The house, the cars, the corner desk and executive title, fancy vacations, private schools, private yachts, private jets, the glamour, the luxury, it all can become yours if you want it. But is all that stuff really what you want out of your life? Or is the thing you want actually the intangible quality that a millionaire has of simply not worrying about money because they have more than they need? You don’t have to have a million dollars to be a millionaire.
Without further ado, the recipe for financial freedom.
Maximize your income.
Mind the gap.
That’s it. That’s the entire recipe for finding financial freedom and building a life free from financial worry and stress.
Maximize Your Income
Take time to develop your career, especially early on. If you put a lot of effort and focus into it, you can grow your income quickly. Always negotiate your salary, and don’t be afraid to ask for raises or bonuses as appropriate (like when you take on new responsibilities).
The fastest way to increase your income is usually to find a new job or new company. If your income isn’t as high as it could be, take some time to update your resume and sharpen your interview skills.
Don’t be afraid to take on a side hustle. It can be a lot of work, but I’ve really enjoyed renting out my house.
Mind the Gap (between income and spending)
You have to spend less than you earn. This is the key to financial freedom. There’s no other way around it. The bigger the gap between earning more and spending less, the healthier your financial life will be.
Tackle any debts head on. They’re dragging you down. Make sure you’re addressing any habits that brought you there in the first place. Eliminating debts frees up your cash flow.
Cutting your spending is more effective than increasing your income. It increases the amount you can save each month, and it means you need less money to live off of for the rest of your life. A little discomfort when you cut your spending is OK since it helps you realize what you value and rethink your spending. Try cutting things out, and know you can always go back to spending more if needed. However, at a certain point, cutting spending further becomes extremely uncomfortable, so you have to revert back to increasing your income to increase savings.
Frugal habits are essential. Frugal, not cheap. Frugality is not about deprivation. Frugality is about being smart with money. Focus every purchase on maximizing personal happiness. I find that my frugality keeps my miscellaneous spending very low without even really trying because I’m busy enjoying my hobbies like working around my house and experiences like frugal travel. I don’t regularly go shopping because the artificial happiness created by swiping my credit card isn’t lasting, and I have enough stuff in my life without adding more to it.
Save First, Spend Second
I don’t have a formal monthly budget. Instead, I decide how much money I want to save and direct that money into the appropriate accounts. In order, money automatically goes to my 401k, my HSA, my Roth IRA, my taxable savings, my emergency/slush fund (anywhere from $100-500 per paycheck depending on “slush” used/needed), and THEN the rest goes into my checking account.
I use credit cards to help track spending and earn cash back. On pay days, the first thing I do is pay off my credit cards online in full (twice a month). Then I pay my mortgage and car payment. Once my bills are taken care of, I note the dollar amount left in my checking account. If there’s a lot, I might shift extra to savings or start planning a trip. If the dollar amount remaining is low, I try to “live lean” and be mindful of spending for a couple weeks until the next paycheck. I never spend what I don’t have in my checking account.
This method “artificially lowers my income” and makes it incredibly easy to spend less than I earn. In fact, it takes almost all thought out of my money management. In my mind, you can’t spend something that’s not there, and it’s “not there” if I don’t see it.
Be patient with the market, and remember you are investing for the long term. A bear market (when the market is going down) is a buying opportunity for you, especially early in your career. You get to buy into the market at a discount. This is one of the best things that can happen early in your money-saving journey.
I choose to invest in index funds with low expense ratios. Studies have shown time and time again that an index fund with a low expense ratio will beat an active fund most of the time. I don’t feel the need to make time for individual stock picking, because an average of 7% growth between now and retirement from simply doing nothing sounds great to me.
You might choose to buy a house or buy investment properties that you rent out.
Start investing early so you have as much time as possible to save. Never take for granted the power of compounding. Don’t short change future you.
After doing all three…
I’ve all but forgotten what it means to worry about money. To be honest, I probably feel more like a millionaire than the person who has a million dollars.