Saving half of your income or more sounds impossible for most people, and it was impossible for me too at one point. But, over the years I put together a plan to save half my income and reach financial independence faster. Here are my thoughts on how you might be able to do this too.
Step 1– Figure out how much money you have coming in each month, and how much you have going out each month. Basically, run your house like a business. If you find that all your money in, is also going out, then you have to make adjustments. You’re Broke! You have to get serious about making a change in step 1 or you’re already done. Dave Ramsey says, “You have to be sick and tire of being sick and tired.”
Step 2- Budget all your bills and necessary expenses, and find out what you have to have to function financially. Housing, electric, water, groceries, debt, etc. Those go in the budget first, and if you are just starting out keep this bare necessities. No luxury items and remember you are changing. This will be hard to change your lifestyle.
Step 3– Get rid of your debt, and any other bills you have to pay that you can get rid of. Cancel the cable TV, lower your cell phone plan, pay off your car note, or sell the thing. You have to learn to hate your bills, and see them as the reason you are poor, broke, stuck in your crappy job, basically enslaving you financially. HATE BILLS!!
Step 4– Make more money, and side hustle every where you can. Sell you old crap on craigslist, deliver newspapers before work, deliver pizzas after work, mows neighbors lawns, or provide a baby sitting service. You need to get more income, so if you are saving 20% after cutting bills, the extra income can get you up to 30%-50% if you work hard enough and save it all. While you are side hustling, continue to hate bills and cut everything you find unnecessary.
Step 5– You are a free agent and you should always be looking around for the best work situation for you. My first teaching job was $32,000 a year, and the next school year I was out, on to another school 15 miles away paying me $47,000 a year for doing the same job. I have continued to get my pay up above $60,000 a year doing the same job! Look around for the best deal and even find a way within your job to earn more. Some jobs pay off your debt, pay for higher education, pay health insurance, and that helps hate bills further.
Step 6– Invest your money in funds, to put it to work for you long term. Now that you are saving more of your income, are debt free, have minimum bills, and maybe even living on one of your two family paychecks, you should be at, or near saving half your income. Find low fee mutual funds, index funds, ETF’s or what ever you are comfortable with, and put you money to work for the long term. You can also max out IRA’s, 401k, 403b, or any other account. Do this especially if your work will match your contribution. Don’t leave free money on the table that will make you more money. Remember this is investing for the long term, so don’t worry about it for years. Just automate your saving and forget about it.
I know this sounds easier than you might think, but let me tell you, that it is not easy and requires long term discipline with bad times and good times. Automation of my savings has helped me build wealth for a decade now and David Bach’s book has helped me do this. I just set it and forget it. I check my accounts a few times a year, and ignore day to day trading and market fluctuations. Always have a plan, whether it be Dave Ramsey’s plan to financial freedom or your own, just have a plan and stick to it. Saving half your income can be done in most parts of the world, and can be impossible in some expensive cities. Geography matters and it might be better to move, take a pay cut to get ahead, and become financially successful. All research shows that those who save half their income are our wealthiest and most financially stable members of our society. So lets aim for 50% saving rates if you are looking to excel in your financial life. Sacrifice today and be free tomorrow.