“Baby Steps” is a term popularized by Dave Ramsey to teach people a step-by-step process to help them pay off debt and take control of their finances. Perhaps the Ramsey way of thinking led you to the Financial Independence movement and you’re looking for something more. Or maybe you’re starting on your own financial journey from day one and need some next steps to get inspired FI-style.
While the journey to Financial Independence is unique and varied depending on your starting point, your goals, and the choices you make to get there, these steps are trusted guides you can use to help you on the way.Tracking your money, calculating your savings rate, double-checking on fees and subscriptions, developing marketable skills, and staying motivated are all foundational to the FI lifestyle.
1. Track Your Money
A lot of us have a savings goal of 50%. This can be a tough goal to reach but the first step of getting there is tracking your spending. Before you can optimize your spending you need to know what your spending actually is.
An online budget tracker like Mint makes it simple to get started. Mint is a financial aggregator, meaning it collects information from all your accounts to give you an overall picture of your financial life.
If you only use Mint to track your checking accounts and credit cards, you’re already ahead of the game. Your first step will be to sync up your accounts and have a complete picture of every penny that comes in, and thus, leaves, your hands.
You can see how little transactions make a big difference, and how big categories like transportation and food can be. Having a visual of where your money is going can be mind-blowing. So, whether you use Mint, or track with a spreadsheet or other tools–seeing a picture of your financial life is a game changer and gets you started strong.
Empower is a popular digital tool that people in the FIRE community gush over, and for good reason. In Empower, you have an aggregator that tracks your net worth and investments, including a helpful tool to help you track fees.
While Mint can also track your net worth, there’s just something powerful about seeing all your investments in one place and watching that bar chart of net worth go up over time. If you’re motivated by seeing your personal net worth trend upwards, use Empower.
It’s worth pointing out that Empower also has a cash flow analysis functionality, similar to Mint’s transaction reporting. Mint’s functionality related to day to day spending is more capable than Empower’s, while Empower’s functionality surrounding long term investments is superior to Mint’s.
2. Calculate Your Savings Rate
Now that you’ve started tracking your expenses, you will need that information to figure out your monetary goals. One thing that makes the FI community unique, is our desire to stop the consumerist cycle and take our savings rates from as little as 0% up to 40% and beyond, shaving years off our retirement timeline.
A savings rate is simply the percentage of your income that you save. Here’s how to calculate it.
It may seem overwhelming to save 40% or more of your income. But through solid planning, consistency, and the aggregation of marginal gains, you can reach FI before you know it. The higher your savings rate, the sooner you will achieve FI, which is why we are so passionate that you use every tool at your disposal to increase your savings.
There are many small things you can do to increase your savings rate over time. Knowing where you are and seeing the progress you make is a powerful tool in helping you reach your FI goal.
3. Check Your Fees And Subscriptions
According to Statista, Americans paid over 29.8 billion in overdraft fees alone in 2022.
There are a few simple things you can do to avoid banking fees and keep your money in your account where it belongs:
- Shop around for free checking and savings accounts. They are not as common, but you can still find some with a little research
- If your account does have a low balance fee or a maintenance fee, make sure you are jumping through the hoops needed to avoid such fees
- Get text or email alerts that notify you if your balance is going below a certain limit on your account
- Make sure you use ATMs that are affiliated with your bank
- Call your bank and discuss your account and ask about your current fees and what options exist to get rid of as many as possible. Banks are competing for your business, take the time to find out what they offer to keep you as a customer.
Many people find investing daunting and take a hands-off approach to their funds, trusting issues of long-term investing with financial advisors. As we strive to get to FI as efficiently as possible, it makes sense to optimize investing by lowering the fees that accrue from avoiding the driver’s seat.
When you include fees into the equation, most investing professionals cannot help you outperform the market over time. Our advice is to buy an ultra-low-cost diversified index fund and continue to purchase new shares automatically on a set schedule. Set it and forget it!
Related: Podcast Episode–Index Investing
Choosing funds that have fees of .2% or lower, instead of paying 1 or 2%, could make the difference of hundreds of thousands of dollars over decades. Don’t leave money on the table–or in someone else’s pockets.
Take a look at our review of M1 Finance. It is a robo-advisor brokerage that offers commission-free investing and no maintenance fees. There are pros and cons, as with most options, but if you are just starting to invest, this is a viable option for you.
Subscriptions seem so useful when you sign up for them but are slow leaks that drain your assets month after month. Look at everything you pay for monthly with a magnifying glass. Cancel whatever you can and negotiate the rest.
Chances are, you haven’t shopped around for car insurance or better prices on your cell phone plan in years. Additionally, most of us are also guilty of having old services we no longer use. Gym memberships, accounting software, cable TV, and credit monitoring services are slowly making a negative dent in our finances. Give Episode 20, “Entry Level Middle-Class Lifestyle” a listen to hear how Brad & Jonathan have also audited their spending and negotiated better rates.
Additionally, are services like the newspaper and magazines really adding value to your life or simply cluttering up your coffee table? Cancel them before they renew and see if you miss them. You’d be surprised that you can easily bump up your savings rate by evaluating those little, recurring expenses.
4. Develop Your Skills
While frugality and investing will get you to Financial Independence, why not fast-track your progress? Below are a few things to consider that can not only help you bring in more income but also help you make the most of your FI journey. The overarching goal of the Financial Independence journey is putting together a toolkit to help you succeed in life.
One of the most important things you can do in making your “toolkit” is to keep learning and developing skills. Scott Adams originally coined the term talent stacking, the idea of taking several ordinary talents and combining them to make one extraordinary person.
The idea is not to be perfect at everything or mediocre at most things. When you’re in the top 10% of a few things, you’re ahead of most people. Take the time to learn or develop things that are of interest. This could be a current hobby or skills you are already using.
For example, are you a real estate agent that is also good at event planning? How can you leverage your additional skills so that you stand out in the workplace or can even strike out on your own?
Growing new skills can help find success and contentment in areas you did not expect. Keep reading, practicing, and investing in yourself, and use this growth to strengthen your journey to FI.
There is only so much you can do to cut costs. Another way to reach your financial goals is to earn more money. Having a secondary form of income is the secret weapon for many in the FI community and offers limitless opportunities with some research and commitment.
One of the benefits of a side hustle is that you have the flexibility of how much time and energy to put into it. You can use a side hustle as an opportunity to optimize your time or get your family involved so it doesn’t take you away from them.
Along with time constraints, some struggle with what exactly they want to do! You may not know where to start, but there are steps you can take to figure out what you can do for a side hustle:
- Think about the skills you already have, are interested in, and the network around you. Is there a business idea there?
- Is there a problem around you that you can solve? Can you “fill in the gap” in some existing space?
- Find a business model that’s working and apply it to a different market
Soft skills are personal traits that enable you to interact well with other people. You’ve probably seen some of them listed in resume listings, such as teamwork, adaptability, creativity, and work ethic.
These skills are invaluable in the workplace. It is important that you over deliver in your job skill and in your workplace relationships. Soft skills are also needed as you develop your other skills and expand your network. As you meet people, focus on nurturing relationships and thinking of mutually beneficial opportunities for the future.
You never know where one of these associations could lead in the future. It could be a referral for a job or a joint business project. Don’t underestimate the power of soft skills and cultivate them along with your other personal development.
5. Stay Motivated
The FI lifestyle comes with rewards, but the fact is that it’s a marathon and not a sprint. There are times when it can get lonely, especially if your immediate circle doesn’t really understand your new lifestyle. There are also times that fear can creep in, making you unsure if you can really reach your goals.
Related: Stay Motivated For The Long Term
When these things happen, it’s important to surround yourself with a community that understands, can answer your questions, allay your fears, and reinforce the things you know are true.
Since FI is often a counter-culture, it can be hard to find good resources to keep you on your journey. Books are a wonderful way to learn other FI concepts and stay intrigued and motivated. These are resources you can return to again and again to remind you of your “why” and for insights, you may want to adapt.
ChooseFI Facebook Group
Crowdsourcing the best Financial Independence information is what we do! If you have questions, need motivation, or even a quick laugh, head over to the ChooseFI Facebook group and hear from thousands of people who are in different places in their journeys.
This is a great place to “find your tribe.”
ChooseFI Local Group
ChooseFI has local groups all over the country that you can participate in. This is perfect for finding FI friends nearby. Find your local group here.
There are also other camps and conferences that are happening this year that will allow you to meet a lot of the FI community in real life. There is nothing like taking some time to meet some of your tribe face-to-face to reinvigorate you for the journey.
The ChooseFI podcast is for you. We talk about a variety of FI topics, bring on many guests to help us learn together, and also hear the journey of many people from many different backgrounds and viewpoints. You can always find someone and something you can relate to and something you can apply to your life.
Every step you take on this journey is a worthwhile one towards the goal of designing a future doing the things you value most. As you start adapting more steps to live financially free, you will be amazed at what you accomplish!