You CAN Save Your Way to Financial Independence
I recently attended a conference for work and in a session on personal finance, the speaker espoused that one cannot get rich by cutting out small luxuries because “necessities” are so expensive. This speaker went on to say that you’ll never “save your way to financial stability” and that the best thing to do is focus on making more money. Needless to say, I disagree with this stance for a number of reasons:
1) In fact you CAN save a great deal by living frugally and carefully monitoring your expenditures. We save over 65% of our take-home pay every year (that’s after we max out our 401ks).
2) Necessities don’t need to cost an arm and a leg. This speaker talked about cars, houses, and groceries as if they were immutable costs. I wholeheartedly disagree. A large, expensive, fuel-guzzling car is not a necessity. An enormous, energy-inefficient house is not a necessity. And it’s easy to frugalize your grocery bill and still enjoy great foods.
3) Now if you love working and want to work every day until you’re 65+, that is a totally fine path. But, if you’re interested in gaining financial independence and the freedom to pursue your passions, don’t loose heart–it is possible and you don’t need to make a million bucks a year.
4) I should add that the Frugalwoods Family goal is not to be rich,but to save enough money that our lives aren’t ruled by needing a paycheck.
At age 30, Mr. Frugalwoods and I are well on our well to financial independence and neither of us:
- Inherited money
- Makes a ton of money annually (we have normal jobs with standard salaries)
- Won the lottery
- Knows the one weird old trick to retire early
Here’s what we have done:
- Not accumulated debt.
- This started early for us and neither of us incurred any higher education debt (for undergrad or grad school).
- Lived below our means.
- When we started working right after college, we had about $800 in the bank. While we weren’t able to save all that much in our early years, we saved as much as we possibly could and then, as we got raises at work, we didn’t fall victim to lifestyle inflation.
- Though we’ve gradually ramped up our spending in some areas (primarily the purchase of our home), for the most part we live the same lifestyle we lived right after college. We cook at home, we entertain ourselves on the cheap, we drive an old car, we shop used, and we have a great time doing it!
- If, on the other hand, a person increases their spending at the same rate as their salary increases, their savings rate will similarly not increase.
- Invested our money.
- Frugal Husband started investing our money immediately (yes, our sad little $800 was marched off to the stock market right away).
- Money ain’t gonna make more money by sitting on its lonesome in your bank account. You need to let it run free with all the other monies in the market. Yes, this does entail putting your faith in the mercurial markets, but, history demonstrates that the stock market yields, on average, about an 8%-10% return annually (your bank account/mattress on the other hand yields 0%).
- What liquid cash you do keep on hand should be in an interest-earning money market account (we use Fidelity). No checking accounts, please!
- Contributed to our 401ks.
- From our very first jobs, Frugal Husband and I contributed to our 401ks each month. If your company offers a matching retirement plan, contribute now! This is literally free money that your employer will give you. If you don’t have access to an employer account, get an IRA.
- Focused on enjoying life without materialism.
- We don’t live a deprived, starved, or sad life. Rather, we feel free because we’re not bound by consumerism. We don’t feel compelled to rush out and buy the latest clothes, cars, or gadgets. We don’t need to eat at restaurants every week or entertain ourselves with expensive pastimes. We have what we need and are content to live a simple but meaningful life.
- It’s all about what really matters to you: decide what it’s worth to achieve that.
- Only spend money when it brings value to your life.
- Don’t fritter money away on things you don’t need or won’t care about a year from now. Expend your resources when it matters.
- Here are some things we’ve decided to spend money on over the years: buying our house, renovating our house, foreign travel, getting a dog (yes, pets are an expense), dinners at nice restaurants (just not every month, ok?).
While our culture is one of accumulation and consumerism, we’re content to buck the trend and live a simpler, happier, more purpose-filled life.
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