Steps to Achieving Financial Independence Early in Life

Thousands have become inspired to take their financial lives into their own hands – whether retiring early as part of their master plan, or simply living better today by cutting expenses. Their stories show that freedom, saving, investment and living a trimmed life are achievable.

Set priorities for your money – both your short-term and long-term goals should demonstrate your values.

Start Early

The key to gaining financial independence early is saving early. You need to have definite goals and strategy – the clearer your goals and timelines with targets are, the more likely you are to stick to them. Those extraordinarily successful early FIRE participants develop clear goals and then stick to them through market downturns or unexpected expenses, while remaining flexible enough to pivot their strategy in reaction to changing conditions or take advantage of whatever opportunities are presented. Pay down debt and grow savings while sticking to a balanced budget that allows for essential spending on health, housing, food and transportation costs. They use an array of tools and tactics – from tracking software, automatic savings plans and goal reviews – to stay on course.

Start Investing

You have to be an investor to achieve financial independence. Simply ‘saving’ won’t do: you will very likely have less to spend next year from the money put away in savings accounts than you have now, thanks to inflation. This calls for an optimal mix of active and passive (ie, investment) income streams, and the 4 per cent ‘rule of thumb’ has been used to calculate the size of the passive-income string to work towards, at retirement. Start saving right now by contributing to any sort of employer-sponsored retirement account such as a 401(k), and open a low-cost investment account (called a robo-advisor or mutual fund company) to grow your portfolio inexpensively.

Start Saving

Step one to financial freedom is to think through your goals and develop an action plan to arrive at them. This might include a plan to pay off your debts, set a retirement date, a savings rate to get to financial independence, or anything else you want your money to work for. You should take a detailed record of all your income, spending and outgoings – this may involve looking back at bank statements, credit card balances for many months to establish an accurate picture of your financial status. Read up on many, many different things: how to save, how to invest, how to avoid the pitfalls around money management (procrastinating on saving, going out to see friends and going on big trips to catch up on ‘lost time’, lifestyle creep or FOMO – all of which can derail you partly now, and significantly more in the future when you’re trying to make it to FI in the 10 or 20 years you’re granting yourself.)

Start Living on a Budget

If it is about financial independence, then everything should start with saving/stop spending. You should conduct an audit of expenditure vs income per year, to know the range of spending; to make smart investments with the funds at your disposal and to plan your future goals. For instance, don’t buy a home for more than twice your household income, and, if you are in debt, do your best to pay it off promptly so that you don’t end up contributing to the meagre annual gains in your savings account through interest. But if you’re going to get help from a professional, make sure it’s appropriate; find advisers with accredited designations who are fee-only because they want to see you succeed.

Get Your Spouse on Board

But financial independence is a personal direction to take. Or step back from. It’s yours and yours only. Yes, talk it over with your spouse and both settle on a target, but you’re both going to have to give up something, so steel yourself. If they are resisting, teach them about why this way of living – financial independence and early retirement – is a good idea using words to describe concepts rather than a spreadsheet to describe… spreadsheets. showing them your budget and how you reconcile your income and expenses; scheduling monthly ‘blamestorming’ meetings, when both you and they discuss fire hazards (eg, stop going out to dinner every night) and health hazards (eg, get rid of all those magazine subscriptions you don’t even use). This way they will feel much more in control of their money.