R.E community, their investment of choice is typically one or more index funds or ETFs.
Make more money
This could’ve been expressed as “make your money work for you” but I think it warrants its own section. Once the other 3 areas are covered accelerate your FI contributions by making more money to contribute. While the other 3 areas tune the current engine in your car. Making more money has the effect of replacing your 4 cylinder engine with a 6 cylinder engine.
There are numerous ways of making more money these days that it’s worth exploring. Or you can simply ask for a raise or get into a new position at your current place of employment that has a higher salary.
