Feeling like your personal finances are rocky is such a frantic feeling – unfortunately, most of the world lives the paycheck-to-paycheck lifestyle. Do you want to break the mold and Love the Life You Live? You totally can! Financial independence and building wealth is completely attainable, as long as you educate yourself. I’ve compiled some of the basics for you to learn to kickstart your FIRE (financial independence retire early) journey. Ready to FIRE YOURSELF?
One of the best places to start if you’re wanting to get your personal finances in order is to learn about budgeting. To put it plainly, budgeting is making a plan for your money so that you know where it’s going! It can be a great tool for learning and adjusting spending habits, getting accustomed to saving more, and finding out where you can cut costs! But (and that’s a big but), budgeting will only work if it’s realistic and not too constrictive!
There are different types of budgets out there. One of them is sometimes referred to as the “Every Dollar Budget” – a name coined by Dave Ramsey’s team! You create a very detailed plan where every single dollar is allocated to a category. This type of budgeting is highly structured and very specific. If you’re Type A personality, organized, and like to have a set of rules to follow, this is the kind of budget for you!
Another style of budgeting (and the one I personally use) is the “pay yourself first” method. I sat down and figured out how much money I needed for bills, gas, groceries, and other spending each pay period. I allow myself to keep only that amount in my checking account at all times, and the rest gets allocated into my different savings accounts!
I like this method because there’s not so much structure that I feel my budget is too rigid. For example, I give myself $100 every 2 weeks for “other spending”, and I tell myself that I can guiltlessly spend it on whatever I’d like! More often than not, I don’t even spend it all and I can roll the remainder over into savings.
A third budget type is the “anti-budget.” This method is interesting because, instead of allotting amounts of money to categories, you don’t allot anything anywhere. There’s no plan for spending on groceries, no plan for how many times you can get takeout each month… Instead, you just see how little you can spend!
The theory is that by being competitive with yourself about spending as little as you can in every category, you always come in “under budget” (if you had one). Hypothetically, you’ll rarely overspend because your goal is to avoid spending whenever possible. This method truly does work for some people – maybe those who are naturally less spendy, those who are fiercely competitive, or those who simply don’t have that many bills or costs to keep up with.
Give these budgeting methods a try and figure out which one works for you! Knowing how to manage your income is a great first start in your FIRE (Financial Independence Retire Early) journey – not to mention it’s a great way to “FIRE your OLD SELF”, who’s bad at monitoring spending, and create a “NEW SELF” that knows exactly what your money is up to.
Another great step to take when you want more financial independence is to start building an emergency fund. So, when I first started out in the world of building better money habits, my priorities went like this:
Why is it important to start your emergency fund before tackling debt? Great question! The answer is basically because Life’s Short – you never know what’s going to happen tomorrow. You could get laid off for no reason, you could go through a life-changing event and need to quit working, you could have an emergency.
Having an emergency fund to rely on makes the rest of your financial journey easier! An article from The Balance explains it well; “An emergency fund can help cover the things you don’t budget for, like car repairs of medical costs. Use your emergency fund to handle these stressful events and make it easier for you to stay focused on getting out of debt” (or reaching your savings goal or reaching FIRE)! Read more about why it’s smart to build a solid emergency fund here.
Want to know one of the biggest keys to financial independence? ESCAPING DEBT. To put it quite plainly, there’s really no point in starting a FIRE journey if you don’t intend to become debt-free (consumer debt, that is – mortgages, business loans, and other leveraging types of debt are another topic for another day). Debt, or the insane amounts of interest you pay on it, is like lighting your money on fire.
In order to reach financial independence, you need to adopt the mindset that you should only buy things that you can afford. There is no reason, no situation in which you should borrow money to purchase an item! Ever! Want to know more about why debt is like a wrecking ball to your personal finances? Here’s a fantastic article on the topic by early retiree, Mr. Money Mustache!
Having an excellent credit score does more than give you bragging rights as a financially responsible individual. It opens doors for new streams of investment later in your financial journey! Want to get the best mortgage rates when you start investing in real estate? Want to get approved for the credit card with the highest cash back out there? Want to be taken seriously when you go to the bank for a business loan for that company you’ve always dreamed of starting? Yeah, you’re gonna want to have good credit for any of these things to go well.
When it comes to building credit, my best advice (which was given to me by my father, a successful business owner, when I was 18) is to treat your credit card like it’s your debit card. That’s right, only spend what you’ve got in your bank account.
You may be thinking, “What’s the point of even using it then?” I’m glad you asked! The point is to build good credit and take advantage of the rewards! Most credit cards these days offer 1-5% cashback on every purchase you make! Bet your debit card doesn’t do that! If you’re needing to start building or repairing your credit, try this method out. Pay your balance off weekly (or at the worst, monthly), but never ever let your balance carry long enough to accrue interest.
If you’ve already got decent credit and need to boost it, try this method out, too! Seriously, it’s for everyone. If you just don’t have the discipline to use a credit card that often and pay it off completely, start small.
Put something consistent, like your utility bill, on the credit card each month and don’t use it for anything else. Then, when it comes time to pay your bills, you’ll pay off your credit card balance instead of paying your utility company! As you get better with your budget and controlling your spending habits, you can start using your card for more things.
Good credit is so vital to financial independence. To learn more about how the two go hand in hand, check out this article!
A really exciting part of your financial journey is planning for your retirement. I’m only 24 years old, and this is my favorite part! Why? Because the opportunities are endless. Love your career and want to work until you’re 65? Great! Contribute a modest amount, take advantage of any employer matches, and invest aggressively when you’re young!
But, if you’re like me, you absolutely do not (under any circumstances) desire to work a day longer than you have to. What’s so amazing about understanding your finances is that you can then utilize them to set yourself up for early retirement! How early? It all depends on how much you want it.
In my case, I started my FIRE journey (with a net worth of $0.00) at 22, and I’m on track to retire at 35! Sounds crazy, I know. But it’s entirely possible. Since extreme early retirement will be a blog post of its own one day, here’s an awesome article from an early retiree for now.
Something else that will really set you up for financial wellness is learning how to set money goals for yourself! Having goals is one of the greatest ways to feel that our lives are purposeful. Goals push us to grow and work hard. Money goals are no different than any other type of goal! Financial goals should be:
Your goals should be things you believe you can attain, and things that you have run the numbers on. If you make $30,000 each year and you have $20,000 in debt to pay off, don’t set a goal to be debt-free in 6 months. I’m not saying you shouldn’t dream big, but you should be real with yourself! Setting goals that you can’t possibly reach is a quick way to get discouraged with your FIRE journey altogether. However, setting goals that you can reach will motivate you to push yourself harder.
Okay, this is IMPORTANT! I wish someone would have told me the value of this when I was starting my financial independence journey. One of the best things you can possibly do for yourself in your efforts to become financially stable is to constantly surround yourself with content about FIRE.
Read blogs and books about it, join Facebook groups and make friends who are committed to FIRE, listen to podcasts about it (check out my favorite money podcasts here). Do whatever you can to keep the topic on the top of your mind!
Not only will consuming content about financial wellness keep you thinking about it, it will keep you learning about it 24/7. There will never be a day when you know everything there is to know about financial independence. You will forever be learning, growing, and adapting to new information and new discoveries! This is a lifelong journey, and it’s going to be wonderful.
You’re going to get real used to identifying areas of your financial life that need improvement (aka, identifying areas where you need to FIRE YOURSELF). So used to it in fact, that your “OLD SELF” will be walking out the door weekly, if not daily! From now on, you’ll be learning how to become a “NEW YOU” – a you that won’t have to stress about money, a YOU that has a peace of mind regarding your finances, a you that may not have to punch the clock forever!
Take these basics and run as fast as you can with them towards financial independence. It’s attainable, and it’s for you. I know you’ve got what it takes, you just needed a little boost to get started! So what are you waiting for? Learn how to budget in a way that works for you. Build an emergency fund to fall back on while you throw the kitchen sink at your debt. Throw every penny you can at your debt until it’s all gone. Make a plan for your retirement that fits your dreams. Always set goals for yourself. Never stop learning. And, most importantly, remember why you’re doing it – Life’s Short, Live a Life You Love.