I’ve been on the Financial Indepence path for several years now, and have reached my ‘FI’ number in late 2020. How did I do it? By not having student loans (thanks dad!), saving aggressively, diversifying my tax deffered accounts and by having a large real estate portfolio that has not only appreciated, but is cash flowing. If you’re new to the concept of Financial Freedom, I highly recomend Paula Pant or the gentlemen over at Choose FI to get you acquainted.
Recently, I’ve had several people reach out to me about Financial Independence, asking me how I got there and where they should start. Several years ago, my girlfriends and I started a Financial Group – the Money Minded Mavens – that has helped me learn, progress and hold myself accountable for some of my personal financial goals.
Here are a few things I have done in the past to help wrap my head around the concept of financial freedom and how to tactically get there.
Tracking my expenditures
I’ve never kept a budget, never had a number in mind that I could or couldn’t spend on groceries, trips, fun, eating out, beer…..I’m frugal so I don’t go overboard, don’t eat out every meal, so I don’t need a budget. I’m still of that mindset, although a budget and knowing what you are spending your money on are two very different things. My financial group encouraged me to dive into these exact things, because you can not manage what you don’t measure. I started tracking just that after I joined my financial group – putting my expenses into different categories and it’s really been eye opening and allowed me to adjust things and be aware of:
- Where my money is going & how much I’m spending on beer, eating out, groceries
- My everyday bills
- How much it actually costs me to live in a month, where I could cut back and months I may have expenses that aren’t monthly (vet bills, ski passes, trips)
Some of the tools I’ve used to calculate this are Personal Capital and Mad Fientists worksheet.
Framing up/structuring my emergency account
As a saver, I always have a pretty decent amount in liquidity, so I never really separated accounts. A number of financial gurus I follow though say that having an emergency account with one-twelve months of expenses in it allows not only for a security net, but a mental load off. You do not have to stay at an unpleasant job with such a security net. You can be confident about asking for a raise or push back when there are work-load pile ups knowing that you would be ok if your work circumstances change. This is huge. Once I knew how much my monthly expenses were, by actually tracking them, I could outline:
- How much I felt comfortable with in my emergency account – both from a practical and mental standpoint
- The savings amount I could afford to invest in, once my emergency account was well-funded
- Setting up a more aggressive account (I opened a Money Market Account, with a 2% interest rate that isn’t quite as much these days, but better than an average savings account)
- Seperating this from our business accounts – and understanding that cap ex expenses for our multiple rentals is in a seperate account
Rethinking my Automation
One of the things we do on our monthly calls is go around the horn and specify any adjustments, hacks, tips we’ve taken over the last month to move the needle on our financial goals. It’s not a dollars and cents conversation, just allows us to hold ourselves accountable for the small steps we’ve taken. This has been a tremendously positive exercise for me, as it helps keep my personal finance goals top of mind. A number of ladies in our group listen to Paula Pant, a Podcaster who has a gifted financial mind and a Tweak of the Week outline we have been implementing. One of her tips mentions automating your savings by an additional 1%, which is a small amount when you think about it. By reminding myself to do this though, I’ve been able to:
- Look at how much is going into which accounts and up almost all of them
- Upp my mortgage payments – shaving off several years and $10k of interest
- Add additional funds to my brokerage account contributions (index funds baby!) and continue to dollar cost average even when the market is down
- Start an HSA (and learning what that was) and invest the surplus
Re-think Retirement
You work all your life, collecting a pay-check, taking a few days off here and there, maybe a vacation or two a year, then you retire and lay around, not working. I guess that’s what a lot of people think when they contemplate retiring. Or perhaps, people haven’t given much thought to retirement at all? This financial group has really helped me re-frame the way I look at non-traditional work life. I’ve had a ‘F*&k it’ list for a long time (something that deserves its own post) and this group has allowed me to think realistically about designing what I want my ideal day to look like…..when time allows. So, with all of these like-minded people who are saving aggressively, thinking beyond the cube walls, it’s really opened me up to:
- Think about time in a finite way – we do not get any more of it, so start using it wisely, now
- Plan my days, weeks, months carefully and with intention
- Devise a plan for post-traditional work that I can work on and execute now, so when I am ready to hand it up, I have wheels in motion
Thinking about your own personal financial path? What tips can you lend to anyone just starting out or well on their way? I’d love to hear! Happy Saving!