So you have decided to start the journey to financial independence (FI), but where do you begin? This guide will walk you through the basics of FI. Financial independence is a personal choice and journey - so if something doesn’t fit your lifestyle - thats okay! Use the tips you find helpful and toss the rest.
Aim for a savings rate of 40-50%. That probably sounds like a lot–and it is! But if you adhere to the traditional 15% savings rate, it may take 40 years to reach financial independence. So save as much as you can and optimize them in investments.
Saving Tip: Are you taking full advantage of your employers retirement savings program? If your employer has a 100% match you can DOUBLE your savings by maxing your contribution.
Lowering your living expenses can help you reach financial independence in two ways:
1. Lower living expenses allow you to save more money.
2. Lower living expenses means you need less in your nest egg
Saving Tip: Have you considered cutting your cable/satellite and use Netflix and other less expensive options for entertainment? Also, try driving an older car or negotiating for a lower cell phone bill.
The path to financial independence is not about living a life of deprivation. You can travel more than you realize for free or very cheaply using travel rewards. The general idea is that you use credit card rewards (earned through sign-up bonuses) to cover your travel expenses.
Saving Tip: If you don’t have excessive credit card debt and can responsibly manage credit cards, consider a card that has travel rewards.
Saving Tip: Do you have a family member or friend you can share housing with? Can you buy a duplex and live in one half while renting the other half? Can you downsize your home to reduce costs?
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Saving Tip: Contributions to your state's 529 plan are often deductible from your state's income taxes. Consider maxing out your annual tax deductible amount.
Saving Tip: Can you rideshare or take public transportation to work? If a car is necessary, drive a car that is reliable and inexpensive to maintain. Finding a mechanic that is specific to your car can also save you money.