If you’re one of the many young people just starting-out on the path to financial independence (or even an older person just trying to catch up), the numbers can seem a little daunting. Using common retirement rules like the “4% rule”, a $1 million dollar portfolio can safely generate a mere $40,000 of income per year.
For many, this seems like a ridiculously small amount of income to earn from such a large amount of saved money. Perhaps you were hoping for a much larger income in retirement — say $80,000-100,000 per year? Such numbers would mean savings of $2 – 2.5 million.
That’s a lot of scratch to save up! It’s going to take a LONG time for most people to save that much. This can seem like gigantic mountain to climb when you’re at the beginning.
One of the big tricks in making that financial climb go faster, is keeping yourself busy on the journey…
Take The First Steps
Honestly, the task of saving for retirement is a gigantic mountain to climb. I’ve written about this subject before, and I described it as exactly like that — climbing a mountain.
It can take even dedicated savers (like myself) well over a decade to save up anywhere near the necessary amounts to achieve financial independence. It took me 15 years. That’s no small foot race, it’s a marathon.
It’s not easy to keep saving for that long! There’s so many wonderful distractions to spend money on! Vacations, cool cars, boats, robots, spouses, houses, kids, expensive shoes, fancy restaurants, concerts and so on!
The important part is to get started, and put the right systems in place to keep you saving — Like depositing the maximum into your workplace 401k, and then automatically depositing any extra after-tax money into a brokerage account.
After you have that savings machine on auto-pilot, then you can do the fun things. You can’t do *everything* of course — but you can still do plenty of fun stuff on a budget AND keep saving!
Time is actually on your side if you start saving earlier in life (due to the wonders of compounding). So start make progress as soon as possible!
Hunt For Places To Cut
Despite what the movies tell us, becoming wealthy isn’t just about earning a ton of money — it’s also about keeping those earnings. If you earn $300,000/yr but spend every penny, you’re not actually wealthy. It simply means you have an expensive lifestyle, and a dependence on a high paying job.
So, saving a sizeable portion of your income (whatever that number might be) is of incredible importance to building wealth.
I always recommend reaching a savings rate of 50%, but this number tends to make a lot of reader’s jaws drop to the floor. They’re used to spending 80% or 90% of their income, so saving 50% seems like a HUGE leap. (It’s really not, I assure you.) Readers assume I must be eating rice and beans in a leaky shack… but this hardly the case. Just take a look at some of my monthly spending reports. We live a great life on a very average income.
A savings rate of 50% can provide for a wonderfully luxurious lifestyle, with plenty of fun… but you do have to focus on cutting-out a lot of the unimportant expenses in order to achieve this.
You’ll need to ask yourself important questions like — Do I really need this full service unlimited data cell phone plan? Or — Do I really need a subscription to Netflix, Disney+, HBO Max, and Hulu all at the same time?
It’s all about the choices you make. Maybe instead of eating-out 5 days a week and cooking only 2 days a week, you flip that equation around to cooking 5 days a week and getting take-out 2 days a week. It’s simple changes like this that can make a HUGE difference in your monthly spending.
But don’t look at this as a exercise in personal deprivation — There are plenty of ways to cut expenses from most people’s lifestyles without cutting into the things that truly make them happy.
In fact, one of the most important things I discovered on my own journey, was that the more unnecessary expenses I cut, I actually felt happier! Not having the stress of all those extra expenses actually improved my life.
Spending less actually made me happier!
Focus On Smaller Goals
Rather than focusing on the larger goal of financial independence on a day-to-day or month-to-month basis, one of the tricks I learned is that it’s sooo much easier if you focus on smaller goals, instead of the much larger goal.
It’s a bit like climbing a ladder — Instead of focusing on the very top rung of the ladder, only focus on climbing to the next rung. Once you’ve reached that rung, then focus on the next rung. Repeat this over and over. Before you realize it, you’re at the top of the ladder!
Achieving financial independence can be just like climbing that ladder. The trick is to break down that epic FI marathon into smaller achievable chunks.
Some people like to focus on dollar amounts, but my mini-milestones were my monthly bills. For example, I first focused on saving up enough so that my assets could pay for my monthly power bill. Once I achieve that, I moved onto my cell phone bill, my water bill, and so on.
Each rung on that ladder got me one step closer to financial independence. With each smaller goal achieved, I was one step closer to complete financial freedom.
Those smaller goals, (while not hugely significant) were important in keeping me motivated. It created a positive feedback loop. With each smaller goal achieve, I felt the positive reinforcement necessary to keep me grinding toward the ultimate goal of financial independence.
And it worked beautifully — This trick kept me motivated and saving for 15 years!
Building Your Financial Education
One of the best things you can do on your journey to financial independence is to build-up your financial education. Believe it or not, schools and our modern society do a pretty terrible job of providing a financial education.
It’s up to YOU to fill in those financial education gaps, and I can’t think of any better time to do it than when you’re building a portfolio.
While there are many people selling “financial education” courses or “online seminars” these days, I recommend you skip those rather costly options and start reading a few good books. I have a bunch of excellent ones on my book recommendation page than can get you well on your way to a proper financial education.
Start reading and don’t ever stop — Books, newspapers, blogs, even the financial reports of your favorite corporations! The important part is to make educating yourself in the ways of personal finance a regular habit.
This will help the time pass incredibly quickly!
It Happens Faster Than You Think!
It’s been said that “time flies when you’re having fun”, and this couldn’t be more true about the journey to financial independence. The journey might seem long at the beginning, but it passes much faster than you think.
Just don’t turn it into a grind! Don’t deprive yourself by cutting spending too far, or worrying about every individual penny. It’s important to have fun, and make the journey sustainable. Otherwise you’ll end-up quitting long before you finish!
Hopefully some of the methods I mentioned in this post can help keep you distracted from the long slog that it is. Keep yourself busy, and don’t worry about checking your progress too often. You don’t need to check your net-worth every single day! I only check my net-worth once a year!
With a little bit of effort, the journey to financial independence can actually be kind of fun, and it’ll be over before you know it!
Good luck everyone!