- Frugality Buys Freedom: How and Why I Quit my Corporate Banking Job - February 27, 2019
- 8 Creative Ways to Save Money With Family and Friends - February 25, 2019
- Behind the Scenes of the Financial Freedom Book with Grant Sabatier - February 10, 2019
For those just beginning their journey to financial independence, the first few steps can be scary. Fortunately, there are plenty of personal finance bloggers (myself included) who are willing to help! Nobody should have to take this journey alone, so hop aboard and let’s ride this money train to financial independence.
The goal of this post is to help you understand how to control your money. (If you already know how, then send this to a friend in need 🙂 )
The first step in controlling your finances is to track your spending. My favorite tools for this are Mint and Personal Capital (Receive $20 for signing up). I personally think that Mint is better for day-to-day tracking and Personal Capital is preferable for long-term tracking (net worth).
Notice how this first step includes nothing about downsizing your house, selling your car, canceling health insurance, or eating rice and beans.
The point is that you need to track your spending in order to understand where your money is going. At that point, you can decide which items are truly adding value to your life. The goal here is not deprivation. The goal is to increase the gap between your income and spending so that you can make your money work for you.
Once you maximize this gap, you can start to capitalize.
The three largest expenses for the average American household are housing costs (33%), transportation costs (17%) and food costs (13%). In one of my previous posts, I explain what financial independence actually means and how cutting your expenses can help to maximize your life hours. If you don’t feel like reading, the list below should give you some expense-cutting ideas.
- Downsize your home / Find cheaper housing
- Downgrade your car / Start riding a bike
- Eat out less / Create a grocery budget
- Minimize utilities by shopping for the cheapest rates (Pro Tip: Check out AskTrim.com)
- Cut cable
- Reduce phone bill
- Budget your discretionary spending
Maybe you can’t make all of these changes today, but the compounded effect of all these changes can have a drastic effect on your financial future. Get 1% better every day and watch your expenses drop to the floor.
If you’ve been keeping up with my blog, you know that I’ve covered this topic extensively — I’m obsessed with finding new ways to increase income. If this is your first time here, check out some of these posts!
- A Step-By-Step Guide to Building Your Online Business
- The Expense Floor: Why Income Matters
- How to Beat the Expense Ratio
There are SO many ways to earn more money in this new economy. You just have to be willing to search for them…or just read some of those articles listed above 🙂
I Created a Gap… Now What?
The easiest way to make your money work for you is through passive index investing. Basically, this means buying index funds in your IRA, 401K, Taxable Account, or some other investment vehicle. If you have no idea what I just said, check out my Vanguard 101: The Basics of Investing course.
Even if you only have $100 to invest, there are platforms out there like M1 Finance that require no minimum investment! This platform also offers free robo-advising, fractional share purchases, and dynamic portfolio re-balancing. If you want to get started right away check out my M1 Finance Setup Guide.
If you are looking to “get rich quick” or achieve financial independence by some incredible stroke of lottery-type luck, then these strategies are not for you. However, if you want to steadily accumulate wealth and have the option to retire within the next 10-20 years, then you’re in the right place.
The journey to financial independence depends all upon your savings rate.
Savings rate = Money Saved / Money Earned
For example, if I earned $1,000 per month and saved $200, my savings rate would be 20% ($200 / $1,000).
Using the table provided in the Shockingly Simple Math Behind Early Retirement (provided below), we can see how savings rate affects our time to financial independence.
This chart is honestly mind-boggling. Increasing your savings rate from 10% to 20% shaves 13 YEARS off of your financial independence journey! Isn’t that just insane? As we move down the chart, the results are astounding… If you can save 80% of your income (e.g. Earn $100,000 and spend only $20,000) you can achieve financial independence in 5.5 years!
If these numbers don’t get you pumped up about saving money… I don’t know what will. This chart was the “light-bulb moment” in my financial independence journey where I actually understood the importance of the savings rate.
Time to Act!
I know, I know. There was a whole lot of information jam-packed into this blog post. You may want to bookmark this page so that you can check out all of the links to other articles. But, now you have no excuses — you are equipped with the tools and knowledge to achieve financial independence.
The path to financial independence is simple… Simple, not easy.
- Track Your Spending
- Cut Expenses
- Increase Income
- Invest the Gap
- Accumulate Wealth
- Financial Independence!
There is no better time to act than now. Are you ready to take back control of your money?
If this content helped you, please share! Website traffic helps to keep the lights on and allows me to keep producing helpful content.
4 thoughts on “How to Control Your Money”
Love the steps and the resources, especially the chart at the end showing years to FI by savings rate. It reminds me of how paying off a little of your mortgage (or other debt) snowballs and really cuts the interest paid and time to pay off the debt. When you see FI laid out in the same way and how accessible it can be, it’s very motivating. Coming from an expensive city (NYC), a big a-ha moment was putting together my desire to travel and how that could get our household to FI so much faster. Because we can save 30-75% on our current living expenses depending on where we travel to (Costa Rica would easily save us more than half!) we cut our time to FI by over 10 years.
Thank you so much! Once it’s all laid out, it’s such a game changer. And wow you guys are absolutely CRUSHING the geoarbitrage game. I’m definitely going to be following your journey on the blog and see how this FI journey progresses. Thanks again for stopping by!
Tax optimization is the name of the game for me now…and finding ways to increase income. As we always say, you can only get your budget down so far!
I’ve think I’ve got the tax thing figured out pretty well, at least for my circumstance which is a big win. Now…if only I can get a side hustle or two going!
That’s awesome man! Glad to see that your taking control of your taxes. I have full faith that you’ll be successful in one of your side hustle ventures… just keep grinding!