Achieving financial independence (FI) might seem like a distant dream, but it’s closer than you think. By following some tried-and-true strategies, you can take control of your finances and work towards a future where money is no longer a worry. In this post, you’ll discover 10 secrets that can help you reach FI, from smart investing to mindful spending. Get ready to learn practical tips that can pave the way to a financially free life.
How does this sound?
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Reaching financial independence is about having choices and freedom. It means you can decide how to spend your time without money worries.
What is FI? Or Financial Independence?
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Financial Independence (FI) means having enough money to cover your living expenses without working. It’s about having freedom and control over your time.
To learn more: What is Financial Freedom? 12 Steps to Achieve It
Why does FI matter?
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FI matters because it gives you the ability to choose how you live your life. You can retire on your terms and spend time doing what you love.
To learn more: Discover Time Freedom & Design a Happy Life You Enjoy
1. Save Money Today
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Saving money today helps you build wealth for the future. It’s the first step towards financial independence and having more choices later on.
To learn more: Top 20 Epic Money Saving Challenges Unveiled to Save Money
2. Spend Less Than You Make
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Spending less than you make is key to growing your wealth. By managing your expenses, you can save more and reach financial independence faster.
To learn more: 12 Straightforward Ideas to Cut Spending and Budget Better
3. Learn How to Invest
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Learning how to invest is essential for growing your wealth. Investing wisely helps your money work for you, leading to financial independence.
To learn more: How To Invest In Stocks For Beginners: Investing Made Easy
4. Set Financial Goals
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Setting financial goals keeps you focused on your path to financial independence. Clear goals help you track progress and stay motivated.
To learn more: 10 Smart Financial Goals That You Need
5. Prefer a Debt Free Lifestyle
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Living a debt-free lifestyle means more financial freedom. Without debt, you can save more and invest in your future.
To learn more: 7 Simplistic Habits Needed for Debt Free Living
6. Choose to Live Frugally or Not
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Choosing to live frugally can speed up your journey to financial independence. It’s about making smart spending choices that align with your goals.
To learn more: The Ultimate Guide to a Frugal Lifestyle
7. Make Your Finances a Priority
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Making your finances a priority helps you stay on track to reach financial independence. It’s about regularly reviewing and managing your money.
8. Be a Constant Learner
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Being a constant learner helps you make better financial decisions. The more you know, the better you can grow your wealth and achieve financial independence.
To learn more: 35 Life-Changing Books That Will Change The Way You Think And Feel
9. Know your FI Number
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Knowing your FI number gives you a clear target for financial independence. It helps you understand how much you need to save and invest to retire on your terms.
To learn more: How to FI and Know Your FI Number Calculator
10. Become a Millionaire from No Money
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Becoming a millionaire from no money is possible with the right strategies. By saving, investing, and staying focused, you can grow wealth and reach financial independence.
To learn more: 15 Genius Strategies to Become a Millionaire with No Money
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Learn to manage your money wisely with these straightforward tips to cut spending and budget better. Despite higher incomes, many still struggle with financial challenges and living paycheck to paycheck. Take control of your finances starting today to achieve a more feasible budget.
1. Prioritize Essential Bills and Expenses
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Identify which expenses are truly essential for your livelihood. Prioritize these over non-essential expenses like entertainment or eating out to ensure financial stability and mindful spending habits.
To learn more: What is Zero-Based Budgeting and How Does It Work?
2. Participate in a No Spend Challenge
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Joining a No Spend Challenge not only helps you save money rapidly but also increases awareness of your spending habits, leading to a minimalist lifestyle. Start with a no spend month to jumpstart your frugal living journey.
To learn more: No Spend Challenge: The #1 Fastest Way To Save Money
3. Reduce your Housing Expenses
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Housing costs can burden your budget significantly. Explore options like downsizing, negotiating rent, or getting roommates to lower expenses and free up funds for other financial goals.
To learn more: Get Paid to House Sit and Find Lucrative Housesitting Gigs Easily
4. Be Cognizant of Bad Spending Habits
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Become aware of detrimental spending habits like impulse purchases or overspending on conveniences. Break the cycle by making conscious choices and embracing mindful spending practices for long-term savings.
To learn more: 12 Things I Quit Buying to Save Money
5. Skip the Expensive Coffee Shop
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Foregoing daily coffee shop visits can yield substantial savings. Just this change alone could save you over $600 a year, demonstrating the impact of small adjustments on your budget.
To find more: 175+ Simple and Easy Frugal Living Tips to Save Money
6. Use Public Transportation to Save Money
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Opt for cost-effective alternatives to owning a car, such as public transportation, cycling, or carpooling. By reducing transportation expenses, you can allocate more funds towards savings and financial goals.
To understand further: Is a Car an Asset or Liability?
7. Take Advantage of Free or Cheap Entertainment
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Embrace free or inexpensive entertainment options to avoid draining your budget. Enjoy activities that don’t require spending money, allowing you to have fun without compromising your financial health.
To learn more: 105 Fun Things To Do With No Money
8. Cut Back on Grocery Spending
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Employ strategies like meal planning, cooking at home, and using discounts to slash grocery expenses. By being mindful of your food budget, you can save money while maintaining a nutritious diet.
To learn more: 100+ Frugal Meals for When You’re Broke or on a Budget
9. Stick to Your Shopping List
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Plan purchases in advance to resist impulse buying. Sticking to your shopping list helps you stay focused on essentials, preventing unnecessary spending and promoting responsible budget management.
10. Start Meal Planning
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Meal planning is a practical approach to budget-friendly eating. By organizing your meals ahead of time, you can minimize grocery costs and reduce food waste, ensuring efficient use of your food budget.
To learn more: Become a Pro at How to Meal Plan for a Month
11. Stockpile Goods That Will Stay Stocked Up Long Term
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Strategically stockpile essential items to save money and ensure preparedness. Focus on purchasing long-lasting goods in moderate quantities to maximize savings without cluttering your living space. Only buy what you plan to use when it is on sale!
To learn more: What is the Best Cheap Food to Buy When Broke?
12. Avoid Impulse Purchases
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By resisting impulsive buying, you create opportunities for significant savings over time. Prioritize needs over wants to safeguard your budget and maintain financial stability, especially during tight financial situations.
Find more ideas to Cut Spending
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Discover practical tips to cut spending & budget wisely. Start saving money effortlessly with these 12 straightforward strategies!
To learn more: 20+ Tips to Cut Spending when Budgeting on a Low Income
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
In the pursuit of financial stability and prosperity, setting clear goals is paramount. In this guide, we’ll explore ten essential financial objectives that can pave the way to a secure and fulfilling future. Whether you’re aiming to build wealth, eliminate debt, or achieve financial independence, these goals will serve as your roadmap to success. Let’s embark on this journey towards financial empowerment together.
Be A Constant Learner
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Make continuous learning a priority in your financial journey. With so much to discover about money management and personal finance, adopting a mindset of constant learning equips you with essential knowledge for making informed financial decisions.
Pay Yourself First
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Prioritize your financial well-being by committing to paying yourself first. By saving a portion of your income before anything else, you safeguard your financial future and ensure you have resources available for future needs and opportunities. Start small and keep saving more.
Multiple streams of income
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Diversify your income sources to safeguard your financial stability. Whether through side hustles, investments, or additional employment, creating multiple streams of income provides financial resilience and opens up avenues for wealth accumulation beyond traditional income streams.
To Learn More: Explore the Many Ways to Make Money
Get Out of Debt
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Break free from the shackles of debt to regain control of your financial future. Eliminating debt not only relieves financial stress but also paves the way for future financial growth and stability. By prioritizing debt repayment, you clear the path for building wealth and achieving your financial goals.
To learn more: How to Get Out of Debt in 5 Easy Steps
Spend less Than You Earn
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Achieve financial stability by ensuring your expenses remain below your income. Embrace the practice of spending less than you earn to avoid debt accumulation and cultivate healthy financial habits. Consider participating in a no-spend challenge to reinforce mindful spending and bolster your savings.
To learn more: No Spend Challenge: The #1 Fastest Way To Save Money
Increase your Saving Percentage
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Boost your financial well-being by incrementally increasing your savings rate. Saving a significant portion of your income, ideally 20% or more, contributes to long-term wealth accumulation and financial security. Adopting this habit allows you to gradually grow your net worth while maintaining financial flexibility and resilience.
To learn more: How Much to Save Monthly – Your Savings Percentage
Give Money Away
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Cultivate generosity by incorporating charitable giving into your financial plan. Whether through donations to worthy causes or acts of kindness, sharing your resources with others not only benefits those in need but also fosters a sense of fulfillment and abundance in your own life. Prioritize giving as a cornerstone of your financial journey.
Keep a Financial Journal
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Track your financial progress and milestones by maintaining a financial journal. Recording your financial goals, achievements, and challenges provides valuable insights into your financial journey and serves as a source of motivation to stay focused on your objectives. Regularly reviewing your journal empowers you to make informed decisions and stay on track toward financial success.
Teach others About Money
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Share your financial knowledge and empower others to achieve financial success. By imparting solid money management skills to those around you, you not only contribute to their financial well-being but also reinforce your own understanding and commitment to sound financial principles. Serve as a mentor and advocate for financial literacy within your community.
Retire on Your Terms
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Take control of your retirement planning to ensure you retire on your own terms. By diligently saving and investing for retirement, you create the financial foundation necessary to maintain your desired lifestyle without relying on earned income. Start planning and saving early to secure a comfortable retirement that aligns with your goals and aspirations.
To learn more: What Happens If you Don’t Save for Retirement
Smart Financial Goals that You Need
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Discover the importance of setting smart financial goals to transform your financial future. Utilize our setting financial goals worksheet to define clear objectives and develop a roadmap for achieving them. Setting smart financial goals empowers you to take control of your finances and pursue a path towards long-term financial success.
To learn more: 10 Smart Financial Goals That You Need
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
Inside: Unlock the secrets to savvy spending with smart budgeting strategies. Explore techniques to stay within your financial limits and secure a stable future. Use these ways to ensure your budget works.
Budgeting isn’t just about crunching numbers – it’s a lifeline for your financial health.
Staying within set limits is essential because it helps prevent debt accumulation, allows for savings growth, and ensures that you’re prepared for both expected and unexpected costs.
You probably already know this, but you don’t like the idea of a budget! Especially when you need to know how to stop going over budget!
Think of a budget as a financial compass, guiding you through the sea of expenses without losing your way.
Quick Overview of What Smart Budgeting Entails
Smart budgeting is the smart play in the financial game, where you make your money work for you, not against you.
This involves understanding your income, neatly categorizing expenses, and planning ahead to ensure you spend less than you earn. By doing this, you create a buffer zone for saving and investing.
It’s a balance of discipline, foresight, and savvy financial planning that aligns with your unique lifestyle and goals.
Below, we will have tips on how you can ensure you don’t go over your budget.
Top Tips to Stick to Your Budget
1. Set Clear Financial Goals to Guide Your Spending Choices
Setting clear financial goals is like planting signposts along your fiscal journey. They guide your spending choices and keep you motivated.
Whether it’s a dream vacation, a new car, or an emergency fund, specific targets make it easier to resist needless spending and ensure every dollar is bringing you closer to what you truly want. Remember, a well-defined goal is a milestone waiting to be reached.
Check out the top smart financial goals!
2. Know Your Income
Understanding precisely how much money you bring home is the bedrock of smart budgeting. This is how to calculate your annual net income.
If you are planning to spend more money than you make, then that is a huge red flag.
You have to plan to budget less than your income. Knowing these numbers is crucial; it ensures that your budget is built on solid ground and not in financial quicksand.
3. Create a Realistic Expense List
Time to be realistic about what you spend. Look at your bank accounts and credit cards to know what you are truly spending and where.
Start by listing all your fixed costs such as rent, utilities, and insurance.
Then, add estimates for variable expenses like groceries and entertainment.
Be honest and avoid underestimating these costs; if anything, overestimate slightly to give yourself some wiggle room. This transparency with yourself prevents unpleasant surprises and helps cement a budget you can truly live with.
4. Adopt Zero-Based Budgeting to Allocate Every Dollar
Zero-based budgeting is like giving every dollar a purpose before it even hits your wallet.
With this strategy, your income minus your expenses should equal zero, which means you assign every dollar to savings, investments, or expenses. This meticulous approach ensures that you don’t have any money aimlessly floating around, which reduces the temptation to splurge.
Zero-based budgeting is the ultimate financial organizer, making sure no dollar goes to waste. One of the popular budgeting methods to use!
5. Practicing the 24-Hour Rule to Avoid Emotional Spending
Emotions can often lead to budget-busting spending sprees. However, by practicing the 24-hour rule, you combat those impulsive urges.
This is one of the simplest ways I don’t go over budget.
When you feel the temptation to make a non-essential purchase, commit to waiting a full day before taking out your wallet. This pause allows you to consider if the item is a necessity or just a fleeting desire. Reflecting on your financial goals during this cooling-off period often leads to wiser decisions and consistent, long-term savings.
6. Automate Savings and Bill Payments to Prevent Oversight
The marvels of modern banking can turn you into a financial ninja with minimal effort. By automating your savings and bill payments, you rid yourself of the worry of manual oversight.
It’s as simple as setting up automatic transfers to your savings account right after payday and scheduling auto payments for recurring bills.
This ensures your financial commitments are met before you even think of discretionary spending, keeping your savings plan on track and your credit history spotless.
It may take a few months for your budget to start working.
7. Embrace the Envelope System for Controlled Spending
The cash envelope system takes budgeting back to basics with a tactile and visual approach.
By dividing cash into envelopes labeled for different spending categories like groceries, entertainment, or eating out, you create a physical barrier to overspending. Once an envelope is empty, that’s your cue to stop spending in that category.
It’s straightforward yet powerful; the tangible aspect of seeing cash dwindle provides a stronger cue to curb spending than swiping a card ever could.
8. Utilize Apps and Online Tools for Regular Budget Review
These platforms make regular budget reviews less of a chore and more of a seamless part of your daily life.
Track your expenses in real-time, receive alerts when you’re nearing a budget limit, and gain insights into your spending habits with just a few taps on your screen.
This tech-savvy approach to budgeting not only simplifies the process but also empowers you to make informed decisions about your money on the go.
Find the best budgeting apps on the market today.
9. Mindful Spending Techniques
This is when you question the value proposition and encourage you to think before you buy.
Start by questioning the necessity and value of the item.
Will it enhance your life or clutter it?
Is this on social media as the “must-have” item?
Do you truly need it? Or is it a want?
Will the constant barrage of new items increase your happiness?
Also, practice gratitude for what you already own to minimize the allure of new purchases.
Mindful spending isn’t about deprivation; it’s about making more room in your life for financial peace and the things that truly matter.
10. Altering Lifestyle Choices
Altering your lifestyle to fit your budget might sound daunting, but it’s often the most effective way to ensure your spending doesn’t spiral out of control.
The first step is to be mindful of lifestyle creep.
Make mindful modifications like dining in more often, choosing staycations over expensive holidays, or opting for public transport over a personal vehicle. These changes don’t have to feel like sacrifices; view them as trade-offs for a more stress-free financial future.
Embracing a lifestyle that aligns with your budget paves the way to a richer (pun intended) life. Yes, debt free is the new rich.
11. Dealing With Unexpected Expenses Without Breaking the Bank
You turn around and are hit with an unexpected expense. It is the worst and I know something we deal with on a yearly basis at least.
Dealing with unexpected expenses can feel like navigating a financial minefield. To handle these without breaking the bank, initially aim to establish a rainy day fund with at least 10-20K of cash investments.
Start small, if necessary, and grow this fund over time. Should an unexpected expense arise, you can dip into this fund instead of derailing your budget. It’s your personal financial cushion, softening the blow of life’s surprises without causing a monetary meltdown.
12. When to Adjust Your Budget for Income and Lifestyle Changes
Life never sits still, and neither should your budget. If there’s a change in your income — maybe a raise or a job loss — it’s time to adjust your numbers. Similarly, lifestyle changes like a new family member or a big move call for a budget review.
Revisiting your budget whenever these changes arise ensures it remains tailored to your current circumstances. A budget that reflects your present situation is not only more realistic but also more sustainable.
The goal is to increase your savings percentage with any extra income coming in and forgo lifestyle inflation.
13. Keeping a Miscellaneous Line in Your Budget for Surprises
Life’s full of surprises, and some can hit your wallet unexpectedly. Keeping a miscellaneous line in your budget is like having an umbrella for a rainy day.
Set aside a small pot of money within your budget for these unforeseeable instances. If a surprise does pop up, you can cover the cost without dipping into other savings or spending allocations. This strategic buffer grants you financial flexibility and peace of mind.
Also, this can be used as fun money when times are tight.
14. Tracking Progress and Celebrating Small Wins
A budget is a living document, but it’s also a tapestry of your financial victories.
Tracking your progress is not just about ensuring compliance; it’s about recognizing and celebrating the small wins.
These accomplishments, such as paying off a credit card or sticking to your budget for a full month, build momentum and reinforce positive habits. Celebrate these successes—they’re the stepping stones to your larger financial dreams.
Plus, they’re great morale boosters that motivate you to keep going!
15. Find an Accountability Partner to Keep You in Check
Enlisting an accountability partner is like having a co-pilot on your financial journey. Choose a trustworthy friend or family member who understands your goals and is willing to help you stay on course.
Share your budget, your triumphs, and even your slip-ups with them. They can offer support, celebrate your victories, and gently nudge you back on track when needed.
Your accountability partner is a powerful ally, turning the often solitary act of budget management into a shared and sociable success story.
Frequently Asked Questions (FAQ)
To quickly create a budget you’ll stick to, use a reliable tool like YNAB to map out your income, essential expenses, savings, and discretionary spending for the next month. By clearly seeing where your money should go, adjusting as needed, and monitoring your progress, it becomes easier to adhere to your financial plan.
Keeping it simple and realistic from the start is the best foundation for budget commitment.
You might be exceeding your budget due to unrealistic limits, impulse purchases, or unexpected expenses. Prevent this by creating a realistic budget on what you already spend and creating a buffer for unanticipated costs.
Consistency and flexibility in your approach are key to staying within budget.
Accommodating irregular income requires a bit of foresight.
Start by budgeting based on your lowest-earning month to create a conservative baseline.
Save during higher-income periods to smooth out the leaner ones.
Continually adjust your spending priorities as your income fluctuates.
Also, maintain an emergency fund and categorize expenses by necessity to build a budget that’s both resilient and flexible.
Automated payments are a game-changer for sticking to your budget. They ensure bills and savings get paid first, reducing the risk of spending what you intended to save or forgetting due dates.
Setting up automatic payments may take a few hours and a few months to verify all of your bills are paid. But, something that is worth you doing.
Automation takes the guesswork out of financial commitments and helps you maintain a consistent savings habit.
How do I make sure I don’t go over my budget?
You are afraid to budget because you know you will go over your budget, right?
That mentally needs to change.
To ensure you don’t go over your budget, embrace the psychological trick of setting your spending plan slightly below what you can comfortably afford.
Convince yourself that this lower threshold is your maximum capacity, and any overages will merely tap into your deliberate buffer rather than causing financial strain. For example, if your income is $5000 per month, then budget $4000. That way you have a buffer to be (hopefully) saved at the end of the month.
This mindset, coupled with regular tracking, thoughtful spending, and strategic adjustments, can keep your finances firmly in the green.
One step closer to becoming financially stable.
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
Inside: Discover the keys to successful budgeting with our guide on budget tools, adjusting strategies, and setting financial goals for transformative money management. Creating budgets with your expenses allows you freedom.
Budgeting is one of the parts of managing money that everyone dreads. However, a well-thought-out budget lays the groundwork for mindful spending that reflects your values and paves the way toward accumulating significant wealth.
So, you need to learn the key components of a successful budget.
Budgeting is the cornerstone of building a sustainable financial future where every dollar is assigned a purpose, ensuring that saving and investing become routine, not afterthoughts.
By committing to the principles of disciplined budget tracking and adjustment, you can craft a monetary trajectory that systematically demolishes debt and expands your assets.
Thus, inching you closer to the coveted millionaire status that started with no money with every financial decision you make.
Mastering the art of budgeting requires patience, insight, and the will to see your financial goals come to fruition.
What is the key to good budgeting?
The cornerstone of good budgeting lies in understanding your monetary landscape and wielding control over it.
This means not just noting down numbers, but analyzing your income, expenses, and financial objectives. It’s about crafting a financial map that leads you to your desired destination, be it debt freedom, investment, or saving for something grand.
Remember, a sturdy budget plan is your ally in the financial journey—it helps you stay disciplined, steer clear of fiscal pitfalls, and ensure that your hard-earned money is working for you.
How Mastering Your Finances Can Transform Your Life
First of all, I can attest to starting a budget, sticking to the process, and how my life is now much different than I started. It was hard work and always not fun. But, now, I can experience time freedom like never before.
The magic of mastering your finances is that it does more than just balance your books; it has the potential to utterly transform your life.
Empowered by financial knowledge and a well-executed budget, you can pave the path to your dreams, whether that’s retiring early, traveling the world, or providing a stable future for your loved ones. It instills a sense of financial confidence and peace of mind, knowing that you are in control of your financial destiny.
Element 1: Set Clear Financial Objectives
Setting clear financial goals is like having a compass that guides you through your journey. It involves delineating what you aspire to achieve with your money both in the short term and long term.
You need to plan for and consider variables like inflation and economic shifts.
Identifying Short-Term and Long-Term Financial Goals
To cover your bases, you need to address both immediate and future needs:
Identifying short-term financial goals, typically achievable within one to three years like saving for a vacation or paying off credit card debt.
Long-term financial goals, are usually set for five years or more, such as saving for retirement or a child’s education.
The Role of Specific Goals in Successful Budgeting
Having specific financial goals ensures that each dollar in your budget is assigned a clear purpose, enhancing the likelihood of sticking to your budgeting plan and achieving financial stability.
You can set precise targets such as saving a particular amount for a home down payment and measure your progress and adjust your spending habits accordingly. Thus, making the budgeting process more effective and goal-oriented.
Element 2: Track Your Income and Expenses Religiously
Tracking my income and expenses allows me to identify patterns in my financial behavior. Thus, I can make informed decisions to ensure I adhere to my budget and achieve my monetary goals.
This forms a clear roadmap for financial growth and stability.
Tools and Strategies for Keeping Tabs on Financial Flow
You need to find a way to track your money.
Whether it is utilizing financial software/budgeting apps or paper and pencils. Either allows for efficient tracking of expenses and income, ensuring that you maintain a clear view of your cash flow.
Start with how to budget with a low income.
Differentiating Between Essential and Non-Essential Spending
When creating a budget, it’s vital to differentiate between fixed spending on necessities like housing, utilities, groceries, and transportation, and non-essential spending on items such as dining out, entertainment, and other luxury items.
Essential expenses are critical for maintaining your basic living standards and meeting financial obligations.
Whereas non-essential expenses are discretionary and can often be adjusted or eliminated to achieve financial goals.
By tracking actual expenditure and distinguishing between these two categories, you can prioritize funding towards essentials and savings, ensuring financial stability and progress towards long-term objectives. Just like I have.
Element 3: Prioritize Saving and Prepare for Emergencies
By prioritizing savings, I am investing in my future, taking advantage of compound interest, and building a foundation that helps secure my long-term financial goals. Unfortunately, this took me a while to learn, and the most important financial advice for young adults.
Putting a portion of my income into savings consistently is like paying a bill that benefits my future self, which in turn provides peace of mind and financial independence.
Deciding How Much to Save and Where to Allocate Funds
Apply the 50/30/20 budgeting rule to allocate funds wisely, directing at least 20% of your income towards savings.
The goal is to increase your savings percentage each year. To maximize your savings, analyze your expenses frequently, dividing them by necessity and frequency, to ensure that your saving goals are met without compromising your essential needs.
The Significance of an Emergency Fund in Financial Planning
An emergency fund is a financial lifeline, offering stability in the face of unforeseen circumstances such as job loss or medical emergencies, ensuring that such events don’t derail your financial plans.
Additionally, an emergency fund contributes to peace of mind, knowing they have a monetary cushion to fall back on.
A rainy day fund, or holding three to six months’ worth of living expenses, this fund acts as a buffer against debt, reducing the need to rely on credit cards or loans during crises.
Element 4: Regularly Monitor and Adjust Your Budget
I regularly monitor and adjust my budget to maintain a clear understanding of my financial health and to catch any discrepancies between my planned and actual expenditures. This consistent review allows me to quickly identify areas where I can optimize spending or need to reallocate funds.
Then, I ensure my financial goals remain within reach and adaptable to life’s changing circumstances.
Techniques for Reviewing Budget Performance Over Time
Implement a system for tracking financial transactions that aligns with your budget categories, which provides clear data to analyze spending habits and make informed adjustments as needed.
To effectively review budget performance over time, I recommend scheduling routine assessments, such as monthly or quarterly reviews.
Compare actual expenses with your budgeted figures to pinpoint variances and trends.
Dealing with Financial Changes and Maintaining Budget Discipline
Life’s unpredictable nature means financial conditions can fluctuate, demanding swift adjustments to your budget for events such as a new addition to the family or changes in employment.
These changes could be an increase in income or an unplanned decrease in annual net income.
You must embrace flexibility while holding onto your long-term objectives allowing you to navigate unexpected financial changes without deviating from the path of fiscal responsibility and discipline.
Element 5: Embrace Technology and Automation in Budgeting
I use Quicken to manage my budgeting because it provides an all-encompassing financial picture by integrating income, expenses, investments, and retirement accounts in one place.
The software automates expense tracking and categorization, making it easier for me to monitor my financial health and adjust my spending habits accordingly.
Budgeting Apps and Digital Tools That Simplify Managing Finances
Budgeting apps like YNAB leverage technology to automatically track user expenses by linking to bank accounts, simplifying the process of managing personal finances with features such as expense categorization and financial planning tools.
With features such as bill reminders, debt payoff calculators, and investment trackers, these budgeting apps not only streamline financial oversight but also assist users in setting and achieving their financial goals.
The Advantages of Automating Savings and Bill Payments
This is something I do all the time! Automate your bills and contribute to your savings.
As such, this is a highly efficient method to streamline your finances and ensure that you consistently put your money to work like you planned.
This approach not only helps in avoiding late fees by timely paying bills but also reduces the risk of human error or forgetfulness.
FAQ: Unwrapping the Mysteries of Budgeting
The first method is to start a no spend challenge. This will help you cut back on non-essential spending, such as dining out or premium entertainment subscriptions.
Next, start to live on a shoestring budget. This will help you to compare and negotiate rates for recurring bills like utilities, insurance, and phone plans to secure lower payments.
Additionally, employing cost-saving methods such as utilizing coupons, buying in bulk, and opting for generic brands can significantly decrease monthly grocery expenses.
It’s wise to review and adjust your budget at least once a year or with any major changes. This helps ensure your budget stays aligned with any shifts in income, unexpected expenses, or alterations to your financial goals.
If your lifestyle or income varies significantly, more frequent adjustments might be necessary.
Just remember, it will take a few months for your budget to work.
If you find sticking to your budget is a constant struggle, it might be time to reach out for help. Consider partnering with a budgeting buddy or joining an online community for accountability.
Aim to understand what triggers your spending and devise strategies to avoid these pitfalls. Adjust your budget where needed and prioritize building a buffer for unforeseen expenses.
Creating a budget helps manage finances with a clear view of income and expenses, reduces unnecessary spending, and facilitates goal setting.
It acts as a roadmap for managing monthly financial flows, encourages disciplined spending, and aids in achieving long-term financial aspirations with less stress.
Elements of Budgeting You Will Embrace?
You might wonder, is always keeping a close eye on your finances truly worth it? The answer is a resounding yes.
Gaining mastery over your personal finances is like being the captain of your destiny in the vast sea of economic uncertainty. It’s not just about surviving; it’s about thriving. The result is often an enriched life, free from the shackles of financial stress.
Financial literacy allows you to make smarter choices and enables you to capitalize on opportunities that come your way.
Imagine breaking free from living paycheck to paycheck or being able to take that dream vacation without plunging into debt. These are not just dreams. They can become your reality with financial mastery. It’s about creating a life where you call the shots, secure from the economic twists and turns life may throw at you.
Find success with the zero based budgeting method.
I have done it. And you can too.
Know someone else that needs this, too? Then, please share!!
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More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
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Are you looking for the best books about budgeting? Learning how to budget can change your life – you may be able to improve your finances, stop living paycheck to paycheck, start living debt-free, improve your net worth, and so much more. All from learning how to budget. To get good at budgeting, I think…
Are you looking for the best books about budgeting?
Learning how to budget can change your life – you may be able to improve your finances, stop living paycheck to paycheck, start living debt-free, improve your net worth, and so much more.
All from learning how to budget.
To get good at budgeting, I think it’s a great idea to learn from people who know a lot about it, which includes reading the best money books. There are all different kinds of budgeting books out there that cater to different people and their unique financial situations, so you are sure to find one that fits what you are looking for.
Key Takeaways
Best Books About Budgeting
Below are the best books about budgeting.
1. The Millionaire Next Door
The Millionaire Next Door: The Surprising Secrets of America’s Wealthy written by Thomas J. Stanley is a favorite personal finance book for many people and is a great first budgeting book to read.
This book helps you to better understand the habits and mindset of millionaires in an easy-to-understand way (and it’s so interesting to read as well!). You will learn about the importance of living below your means and avoiding lifestyle inflation to achieve financial success and build real wealth.
You’ll find out that many millionaires live real simple lives, spending wisely and doing things differently, like how they use their time and raise their kids. It’s surprising to see what being rich really means, and some people who seem rich might actually have a lot of debt.
This is one of the best budgeting books because it teaches you that anyone can retire with wealth.
Please click here to learn more about The Millionaire Next Door.
2. The Simple Path To Wealth
The Simple Path To Wealth was written by J.L. Collins, and it’s one of the best books on money management, especially if you want to retire early.
This highly recommended book makes building wealth easy to understand, and it’s the book to go to if you want to make your finances better but don’t want to spend a lot of time on it.
In his book, Collins talks about important money topics, like staying away from debt, building wealth, understanding the 4% rule, and much more.
Please click here to learn more about The Simple Path To Wealth.
3. Broke Millennial
Broke Millennial: Stop Scraping By and Get Your Financial Life Together was written by Erin Lowry, and is one of the must-read best money books for young adults. The author makes talking about money fun and interesting, especially for young adults.
This book is made for millennials (and young adults!) who want to manage their money well.
Erin writes about how to have a clear plan to stop being broke and gives a step-by-step guide where she covers many different topics, including tricky ones like managing student loans and talking about money with your partner.
I like to give this book as a graduation gift to those finishing high school or college. It’s one of the best personal finance books for beginners because it helps young adults better understand money.
Please click here to learn more about Broke Millennial.
4. The No-Spend Challenge Guide: How to Stop Spending Money Impulsively, Pay off Debt Fast, and Make Your Finances Fit Your Dreams
The No-Spend Challenge Guide by Jen Smith is the perfect book for those struggling with spending. This guide has actionable steps to stop impulsive spending, pay off debt, and align your financial decisions with your dreams.
Jen Smith went from struggling to stay on a budget for more than two weeks to paying off $78,000 of debt in under two years. In her book, she shares experiences and strategies, including using No-Spend Challenges to shift her money mindset and budget more effectively.
Please click here to learn more about The No-Spend Challenge Guide.
5. The One Week Budget: Learn to Create Your Money Management System in 7 Days or Less!
The One Week Budget by Tiffany Aliche (The Budgetnista) is a great book to read if you want to create a better money management system that takes less of your time. So many people are afraid to manage their money because they think it will be hard or take a lot of time, so this is a great book to read to overcome that.
In just one week, this book will help you create a budgeting system to manage your money effectively. This is a great read for anyone new to budgeting or looking for a more simple approach to managing their money.
Please click here to learn more about The One Week Budget.
6. We Should All Be Millionaires: A Woman’s Guide to Earning More, Building Wealth, and Gaining Economic Power
We Should All Be Millionaires by Rachel Rodgers is an inspiring book that teaches women how to build wealth and achieve financial independence.
You will learn how to make better money decisions, strategies to bring in more income, and how to change your attitude about money.
This book will also show you how to overcome obstacles in your life (such as lack of confidence or knowledge) so that you can build wealth.
Please click here to learn more about We Should All Be Millionaires.
7. How to Stop Living Paycheck to Paycheck (2nd Edition): A Proven Path to Money Mastery in Only 15 Minutes a Week!
How to Stop Living Paycheck to Paycheck by Avery Breyer is a practical guide that helps readers break the cycle of living paycheck to paycheck, and it gives tips on budgeting, saving, and investing.
You will learn how to build an emergency fund, get out of debt, avoid budget traps, and more.
This book teaches a complete budget system for beginners and takes only 15 minutes per week to do.
Please click here to learn more about How to Stop Living Paycheck to Paycheck.
8. How To Pay Off Your Mortgage In Five Years: Slash Your Mortgage with a Proven System the Banks Don’t Want You to Know About
How To Pay Off Your Mortgage In Five Years by Clayton Morris and Natali Morris is a great book for anyone looking to pay off their mortgage fast.
This is a helpful read for homeowners looking to shorten their mortgage term and save money on interest in the long run. This is a step-by-step system with a strategic plan to pay off your mortgage fast.
Please click here to learn more about How To Pay Off Your Mortgage In Five Years.
9. You Need A Budget
You Need A Budget: The Proven System for Breaking the Paycheck-to-Paycheck Cycle, Getting Out of Debt, and Living the Life You Want by Jesse Mecham is a great personal finance book that teaches you a step-by-step budgeting system for managing your money more effectively.
You will learn things such as how to pick your priorities for your money, how to not let expenses sneak up on you, how to handle an unexpected expense, and how to get your money to last.
Please click here to learn more about You Need A Budget.
10. The Automatic Millionaire
The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich by David Bach is a book that simplifies the process of becoming financially independent, emphasizing the power of automating your savings and investments.
The Automatic Millionaire begins with the inspiring tale of an ordinary American couple — a low-level manager and a beautician — whose combined income never surpasses $55,000 per year. Remarkably, they achieve debt-free homeownership of two houses, put both kids through college, and retire at 55 with over $1 million in savings.
Please click here to learn more about The Automatic Millionaire.
11. I Will Teach You To Be Rich
I Will Teach You To Be Rich was written by Ramit Sethi and is a great first personal finance book to read. This has been a popular money book for years and for good reason!
This book is full of very helpful lessons presented in a fun way, and he covers the basics of personal finance, including budgeting, saving money, investing, and more.
Please click here to learn more about I Will Teach You To Be Rich.
12. The One Page Financial Plan
The One-Page Financial Plan: A Simple Way to Be Smart About Your Money by Carl Richards is a book that will help you create a single-page plan based on your personal financial goals.
This book will help you figure out how much money to invest each year, how much life insurance you need, how to handle unexpected costs (or a job loss), and more.
If you are looking for more of a visual way to manage your money, then this is the book to read.
Please click here to learn more about The One Page Financial Plan.
13. Your Money or Your Life
Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence by Vicki Robin and Joe Dominguez has sold more than one million copies and is one of the most popular and best money books ever.
This book has been popular for over 25 years (but don’t let that stop you from reading it!), and it’s been updated with more recent topics like side hustles, new investment options, how to track your money online, and more.
This book focuses on mindful spending and helps you reevaluate your relationship with money. This book will guide you in getting out of debt, saving money with mindfulness and good habits, building wealth, contributing to saving the planet, and so much more.
Please click here to learn more about Your Money Or Your Life.
14. The Financial Diet
The Financial Diet (same name as the very popular blog!) by Chelsea Fagan is a guide to managing money, including tips on budgeting, saving, and investing so that you can make smart financial decisions.
This book will teach you how to get good with money, how to stick to a budget, how to invest, how to save money on food, and more.
The Financial Diet is the personal finance book for someone who doesn’t care about personal finance but is looking for a beginner’s guide to improve their financial situation. The writing style of this book will keep you interested and actually want to learn about personal finance.
Please click here to learn more about The Financial Diet.
Frequently Asked Questions About Budgeting Books
Below are common questions about finding the best budgeting books.
What are the best budgeting books for young adults?
My favorite budgeting book for young adults is Broke Millennial, and I personally buy this book and give it as a gift to anyone I know who is graduating from high school or college.
There are many other budgeting books that people love such as How To Manage Your Money When You Don’t Have Any by Erik Wecks, The Total Money Makeover by Dave Ramsey, Money Honey by Rachel Richards, Spend Well, Live Rich by Michelle Singletary, and so many others.
What’s the best budgeting book planner?
A budgeting book planner is a tool that you can use to organize your finances in one place and stick to your budget. You can find many different budgeting book planners here.
Best Budgeting Books – Summary
I hope you enjoyed this list of the best books on budgeting.
As you can see, there are many different budgeting books that can fit your personal situation.
These books talk about different parts of budgeting, like making a basic plan or handling money when you don’t have much. Whether you’re just starting or want to get better at budgeting, there is probably a book above that has something for you to learn.
Here’s a quick list of the best budgeting books listed above:
Inside: Do you find it difficult to stick to a budget, despite trying your best? If so, you’re not alone. Budgeting can be a tricky task, but by understanding flexible vs variable expenses, you will better manage your money.
Creating a budget is a fundamental step in shaping your financial well-being, and understanding how your expenses fit within this budget is essential.
These are expenses that can be easily modified or eliminated when monetary constraints arise, thus playing a significant role in stabilizing your financial health.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
What is a flexible expense?
A flexible expense is a budget item you can adjust or modify as per your financial situation. This wiggle room inherent in such costs is not vital for survival, unlike the rigidity of fixed costs such as rent or health insurance.
You can manage these flexible expenses depending on your financial goals or constraints, making them an important part of budget planning.
Fixed Expenses
Variable Expenses
Flexible Expenses
A fixed expense is a cost that remains constant and is paid at regular intervals, such as mortgage payments, car insurance, or cell phone bills, making it predictable and crucial for budgeting purposes.
A variable expense is a cost that changes over time, fluctuating based on individual decisions and circumstances, encompassing both essential spending like groceries and discretionary purchases like movie tickets.
A flexible expense is a non-essential cost in your budget that you can adjust, reduce, or eliminate to save money, encompassing diverse categories like vacation spending, beauty treatments, electronics, dining out, and entertainment services.
What is an example of a flexible expense?
There are countless opportunities for flexible spending, some of which we might not even realize. Common examples include:
Vacations: A sunny beach holiday might be highly appealing, but not always financially feasible. There are alternative, less expensive options such as a staycation.
Beauty treatments: Items like haircuts, manicures, and massages fall into this category.
Electronics: The urge to upgrade to the latest smartphone or tablet model is understandable, but if your current device works fine, that’s an expense you can postpone.
Food and dining: While we all need to eat, the amount spent on eating out, or grabbing a latte on the go can be adjusted.
Entertainment: Expenses here include streaming services, cable television, concerts, or movie outings. There are plenty of free things to do that don’t cost money.
Remember, the trick lies in distinguishing between what you need and what you want.
Distinguishing fixed expenses from flexible expenses
The main difference between fixed and flexible expenses lies in their ability to change.
Fixed expenses, like your rent, or more specific elements such as a lease payment, represent costs that you’re obligated to cover regularly. They’re usually consistent in amount and include items such as utilities, phone bills, insurance premiums, and car payments. Handling these sensibly is crucial as postponing or canceling these could lead to severe consequences.
On the flip side, flexible expenses vary and can be adjusted or cut out entirely depending on your financial situation. These can range from dining out and entertainment costs to clothing purchases and vacation expenses. By taking control of your flexible expenses, you can ensure financial stability, even when incomes fluctuate.
Flexible Expense List Questions to Ask
Are you incurring this expense out of necessity or is it more of a luxury or desire?
Do I have control over the total amount spent on this expense or is it a constant obligatory payment?
Can this expense be eliminated or reduced without drastically affecting your lifestyle or basic needs?
Does this expense vary from month to month or can it be controlled based on your financial situation?
If you were to face financial constraints, could this expense be readily cut back or postponed?
If you answered yes to these questions, then you have a flexible expense.
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Which budgeting method works best for flexible expenses?
Choosing the best budgeting method varies greatly depending on your financial habits, goals, and discipline.
Regardless of the budgeting method you choose, remember that flexible expenses are the last thing that you prioritize in your budget.
Option #1 – Envelope System
The “Cash Envelope System” works well for many, where you allocate a specific amount of money for each flexible expense category in separate envelopes. You only spend what’s set aside in each envelope, assisting in keeping variable and flexible costs in check.
The envelope system allows you to save in advance for flexible expenses you want like a vacation or new car or even new clothing.
Option #2 – Pay Yourself First
Alternatively, the “Pay Yourself First” budget prioritizes savings. Something we like to do around here at Money Bliss.
Right after receiving your paycheck, you immediately transfer a designated amount into your savings or investments. The remaining money is then divided among your fixed, variable, and flexible costs.
Option #3 – Zero Based Budget
Lastly, the “Zero-Based Budget” is a method where every dollar you earn is allocated to a particular expense category, leaving you with a zero balance at the end of the month.
This 3 layer system starts with your fixed expenses, then moves to variable expenses. If you have money left over, then you can work on including those fun money flexible items or a deposit into savings account.
In essence, the best budgeting technique is one that fits your needs and aids in achieving your financial goals.
YNAB
Enjoy guilt-free spending and effortless saving with a friendly, flexible method for managing your finances.
Pros:
Comprehensive approach to budgeting, helping you plan monthly budgets based on your income.
Offers expert advice, making it suitable for those who require an in-depth, forward-thinking budgeting strategy.
Superior synchronization skills make it the winner in this area.
YNAB has extra features like goal setting for budgeting, shared budgeting tools for partners.
Option to manually add and upload transactions from accounts each month.
YNAB prioritizes user privacy.
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YNAB vs Mint
How do you budget for flexible expenses?
Budgeting flexible expenses may seem daunting initially, but with a systematic approach, it becomes manageable.
Here are the steps to follow:
Calculate Your Income: Identify your total monthly income after taxes, this is your starting point.
Identify Your Monthly Expenses: Take your bank and credit card statements; evaluate your spending habits to identify your expenses. Start with your fixed expenses as those are priority. Then move to variable and flexible expenses as your budget allows.
Set a Budget: Employ the 50/30/20 rule (or any other method that works best for you) to divide your income between essentials, flexible expenses, and savings.
Track Spending: Regularly monitor your spending against the budget set.
Adjust and Control: After monitoring, make necessary adjustments to control your expenditures.
Consistency: Continually follow these steps for a few months, change gets easier over time, and so will managing flexible costs.
Budgeting, especially flexible budgeting, allows for financial adaptability, enabling companies to seize unexpected opportunities or navigate emergencies without severe monetary strain.
How tracking your spending can help
Learning to recognize your overspending by diligently tracking can offer an enlightening picture of your financial habits. It aids in understanding where your money is being utilized and exposes any neglected ‘financial leaks’. A no spend challenge can help you pinpoint these issues.
Planning and then tracking your spending is crucial in forming an effective budgeting strategy. This is where a calendar can come in handy.
Tracking can be achieved manually via saving receipts, noting down amounts, or through digital means such as online budgeting tools or apps like YNAB or Tiller Money. With regular tracking, you can regulate your spending. Thus, ensuring you stick to your set budget, and make informed future financial decisions.
Tiller Money
Your financial life in a spreadsheet, automatically updated each day.
Tiller is the fastest, easiest way to manage your money with the unlimited flexibility of a spreadsheet.
Update your finances in one place, so you can take control of spending, optimize cash flow, and confidently plan your financial future.
Pros:
Tiller automatically updates Google Sheets and Microsoft Excel with your latest spending, balances, and transactions each day.
No more tedious data entry, CSV files, or logging into multiple accounts.
You can customize everything and finally track your money, your way.
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Tips and tricks for handling flexible expenses in your budget
Optimizing your budget while dealing with flexible expenses need not be a daunting task. Here are some tips to help:
Prioritize Savings: Always try to prioritize savings. One of our money saving challenges can help you.
Use Sinking Funds: This is money set aside to be used at a future time for a specific purchase.
Control Impulsive Spending: Limit frequent shopping trips, reduce eating out, and avoid buying unnecessary gadgets.
Substitute Luxuries with Alternatives: Option for budget-friendly alternatives like watching movies at home instead of the cinema, or cooking at home instead of dining out.
Utilize Budgeting Tools: Make use of budgeting apps or financial management tools that can track spending and help maintain your flexible expenses.
Practice Mindful Spending: Stay aware of your financial goals and make purchasing decisions that align with those goals.
Utilize Discounts: Seek opportunities for discounts that can contribute to these savings. For instance, some car insurance companies provide a discount for annual payments rather than monthly.
Remember, the goal isn’t to eliminate flexible spending entirely. But to strike a healthy balance that aligns with your long-term financial health.
Quicken
Personal finance and money management software allows you to manage spending, create monthly budgets, track investments, retirement and more.
I have used this platform for over 20 years now.
Pros:
Birds-eye view of your complete financial picture.
Conveniently download your spending activities, and automatically categorize them (Quicken connects to over 14,000 financial institutions).
Track investments with it’s features like portfolio analytics, retirement goals, and market comparison.
Cons:
Little complex to use at first, the learning curve is moderate.
Yearly subscription-based model to use the platform.
Save 40% on New Memberships
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FAQ
By tracking and managing these expenses, you can have more control and insight into your finances as this is where most unmindful spending happens.
It enables you to understand better where your money goes each month and helps avoid unnecessary spending. When you curtail these expenses, you free up money that can be used to pay off debts, save for future goals, or invest.
Therefore, skillful handling of flexible expenses allows you to maintain a well-rounded and healthy financial state.
Rent generally falls under the category of fixed expenses rather than flexible ones as it is typically a set amount due regularly.
Ready to Solidify Your Budget with these Examples of Flexible Expenses
Conclusively, budgeting with flexible expenses is an essential skill for effective financial management and becoming financially stable.
The key lies in balancing your needs and wants, recognizing and eliminating unnecessary spending while prioritizing necessities. Making use of budgeting tools, like the 50/30/20 rule, can also be advantageous and strategic.
Remember, it’s crucial to be aware not only of your income but also of where your money is spent, as gaining control over your flexible expenses can help avoid financial strain and achieve your financial goals. Always strive to adapt your spending habits to best fit your financial situation.
Now, learn how to handle unplanned expenses.
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
Inside: Are you looking to achieve financial freedom? This guide teaches you the 12 habits you need along the journey. Learn how people changed their lives with simple steps of savings and minimized expenses.
Achieving financial freedom is often misconceived as simply accumulating great wealth.
However, as David Bach, a renowned financial expert and top-selling author emphasizes, “Financial Freedom is about a lot more than money, it’s about living a richer life.” Indeed, true financial freedom is not solely dictated by the figures in your bank account, but more by the ability to live life on your terms, unencumbered by financial restraints.
There are reasons financial freedom is a coveted goal for many. Having more than enough monetary resources to finance your desired lifestyle without being driven by the need to earn a certain amount every year can be liberating.
This post will explain financial freedom in-depth, its benefits, the keys, and simple strategies to attain it.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
What is Financial Freedom?
Financial freedom is understood in various ways depending on people’s personal goals and values. Essentially, it’s having ample savings, cash, and investments to live as desired, both presently and in the future.
Those who reach financial freedom find themselves in control of their money, not allowing it to control them. Imagine enjoying your favorite hobby, traveling, or simply relaxing without stressing about money.
That’s the essence of financial freedom.
Why is Financial Freedom Good?
Financial freedom is a game-changer. It gives you complete control over your finances, allowing you to make choices that align with your values and long-term plans.
Financial independence reduces anxiety tied to unforeseen expenses and offers a safety net during unexpected hardship. It also allows you to work on your terms, pursue passions, take risks, and ultimately, leads to a more fulfilling and happier life.
This is something I can attest to when my husband was able to leave a toxic work environment on his terms.
What is the key to financial freedom?
The key to financial freedom lies in attaining financial literacy, prioritizing your goals, and cultivating good financial habits.
This involves setting and being adamant about your life goals, living within your means, saving diligently, investing wisely, diversifying income streams, and regularly reviewing and adjusting your financial plan.
Control over your finances and informed decisions pave the way toward financial freedom.
12 Simple Strategies for Financial Freedom
Achieving financial freedom requires strategic planning and disciplined execution. It’s not just about earning more, but about saving wisely, spending judiciously, and investing intelligently.
This section introduces you to key strategies for securing financial independence, illustrating their importance and demonstrating their role in paving the way toward a stress-free financial future.
Remember, financial freedom is not just about an affluent lifestyle, but about taking control of your finances, making your money work for you, and living a life on your own terms.
Something we emphasize around here at Money Bliss.
1. Set Life Goals
Setting clear, tangible life goals — both big and small, financial and lifestyle — is the first step towards achieving financial freedom. These smart goals form the backbone of your financial plan.
For instance, you may aspire to own a house, increase your liquid net worth, or retire early. The more specific your goals, with concrete amounts and deadlines, the higher the likelihood of achieving them.
2. Create a Monthly Budget
Creating a monthly budget is an instrumental step towards financial freedom.
Start by taking account of all your income like your paycheck and expenses.
Identify non-essential items you can cut down, and set money aside for emergencies and savings.
Focus on mindful spending and curb the urge to splurge.
Following a monthly budget guarantees that all bills are paid, and savings are progressing at a solid pace. Get solid budgeting advice to help you get started.
3. Spend Less Than You Earn
To reach financial freedom, it’s fundamental to spend less than you earn. This tip may seem overly simple, but it lays the foundation for wealth accumulation.
I cannot stress this concept of spending less and saving more enough. By reducing discretionary expenses and embracing frugality where possible, you maximize savings.
This doesn’t mean an austere life but simply cutting back on unnecessary expenses to create more room for savings and investments.
4. Invest in Your Future
Investing is a path towards creating wealth for your future. Even small amounts invested wisely can have big results, thanks to the power of compound interest.
Whether it’s real estate, the stock market, or mutual funds, investing can generate an income stream and significant long-term growth. This also means increasing your financial literacy to bring direction and discipline to your investment journey.
Learn how to start investing 10K.
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Whether you want to:
Retire in peace without financial anxiety
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Making $1,000 every.single.day is NOT a pie-in-the-sky goal.
It’s been done over and over again, and the 30,000 students that Teri has helped to be financially independent and fulfill their financial dreams are my witnesses…
5. Stay Educated on Financial Issues
Staying attentive to financial news and developments is crucial. Knowing current trends can aid in timely adjustments to your investment portfolio.
Staying educated on financial issues and increasing financial literacy is an effective step toward achieving financial freedom. This includes acquiring competencies in areas such as understanding debt, budgeting, keeping track of cash flow, and investing wisely.
From changes in tax law to swings in the stock market, keep informed to make well-rounded financial decisions. Remember, knowledge is your best protection against fraud or investing missteps.
6. Develop Passive Income Streams
In your hunt for financial freedom, developing passive income streams can be a great advantage.
Passive income refers to earnings derived from a rental property, selling printables, or other enterprises in which you’re not actively involved. This could be writing a book, starting a blog, or investing in stocks.
These income streams can dramatically boost your earnings and aid your journey to financial freedom.
7. Diversify Your Investments
Diversifying your investments is a key strategy to mitigate risk and potentially increase returns. Remember the statement of don’t put all of your eggs in one basket.
Portfolio diversification involves spreading investments across different asset classes – such as cash, stocks, bonds, and real estate. Diversification ensures downturns in a single area won’t devastate your finances.
The best tool to track your investments would be Empower and you can use it for free.
Empower
Empower offers powerful tools to help you plan your investment strategy along with basic budgeting features and a great net worth tool.
As a free app, Empower can help you to save money, save time, and even make more money.
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Empower Personal Wealth, LLC (“EPW”) compensates Money Bliss for new leads. Money Bliss is not an investment client of Personal Capital Advisors Corporation or Empower Advisory Group, LLC.
8. Maintain Your Property and Health
Maintaining your property and health is vital to your financial wellness. Regular care and maintenance for your properties, like homes and cars, help prevent expensive repair costs in the future.
Investing time and effort in your health, with regular doctor visits, a healthy diet, and exercise, prevents long-term costly health issues, securing your financial future. This is why I decided to share my spinal fusion journey to help others because your health is vital to your wealth.
This investment is integral to a life of financial freedom.
9. Build a Retirement Savings Plan
Building a robust retirement savings plan is a significant step towards financial freedom. Contributing to a 401(k) or an IRA can lead to tax advantages while saving for retirement.
Here is the key to success: don’t wait to start saving for retirement until you feel like you have extra money lying around. Because that will never happen.
Start simple by maxing out your Roth IRAs and contributing enough to your employer’s 401k to receive any matching. Initiate early and let the compounding interest work in your favor for a secure retirement fund.
10. Calculate Your Financial Independence Number
Your financial independence number is a benchmark for your financial freedom goals. I’ll be honest this is one of the hardest things to do is calculate how much you need to retire.
Recently, I had a conversation with someone who retired early and she said it is so hard to know how much you need and then also live off your savings.
However, calculating this FI number can provide a roadmap for your financial freedom journey.
11. Increase Your Income
Increasing your income can expedite your journey to financial freedom. Around here at Money Bliss, we stress the need for multiple streams of income.
Consider asking for a raise, taking on more responsibility at work, or learning new skills to command a higher salary.
Explore side hustles fitting your skills and interests. This may lead to a new career for you!
And don’t forget about passive income.
Generating more income not only enhances your lifestyle today but also boosts your savings and investments for a financially free tomorrow.
12. Regularly Review and Adjust Your Financial Plan
Your financial plan is not a static document but a living, changing guide. As your life and goals evolve, so should your financial strategy.
Regularly reviewing your plan helps assess your progress, make necessary adjustments, and keep you focused on your financial freedom journey.
This is something you need to prioritize on your calendar.
Dealing with Debt in the Path of Financial Freedom
Our journey of student loans was deeply intertwined with our pursuit of financial independence as we wanted more money in our budget. This systematic approach not only expedited our progress but also instilled a discipline that prepared us for a future of responsible financial decisions.
While not easy, it is best to pay off debt sooner than later.
Prioritize Paying Off Debts
Addressing debt is imperative on your financial freedom journey. Prioritize paying off debts, particularly high-interest ones. This could mean scaling back your lifestyle temporarily.
You might find strategies like the debt snowball method, paying off the smallest debts first, effective. Or the debt avalanche as we chose. Find out which way to debt payments is best for your situation.
Clearing debts reduces monthly bills and creates more room in your budget for saving and investing.
Minimize Reliance on Borrowings
If you are consistently relying on debt methods to make ends meet, that needs to stop. Instead of taking loans for significant purchases, it’s more beneficial to accumulate savings first and then purchase in cash. For instance, when looking at car loans, the interest rate is pretty high, so this is a great example to save first.
This is backward of what most people do. However, it provides wise decisions with your money like having an emergency fund to fall back on.
Just to note… for most people, a mortgage may be cheaper than renting in their area.
Commit to Debt Free Living
Committing to a debt-free lifestyle is not about sacrificing everything today for tomorrow, but about making smarter financial choices. These include fully paying off credit cards each month, preparing a budget and sticking to it, and systematically paying off any existing debts.
Over time, these actions lead to a reduction or elimination of debt contributing significantly to your financial freedom.
Achieving Financial Freedom: Success Stories
There is no shortage of inspiring stories of people going from rags to riches or overcoming financial hardships to achieve financial freedom.
One notable example is the story of Grant Sabatier, who went from having only $2.26 in his bank account to reaching financial independence in just five years.
Similarly, Kristy Shen was an ordinary programmer who quit her job and, with calculated financial decisions, managed to retire as a millionaire.
Farnoosh Torabi, a celebrated financial correspondent, was once overwhelmed by $30,000 in student loan debt. Through disciplined budgeting and effective money management, she was able to shake off the chains of debt and now leads a financially free life.
Likewise, Robert Kiyosaki, the author of “Rich Dad Poor Dad,” started his journey with little and is now known for his financial education organization.
There are numerous success stories affirming the attainability of financial freedom. These success stories inspire and offer valuable insights into achieving financial freedom.
Frequently Asked Questions (FAQ)
Financial freedom means having sufficient savings, investments, and cash at hand to afford the lifestyle you desire without being burdened by economic constraints.
In essence, it’s about more than just having money – it’s about having financial choices, control, and security to live life on your own terms, both now and in the future.
Achieving financial freedom isn’t about get-rich-quick schemes. Instead, it typically involves a combination of saving, investing, and increasing your income.
This can mean anything from asking for a promotion at work or starting a side business to investing in stocks or real estate. Building multiple income streams, particularly passive ones, and maintaining a disciplined budget can significantly speed up the journey.
The amount of money required to attain financial freedom varies from person to person, as it’s highly dependent on individual lifestyle aspirations and expected annual expenses.
A general rule is to multiply your expected annual income by 25. For example, if you need $50,000 a year for your dream lifestyle, your financial freedom amount would be $1.25 million. It’s crucial to reassess this number regularly and adjust for changes like inflation. Learn more on saving for retirement.
Create Financial Freedom Journey for Yourself
Achieving financial freedom is a journey, not a destination. It demands consistent effort, discipline, and wise decision-making.
Every step you take towards reducing debt, saving, investing, or earning more income brings you closer to a life self-directed rather than dictated by economic constraints.
You have the opportunity to change your family’s future for many generations to come.
Although challenges will arise, remember, as Arthur Ashe once said, “Start where you are. Use what you have. Do what you can.” With determination, you can achieve financial freedom.
Start by learning to become financially independent and grow from there.
Know someone else that needs this, too? Then, please share!!
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Are you struggling with debt and feeling overwhelmed? You might also be tired of hearing the same old tips that don’t help at all, like “Don’t buy coffee out” or “Just stop spending money.” Don’t worry — you’re not alone.
Many hardworking individuals like you face similar challenges. The good news is that there are effective strategies for paying off debt faster, even on a tight budget.
This guide will walk you through 10 practical and actionable steps that can significantly impact your journey to financial autonomy. Are you ready to better control your finances? Here is how to pay off debt fast with low income.
In This Piece:
Take Inventory of Your Debts
Create a Realistic Budget
Avoid Any New Debts
Try the Debt Avalanche Method
Consider the Debt Snowball Method
Increase Your Income
Negotiate a Better Rate
Increase Your Credit Score
Consider Debt Relief or Consolidation
Stay Consistent
Step 1: Take Inventory of Your Debts
Before tackling your debts, taking inventory of them is a crucial first step to clearly understanding what you owe, allowing you to understand the full extent of your financial obligations, and developing a comprehensive and more effective action plan.
Start by gathering all your financial statements and creating a comprehensive list of your debts. This includes credit card balances, student loans, medical bills, and other outstanding obligations.
You gain a complete picture of your economic landscape by documenting each debt, including the creditor, outstanding balance, interest rate, and minimum monthly payment. This knowledge empowers you to make informed decisions and prioritize debt repayment strategies.
Step 2: Create a Realistic Budget
A budget can help track your income and expenses, clearly showing where your money goes, but if you want a successful budget, it needs to be realistic.
Creating a realistic budget is essential to pay off debt fast with a low income. You can start by identifying areas to cut back on unnecessary expenses, like reducing discretionary spending, such as eating out. Look for creative ways to save money, such as using coupons, shopping sales, or negotiating lower bills. Though this is good advice, it might not be enough or as simple as it sounds.
Here are more steps and tips to help you create a budget that could work for you:
Track income and expenses: Start by calculating your total monthly income, including your salary, freelance earnings, or any other sources of income. Next, track your expenses for a month to understand where your money is going. Categorize your expenses into fixed costs (rent, utilities, etc.) and variable costs (groceries, entertainment, etc.).
Set attainable goals: Determine how much you can allocate toward monthly debt payments while covering your essential expenses. It’s crucial to set realistic goals that consider your income. Remember, even small monthly contributions can make a significant difference over time.
Prioritize debt repayment: Allocate a specific portion of your budget to debt repayment. Consider prioritizing your debts using the debt avalanche or snowball methods mentioned earlier. By focusing on one debt at a time while making minimum payments on the others, you can make steady progress and gain a sense of accomplishment.
Monitor and adjust: Regularly review your budget and track your progress. Adjust as needed to stay on track and meet your financial goals. Be flexible and willing to adapt your budget as your circumstances change.
Creating a realistic budget requires discipline and commitment, and it’s crucial to paying off debt. By understanding your income, tracking your expenses, and making intentional choices, you can take control of your financial situation.
Step 3: Avoid Any New Debts
It might sound obvious but avoiding new debts can help greatly. Avoid the temptation to rely on credit cards or take out additional loans. Instead, focus on living within your means and prioritizing your financial goals. Of course, implementing this step is easier said than done.
Here are some recommendations to help you avoid accumulating additional debt:
Change your mindset: Understand that taking on new debts will only prolong your journey to becoming debt-free. Embrace living within your means and making conscious choices to avoid unnecessary borrowing will help you pay off your debt faster.
Cultivate healthy financial habits: Practice mindful spending, distinguishing between needs and wants, and make conscious choices aligned with your financial goals.
Building an emergency fund: This is a crucial step to prevent relying on credit or loans during unexpected expenses or financial setbacks. Start by setting aside a small amount from your monthly income until you have a comfortable cushion to cover unforeseen emergencies.
Practice delayed gratification: Avoid impulsive purchases and practice delayed gratification. Before making a nonessential purchase, give yourself a 24-48 hour cooling-off period. This allows you to assess whether the item is a genuine necessity or a momentary desire.
Seek alternative solutions: When faced with financial needs, explore alternatives before committing to new debts, like borrowing from friends or family, negotiating payment plans with service providers, or seeking assistance from local community resources or nonprofit organizations that offer financial aid or low-interest loans.
Remember, avoiding new debts requires discipline and commitment. By adopting a proactive approach to managing your finances and being mindful of your spending, you can stay on track toward paying off your existing debts and achieving financial freedom. Stay focused, make intentional choices, and celebrate your progress.
Step 4: Try the Debt Avalanche Method
The debt avalanche method is a powerful strategy for paying off debt efficiently. With this approach, you prioritize the debts based on interest rates. Additionally, this method provides a clear road map for debt repayment, allowing you to stay focused and motivated as you see progress with each debt you eliminate.
Start by arranging your debts in descending order based on their interest rates, with the highest interest debt at the top of the list. This order will determine the repayment priority. Doing this minimizes the interest that accrues over time, saving you money in the long run. Once you pay off the highest interest, move on to the next one and continue the process.
Remember to continue making at least the minimum payments on all your debts to maintain a good credit standing and avoid penalties. By staying committed to this method and directing your extra funds strategically, you’ll make significant strides toward paying off your debts.
Step 5: Consider the Debt Snowball Method
Another effective debt repayment strategy is the Debt Snowball method. It involves listing your debts from smallest to largest balance and focusing on paying off the smallest debt first while making minimum payments on the others. Once you pay off the smallest debt, you apply the money you were putting toward it to the next smallest debt.
Begin by creating a comprehensive list of all your debts, including credit cards, personal loans, student loans, and other outstanding balances. Arrange your debts in ascending order based on their balances, with the debt carrying the lowest balance at the top of the list. This order will determine the repayment priority.
Continue focusing on one debt at a time until you can pay off all your debts. The debt snowball method is advantageous because it focuses on building momentum and providing a sense of accomplishment by creating small wins, motivating you to continue your debt payment journey.
While this method may not prioritize debts based on interest rates, it provides a structured and motivating approach that can be particularly beneficial for individuals seeking emotional and psychological encouragement along their debt repayment journey.
Step 6: Increase Your Income
How to get out of debt when you are broke? Finding ways to increase your income can significantly impact you but can also be challenging. Consider taking up a side hustle or part-time job to generate extra money.
There are numerous opportunities available, such as freelance work, online tutoring, or selling handmade crafts. Dedicating your additional income solely to debt repayment accelerates your progress. It helps you achieve financial goals sooner, and if everything goes well, you’ll only need to do this for a short time.
Here are a few ideas on how to make extra money to pay off debt fast:
Explore freelance opportunities in your field of expertise
Take on part-time jobs or gig work
Monetize your hobbies or skills
Consider renting out a spare room or property
Participate in online surveys or market research studies
See if you qualify for blood and plasma donations, some places pay for this help
Step 7: Negotiate a Better Rate
Lowering the interest rates on your debts can help you save money and pay them off faster. Reach out to your creditors and explore the possibility of negotiating a lower interest rate. Even a slight reduction in interest rates can make a significant difference.
Here’s a detailed explanation of how to negotiate a better rate and why it can be beneficial:
Review your current rates: This includes credit cards, personal loans, and other forms of debt. Take note of the interest rates, promotional offers, and the terms and conditions associated with each debt.
Research and compare: Understand market rates basics and terms for similar financial products. This will provide you with a baseline for negotiation and help you determine if your rates are higher than what is commonly available. Look for competing offers, promotions, or lower interest rates from other lenders or credit card companies.
Prepare your case: Highlight your payment history, creditworthiness, and loyalty as a long-term customer. Compile improved financial stability or credit score evidence since you obtained the debt. The goal is to present a compelling case for why you deserve a better rate.
If negotiating directly with your creditors doesn’t yield the desired results, consider other options like balance transfers or refinancing.
Balance transfers involve moving high-interest debt to a credit card with a lower interest rate, often with an introductory 0% interest period. Refinancing involves replacing an existing loan with a new one with better terms and a lower interest rate. Both options can help reduce the overall interest you’ll pay and accelerate your debt payoff.
Step 8: Increase Your Credit Score
Improving your credit score can have a positive impact on your financial well-being. A higher credit score can lead to lower interest rates on future loans and credit cards, potentially saving you thousands of dollars in the long run. To boost your credit score, make timely payments, reduce your credit card balances, and keep your credit utilization ratio low. Regularly review your credit reports to identify and address any errors or discrepancies.
Step 9: Consider Debt Relief or Consolidation
If your debts feel overwhelming and unmanageable, exploring debt relief or consolidation options might be a viable solution. Debt relief programs, such as credit counseling or debt settlement, can help you negotiate with creditors to reduce the amount you owe or establish more manageable payment plans.
Debt consolidation allows you to combine multiple debts into a single loan with a lower interest rate. However, it’s essential to research and choose reputable organizations to ensure you make an informed decision that aligns with your financial goals.
Step 10: Stay Consistent
So, what is the best way to pay off debt fast? Consistency is always key. Make your debt repayment a priority and stick to your plan. Celebrate small victories along the way to stay motivated and maintain your momentum.
Remember, achieving financial freedom takes time and dedication. You can overcome your debts and build a brighter financial future with persistence.
Congratulations on taking the first step toward improving your financial well-being. Remember, Credit.com is here to support you on your journey.
Explore our ExtraCredit® program, which provides valuable resources to help you monitor and manage your credit for a small monthly price Or sign-up for our free service that provides an Experian Vantage 3.0 score along with a free credit report card.
My monthly Extraordinary Lives series is something that I’m really enjoying doing. First up was JP Livingston, who retired with a net worth over $2,000,000 at the age of 28. Today’s interview is with Tanja Hester, who retired at the end of 2017 at the age of 38.
You probably know her from the amazing blog Our Next Life. Our Next Life is one of my favorite blogs, so I’m glad Tanja said yes to this interview!
In this interview, you’ll learn:
How she managed to retire so early;
How she still lives comfortably in one of the most beautiful places in the world;
Her advice for retiring early no matter what your career choice is;
How she decided how much she needed to retire on;
The sacrifices she has had to make;
And more! This interview is packed full of valuable information!
I asked you, my readers, what questions I should ask her, so below are your questions (and some of mine) about Tanja’s story and how she has accomplished so much. Make sure you’re following me on Facebook so you have the opportunity to submit your own questions for the next interview.
Related content:
1. Tell me your story. How are you managing to retire so early?
Hi Michelle! Thanks so much for having me. 🙂 We feel like we’re now living a magical life as early retirees, but there’s no magic to how we got here. We spent a lot less than we earned for a bunch of years in a row, made easier and faster by above average salaries (both earned six figures in our last several years of work), and we tried to make some other smart decisions along the way. But we didn’t strike it rich with Bitcoin or build a unicorn startup or get an inheritance or anything else. We just stayed focused on our goal and ground away at it, bit by bit.
More specifically, we focused on three big things:
1. Buying less house than we could afford. The banks would have happily lent us three times as much as we paid for our house in Tahoe, but we stuck to our guns and set our own budget. We lucked out by being able to buy at almost the bottom of the market in 2011, but even though we could have bought more house then for a pretty good price, we kept our budget modest, and that allowed us to pay off our mortgage in just over five years, which then let us save more in our last year of work as well as go into early retirement with no mortgage, which means our basic cost of living is minimal.
2. Paying ourselves first and automating that. We set our paychecks up so that a big chunk went straight into savings without us ever seeing that money, and had another big portion set to go into our investments automatically with each paycheck. We kept only a small portion of our total income in our checking account, and so felt like that was all we had to spend. But more importantly, saving wasn’t a choice we had to make, which would have relied on willpower we don’t always possess. It just happened without us doing anything. For those who aren’t natural savers (like us!), I can’t recommend enough taking the decision out of it and automating your savings.
3. Not inflating our lifestyle. For the last decade of our careers, we banked every bonus and every raise. So at the start of each year, we’d increase our automatic investments by at least as much as our paychecks increased, meaning we never felt like we got a raise, and we didn’t start spending more. When you add the compounding effect of all those raises we banked, it adds up to quite a big number! But for us, because we did it gradually that way and just kept the amount we had to spend steady, it never felt like a sacrifice to save at a really high rate.
2. When did you begin saving for early retirement?
While we’d been saving for years for a string of financial goals – paying off my consumer debt, buying our first place in LA, buying our forever home in Tahoe and saving a bit for traditional retirement – we started saving for early retirement in a focused way about six years ago. And then we got super focused four years ago.
I still can’t believe how much we saved in that time, but it’s amazing what’s possible when you get really clear on your “why” and align all your decisions around it. (And again, having a higher income for sure helped. You can’t save more than you earn, so the more you can earn, the faster you can save.)
3. Was early retirement always something you were striving for? What made you want to retire early?
Mark and I always had a sense that we didn’t want to work “forever,” but we didn’t know what that meant. We had very demanding, high-stress careers where we could never truly be offline. We loved much about the work and loved our clients and colleagues, but it definitely took a big toll on our physical and mental health. And that’s how we knew that we weren’t willing to do that kind of work forever.
We talked about transitioning to different, lower-paid careers, but once we realized that we could work hard for just a few more years and then never need to work again, it was an easy choice to keep going.
Related: What Is Financial Independence, Retire Early? Answers To FAQs About FIRE
4. Would you say that you live comfortably? I ask this because many people assume that early retirees eat a lot of rice and beans!
I mean, I do love rice and beans. 😉 But we only eat rice and beans a few times a month. I would definitely say we live super comfortably! We own a single family home in a crazy beautiful part of the world, we spend money on fresh, healthy, mostly organic food, we ski multiple times a week and we take several international trips per year.
There’s a lot we don’t spend on, of course, and we do have one freakishly frugal habit that shocks a lot of people – keeping our house at a chilly 55 degrees F in the winter – but we think our life is pretty darn luxurious. But we keep it reasonable by ruthlessly cutting out the mindless spending that doesn’t add real value to our lives and focusing our spending only on the things we love to do.
5. What career did you have before you retired? Did that career help you to retire earlier?
We both worked as political and social cause consultants for a long time – 16 years for me and nearly 20 for Mark. We loved doing meaningful work with smart, talented people, but the pace of it was really hard to sustain. We had to travel a ton and be reachable at all times, and that stress was something we carried around with us at all times. But, the upside of high-pressure jobs like that is that they often pay well. So yes, absolutely – having those careers 100% enabled us to retire early!
6. What advice do you have for the average person that doesn’t make six figures a year who wants to retire early? What do you have to say to those who may think that they can never earn as much as you can – can they still retire early too?
While earning more certainly helps speed things along, there’s nothing about the core principle of financial independence – spend less than you earn and save the difference – that requires an especially high income or a job in tech or any other particular factor. (We both went to state schools for college and majored in English and communications, if you’re curious.) If you can afford to save even a little bit of money each month, you can do this, you just might be on a slightly longer timeline. If you make saving for early retirement a priority, you’ll be amazed that it does not take 40 years to save, as many financial experts would have you believe.
My best advice is to be diligent about tracking your spending. Know where every dollar is going, and then then ask yourself which of those dollars brought you real, lasting happiness, not just a momentarily thrill, and which ones didn’t. Then, as much as you can, cut out the spending that doesn’t make you happy. You don’t even have to do it all at one time, but once you start seeing your spending that way – mindless spending that doesn’t add value and mindful spending that makes you happier – it becomes a whole lot easier to save money.
And then don’t just think about the saving side of the equation. Think about the earning side, too. Side hustles are all the rage, and I side hustled for the first 12 years of my career, working a few odd jobs and then teaching yoga and spinning for 10 years. Those jobs definitely helped me earn and save more in my early career years, but eventually having extra commitments held me back in my “real career.” And at that point, I ditched my side hustle and committed myself fully to my main job, working as long and traveling as much as that required. I know that having that real commitment to work paid off in the form of promotions and bonuses, and that wouldn’t have been possible if I’d kept my side hustle.
7. Will you still earn an income in retirement?
Our retirement is funded primarily by selling shares of stock and bond index funds that we bought throughout our savings phase, as well as by collecting rent on the one rental property we have. We created our “magic number” that we needed to save by figuring out what we’d need to have if we never earned another penny, and that’s what we saved. But now that we’re retired, we also realize that of course we’ll still earn money in some form. Retiring early takes a bit of a hustle mindset, and you don’t just stop being a person who hustles when you leave your career.
The good thing is that we can now put that hustle to use toward community service instead of paid work, and if we do take on paid work, we can be super picky and do only work that sounds super fun, that we’d happily do for free. And that extra money we earn can go toward more charitable giving, toward an extra trip overseas, or maybe toward a home project like a kitchen remodel. In the spirit of full transparency, Mark and I are both working a little bit this year, though in total it will only be about 10-20 percent of our time. We didn’t plan to work, but Mark got an offer he couldn’t refuse to work on a passion project, and I got an offer to fulfill a lifetime dream, so we both had an easy time saying yes.
8. How did you decide on how much you needed to retire on?
The starting point for calculating any early retirement number (or traditional retirement number, for that matter) has to be knowing what you spend in a year. Most online retirement calculators base your target number off what you earn, and that’s bananas if you don’t spend everything you make. When we started our planning, the rule of 25X (25 times your annual spending, the inverse of the 4% safe withdrawal rule) wasn’t as widely talked about, and it wouldn’t have worked for us anyway because we wanted to build a two-phase early retirement plan that would let us leave our traditional retirement savings alone (many early retirees convert 401(k) and IRA funds to be able to access them early without penalty, but we don’t want to do this), so that we’d have a big cushion for our later years, especially given all the uncertainty right now around health care, and the high costs even for those on Medicare.
We probably overcomplicated our calculations a bit because we’re both spreadsheet nerds, but the short version is that we calculated that our 401(k)s already had enough in them to support our “phase 2” (basically our traditional retirement, from age 59 ½ onward, after we can access our 401(k) money without having to jump through any hoops), and so we focused on saving an amount in unrestricted, taxable mutual funds that our spreadsheets told us would carry us through the first 18 years (our “phase 1”). We based those projections on extremely conservative market gains – only about percent real returns after inflation – so that we’d be okay even if the markets are flat for many years.
9. What sacrifices or hard decisions did you have to make?
I think the way we did this – focusing mostly on keeping our lifestyle contained as our earnings increased and automating our savings – made it not feel like a sacrifice. We for sure did give some things up like frequent meals out and traveling with a bit less of a budget orientation, but for those things, it was easy to give them up because we knew exactly why we weren’t spending money on them anymore. Having our goals clear in our minds and both being excited about our vision for the future was so motivating that it headed off any potential feeling of sacrifice.
Two of the hardest decisions we made along the way were to alter our plans to be able to help out family members. We hadn’t planned to buy a rental property, but it became clear that a relative with special needs would be helped a lot if we’d buy a property that would meet those needs and rent it to them, and so we adapted our plans to allow for that. And then another relative was about to go to debt collection for some medical debts that weren’t their fault, and we decided to make a personal loan to let that person move forward financially. Both decisions have worked out super well, and we believe strongly that there’s no point in having money saved if you can’t use some of it to help people you care about, but it was definitely tough to make each of those decisions.
10. What will you do about health insurance in early retirement?
We fully expect the landscape around health care in the U.S. to keep shifting, but for now we have health insurance that we purchased through the Affordable Care Act exchange. It’s a bit pricey but it’s normal insurance, which is a huge comfort to have!
11. What are your long-term plans now that you will have significantly more time not working?
We’re trying to keep things as open-ended as possible! I’m definitely going to keep writing the blog, and we’re both actively volunteering in our community. We went to Taiwan earlier this year and are planning a few more trips through the end of 2018, and then, who knows?
We’re exploring getting a very small motorhome (not big and fancy like yours, Michelle!) that we can use for road trips around the west, but that’s not for sure yet. A few years ago, we decided that our purpose is service, adventure and creativity, so while we don’t yet know what path our lives will take, we know we’ll be doing some of each of those three.
12. Are you doing any lifestyle changes to reduce your expenses in early retirement?
We are! When we were working, we were so crunched for time that we ate a lot of frozen and convenience foods, even though we would have preferred to make everything from scratch. We also couldn’t really comparison shop because we didn’t have time for that. But now we’re making more food from scratch and visiting a wider array of stores and learning what items are priced best at each place.
We’re also DIYing everything we can now that we have time to do that. But beyond that stuff, we were already living at a level we were comfortable with and that let us save a lot, so it doesn’t feel like we need to trim much more. But ask me again in a year, and maybe I’ll have found some new ways to save!
13. I’m curious to know what your methods for staying focused on accomplishing such a major goal?
Even in the very best case scenario, saving for early retirement takes years, so it’s important to know up front that you will feel some impatience along the way. Everyone who’s done it has felt it at one time or another, or maybe many times!
We found it helped a ton to track our progress and look at it often, so that we could see how far we’d come. And having everything automated also helped because we didn’t even give ourselves the opportunity to have the thought, “We’d rather spend this money instead this month to treat ourselves.” And finally, we didn’t deprive ourselves, and I think that’s important.
Living solely for tomorrow is not the way to be happy with your life – you have to allow yourself some joy today. We tried to keep things modest, of course, but we still let ourselves do fun things and spend money on things that made us happy instead of saving all our money. Living for both today and tomorrow helps with the impatience a ton!
14. If you were starting back at ground zero, what would you do differently from the beginning?
If I could go allllll the way back, I’d never set foot in Target! Haha. When I was just starting out in my career, Target was my kryptonite, and I wouldn’t set foot in there without buying a whole bunch of home decoration stuff that I didn’t need. One of my best practical saving tips is to know your spending triggers and avoid them, so to this day, I do not set foot in Target, and I get what I would have bought there on Amazon or at less tempting stores.
But if we’re just talking about the beginning of the early retirement journey, we would for sure have invested in more rental properties. Real estate offers a quicker path to financial independence than does saving, and it gives you some diversification you don’t get by only investing in the markets. I thought I’d hate being a landlord and so wasn’t interested in real estate, but now that we’ve done it for several years, we wish we had put more focus on rental properties.
15. Lastly, what is your very best tip (or two) that you have for someone who wants to reach the same success as you?
Don’t just think in terms of numbers. Get clear about what you really want to be doing with your life – what that looks like, what will make you feel like you have a purpose, what you want to be able to look back on at the end of your life and feel proud of – and then decide what you’re willing to give up to make that happen. Doing that exercise will help you figure out much more quickly how much your new life will cost and how much you can afford to save now, but best of all you’ll have the motivation to do that saving because you will have already invested the time in forming that solid vision for yourself instead of saving just to save, or just because you don’t like your job. If you retire early just because you don’t like your job and not because there’s something else you’re super stoked to do, you’ll probably be unhappy in early retirement, too.
And on the numbers front, don’t just focus on saving money. Focus on earning more. There’s a limit to how much spending you can eliminate but no limit to how much you can earn, so don’t neglect that half of the equation.
Are you interested in early retirement? Are you saving for retirement?