Set for Life

1. Design a frugal lifestyle to accelerate wealth accumulation

Saving 15 percent of your income will not make you rich. It will not produce a life changing financial result in less than a few years.

Embrace extreme frugality. To achieve early financial freedom, you need to save at least 50% of your income. This requires a fundamental shift in mindset and lifestyle. Focus on cutting expenses in major categories like housing, transportation, and food. Avoid lifestyle inflation and resist societal pressure to spend on unnecessary luxuries.

Prioritize financial freedom. Every spending decision should be weighed against its impact on your journey to financial independence. Ask yourself: "Is this purchase worth delaying my financial freedom?" Develop a deep emotional desire for freedom that overrides short-term spending urges. This mindset will make frugal living feel empowering rather than restrictive.

2. Eliminate or minimize major expenses: housing, transportation, and food

The problem is your rent or mortgage. The problem is your commute and driving costs. The problem is you are likely eating out too much and not eating reasonably healthy food from reasonable grocery stores.

Optimize housing costs. Consider house hacking by purchasing a multi-unit property, living in one unit, and renting out the others. This can potentially eliminate your housing expense entirely. If house hacking isn't feasible, choose a modest home or apartment in a less expensive area close to work.

Minimize transportation expenses.

• Live close to work and bike or walk whenever possible
• If you must drive, buy a reliable used economy car
• Avoid car loans and leases
• Utilize public transportation when available

Reduce food costs.

• Cook most meals at home using ingredients from affordable grocery stores
• Limit eating out to special occasions
• Bring lunch to work instead of buying
• Learn to prepare simple, healthy, and delicious meals

3. Build a solid financial foundation before pursuing higher returns

The first $25,000 Is the Hardest

Establish financial stability. Before focusing on investments or pursuing ambitious career changes, build a strong financial foundation:

1. Emergency fund: Save $1,000 to $2,000 for unexpected expenses
2. Eliminate high-interest debt: Pay off credit cards and other bad debts
3. Build a cash reserve: Accumulate 3-6 months of living expenses

This financial cushion provides security and flexibility, allowing you to take calculated risks in pursuit of higher income and better investment opportunities.

4. Transform your housing from an expense into an income-producing asset

House hacking is an extremely important wealth-building step for the median wage earner with near typical spending patterns.

Implement house hacking. Purchase a multi-unit property (duplex, triplex, or fourplex) and live in one unit while renting out the others. This strategy can:

• Eliminate or significantly reduce your housing expense
• Generate passive income
• Build equity through property appreciation and loan paydown
• Provide valuable real estate investing experience

Even if you can't fully eliminate your housing cost, any reduction in this major expense category will dramatically accelerate your path to financial freedom.

5. Increase your income through scalable career opportunities

Don't be scared to lose benefits, and understand their purpose

Seek performance-based pay. Transition from a fixed salary to a role where your income is tied to your performance. This might involve:

• Sales positions with commissions
• Freelancing or consulting
• Starting a business

While this may initially result in a pay cut or loss of benefits, it provides the opportunity for much higher earnings in the long run.

Develop in-demand skills. Focus on acquiring skills that are highly valued in the marketplace, such as:

• Software development
• Digital marketing
• Data analysis
• Project management

These skills often offer higher pay and more flexibility, allowing you to increase your income and potentially work remotely or freelance.

6. Invest wisely in index funds and real estate for long-term wealth growth

Index fund investing may be the simplest and most accessible way for new investors to deploy their excess cash in an intelligent manner.

Utilize index funds. For stock market investing, focus on low-cost index funds that track broad market indices. This passive approach:

• Provides diversification
• Minimizes fees
• Historically outperforms most actively managed funds

Consider real estate investing. Real estate can be an excellent way to build wealth through:

• Rental income
• Property appreciation
• Loan amortization (tenants paying down your mortgage)
• Tax advantages

Start with house hacking and gradually expand your portfolio as you gain experience and capital.

7. Track your progress and cultivate habits that support financial freedom

People tend to succeed in the long term only at those endeavors on which they focus, and inspect regularly.

Monitor key metrics. Regularly track and analyze:

• Net worth (focus on real, accessible assets)
• Income (especially passive income)
• Expenses
• Time usage

Use tools like Personal Capital or Mint to automate much of this tracking.

Develop supportive habits.

• Continuously educate yourself on personal finance and investing
• Network with like-minded individuals pursuing financial freedom
• Eliminate time-wasting activities (excessive TV, social media, etc.)
• Practice gratitude and mindfulness to maintain perspective
• Regularly review and adjust your financial goals and strategies

By consistently monitoring your progress and cultivating habits that align with your financial goals, you'll stay motivated and make steady progress towards early financial freedom.

Last updated: November 28, 2024