1. Tap into your competitive spirit

You may be naturally competitive. Were you always striving to be top of your class, the best athlete on the team, the one that got into the ivy league university?

If this resonates with you, then I would suggest harnessing that inner fire to crush your personal finances. One way to determine where you fall on the bell curve is using the Millionaire Next Door Calculation for Net Worth. You’ll get a raw look at how you’ve managed the money you made in your life.

Basically, it works like this:

Expected Net Worth = (Age * Taxable Income)/10 – inherited wealth

For example, a 35-year-old with an earned income of $90,000 plus $5,000 investment income, would have an expected net worth of $332,500 ($95,000 X 35 divided by 10). If her net worth is actually lower than this, she is considered an under accumulator of wealth (UAW); if higher, then she is a prodigious accumulator of wealth (PAW).

So, where do you sit? Have you been wise with your money and are a PAW or on your way to becoming one? Not quite? Compete with yourself to see just how much money you can save!

2. Embrace the nerd in you

For some, spreadsheets are a love language. They want to see all the data and in every which way, slicing and dicing to their hearts’ content. If that’s you, then good news! There is ample data to organize and track, and projections to explore. Here’s where you can start.

Build your montage of spreadsheets. The main bits to track are your income and expenses (income statement), and your assets and liabilities (balance sheet). You can use tools online to easily gather the data (I like Mint for this as you can import all of your accounts) and find template spreadsheets. I suggest getting some ideas from others’ templates and then building your own. After all, if it’s your creation you’re more apt to actually use it!

Once you have gathered the last few months of data (6 months to a year is best) you can start to run the numbers. What are your average monthly expenses? How much is “left over” at the end of each month and where is that money going? If this piques your interest but you still don’t know where to start, let’s set up an FI coaching session and I’ll walk you through it in detail!

3. Don’t let go of those hard-won dollars

Studies show that the pain of losing something is twice that of the pleasure of gaining something. We can leverage this tendency to set up our future selves for a stable financial life by considering the power of compounding interest. This is especially important for those bigger expenses, like rent, a car, or an expensive vacation. What is the true cost of your decision? 

One of my biggest financial regrets is buying a BMW in my early twenties. It was used, but still $10,000 more than another reasonable alternative, a VW Golf. I fell for that sleek black color, heated leather seats, and the allure of luxury to the tune of $20,000. A short two years laters, I ended up selling the BMW for $12,000 after tiring of the stress of owning a nice car. I was always worried about it getting “damaged” (ever parked in the back of the lot to avoid other careless drivers dinging your doors?) and loathed the expensive repairs and maintenance.

Now, had I bought the Golf instead and invested the $10,000 difference what would that money be today, 12 years later? Well, at 8% growth it would now be $25,000 and in another 10 years it’s $54,000. A handy rule of thumb to do this math is that when invested, on average, your money will double every 10 years. Do the math upfront for bigger purchases and decide if it’s worth it! That BMW sure wasn’t for me.

4. Put it on the chopping block

We all want to be happy. And sometimes we believe that buying stuff will get us there. Maybe it does temporarily give you a dopamine hit that leaves you feeling great. But I’ll bet that moment passes pretty quickly and you’re soon looking for what’s next. 

I’ve certainly been there. For me it was impulsively buying a cheap shirt from H&M. I rode feelings of elation at the incredible deal all the way to the counter… and then soon after getting home and hanging my new prize alongside my other shirts in my overstuffed closet, I became deflated and wondered why I just spent hard earned money on low-quality stuff that I didn’t really need. Never mind the ethical implications of fast fashion.

One way to address this impulsivity is to spend time thinking about the money you have spent that has truly made your life better. Is it a trip to a new city? That gym membership where you kicked your butt into shape? Drinks out on Friday night with friends? Are there things in your life where you can happily say, “Oh, I would gladly pay double for that if that’s what it costs!” because it’s just that important to you?

Spend your money there and ruthlessly cut the rest. You’ll be happier and wealthier for it.

5. Keep your eye on the prize

Having a singular focus can be an incredibly powerful accelerant. Imagine if you were to make every decision based on the answer to “does this bring me closer to my FI number?” If you were to truly adhere to that, I bet you would shorten your journey to FI by years, if not decades. 

While that’s a pretty extreme method, it’s a useful thought experiment. And though you may take the choice that won’t bring you closer to FI, running decisions through this lens gives you more awareness and improves your decision-making on the whole. Which brings us to…

The common denominator

All of these approaches will build awareness around your financial life. And awareness is almost always the first step towards positive change! Which of these resonates with your personality? Have you found other hacks to be successful in jump starting your way to FI? Let us know in the comments below!

The post 5 Hacks to Jump Start Your Way to FI appeared first on A Way to FI.

I benefit from the privilege of being introduced to many of the pillars of Financial Independence from my dad relatively early in life. Because what I learned aligns with some of my core interests, I’ve also earned a pretty good salary as a Software Engineer throughout my career.

2008 crash and first company

I’ve always been money-conscious. In high school, I ran a landscaping business that cut lawns, spread mulch, and built stone patios for people. I had five employees. Making money was a fun game – like SimCity but real life.

My dad set me up with a Fidelity account and showed me how to invest in low-expense index funds. I think it was VTI or IVV.

During the 2008 financial crisis, I watched my hard-earned income get halved. I was too into “being cool” in college while getting a degree in Information Technology to get too bent out of shape about it.

By the time I entered the job market in 2010, things had started to recover and my Fidelity balance was back up to about what it was before the crash. I had learned a valuable lesson:

Don’t sell in a panic! You’ll miss out on the gains when the market rebounds!

Entering the job market

In 2010 and fresh out of college, I started my first job as a Software Engineer in Richmond, Virginia. I was making good money, but nowhere near the six-figure mark that I heard developers were making in Washington D.C. and San Francisco.

Importantly, Richmond has an extremely low cost of living. I was able to get a room in a nice apartment on Monument Avenue in The Fan (highly desirable location) for $400 per month. I spent weekends backpacking on the nearby Appalachian Trail and going on bike rides. Additionally, I drove a $3k 1998 Honda Civic.

Though I had no vision for Financial Independence at the time, at age 22 I was on my way to FI due to having a reasonable salary and very low spend rate.

It took me five years to discover FI

Over the next few years, I:

• Got a new job in a new location (with a smaller salary),
• Bought a small town house and got two roommates to pay 90% of my mortgage, then kicked those roommates out when I
• Got married to an equally-money-conscious woman,
• Got a second new job with a higher salary.

This new job paid closer, but still shy of, the Silicone Valley ideal of the six-figure salary. Importantly, this company had a bonus program where they would contribute to employee 401k up to the IRS max.

My new wife and I took a position with her job in Germany. Here, the U.S. Government paid for our housing through Rose’s job. I qualified for the Foreign Earned Income Exclusion (FEIE) – a tax situation where a large portion of your active income is tax-exempt.

We were saving money at an astonishing rate, but didn’t know what to do with it.

I checked into my Fidelity account and found that I had 10s of thousands of dollars just sitting in cash. I figured I should do something with it, but had no idea what.

Some internet research led Rose and me to find Mr. Money Mustache’s blog and JL Collins’ Simple Path to Wealth. We promptly moved this money into a new Vanguard account and bought VTSAX – one of the best low-expense index funds.

Path to financial independence

In 2015 and in our mid-20s, we were on our path to Financial Independence! We had:

• A goal of reaching Financial Independence in the next five years,
• A townhouse in the States that was then rented out and producing a small amount of passive income,
• A solid combined income from our jobs, and
• A spectacular savings rate.

Rose and I had always been natural savers, but had figured out what to do with our savings and we had a goal!

For the next several years we continued traveling around Europe, finding bargain flights and accommodations. While our friends were buying Audis and staying in luxury hotels, we were a one-car family driving a cheap Volkswagen and staying in gasthauses in private rooms with bathrooms shared with other guests.

We put aside $2,000 to $4,000 for an emergency fund and to handle our cash flow. We invested everything else into low-expense index funds like IVV and VTSAX. Riding the insane rise the stock market took from 2015 to ~2022, our money made an approximate 60% return.

Declaring (lean) financial independence

Five and a half years later, in 2018 we quit our full time jobs and moved into a van.

We had reached FI. Well, sort of. Our spending rate MINUS about 75% of what we were spending on housing put us within the Safe Withdrawal Rate from our net worth. In other words, living off of 4% of our net worth, we could cover our spending and a portion of our housing. Given the high cost of living in the Front Range, hacking our housing situation would allow us to “retire”.

There certainly was some fat we could trim from our monthly budget (more on this in another article). The big change we decided to make was exchanging our $2,000/month rent in our single-family home for $50 per month for a tiny storage unit for our stuff and a van (paid for with cash – no loan payments) for us!.

We also wanted to be location independent and spend time climbing around the western US!

In short, we had enough money to retire in 2019, but not enough to live super comfortably. Certainly not enough to be able to afford rent or a mortgage in the very competitive housing market that is the Colorado Front Range.

We didn’t want to wait until we had enough to declare full Financial Independence/Retire Early (or fat – FIRE) to quit jobs that we weren’t crazy about and to start living the life we desired.

We leveraged our (already) substantial savings in combination with our willingness to be flexible in our housing situation to make drastic changes early!

(re)Focusing on FIRE

We spent just shy of a year in the van, bouncing around to different destinations in the American west.

Wanting to be a little less mobile, we eventually scored a great deal on a home in Boulder, CO. We also converted our side-hustles (that we LOVE) into extremely flexible full-time jobs to cover our new housing expenses. In short, we took smaller salaries than we could find elsewhere in exchange for a high degree of flexibility

We were still living the life we wanted but still depended on some amount of supplemental income to support our cushy lifestyle.

Enter: Meghan

Having a home base in Boulder made it easier to make friends! This is when Rose and I started spending time with Cal and Meghan. After a few months, Meghan asked us (Rose, I think) about FI and what we did to have the flexible schedule we then had.

The best way to learn is to teach. Getting materials together to share FI principles with friends forced Rose and I to dust off our FI knowledge and re-orient ourselves to the FI mindset. We had to get smart, again!

That brings me to today.

Full- and (eventually) fat- FIRE

I’m excited to be refocusing myself towards Financial Independence. Spending time as a lean-retiree has given me a taste of what is possible. I like my current job, but want to set Rose and myself up for true Financial Independence so that we would not have to change much if our jobs were to go away.

There is much more Rose and I can be doing to better achieve FI. We can trim lots of fat from our spending, use some simple tricks to reduce our tax burden, and put time into our side-hustles to increase passive income.

I’m excited to learn and grow with you during this next FI-focused chapter of my life!!

A Way to FI

I’m starting this blog to share with you specific tips and tricks I’ve used to achieve Financial Independence. Equally, I want to learn from the community your thoughts on Financial Independence. Specifically, I’m looking forward to learning your thoughts on:

• What do you do when you retire?
• Tax optimization,
• Travel hacking,
• Lifestyle design.

The post Jeff’s Path to Financial Independence appeared first on A Way to FI.