Clearly it takes a certain mindset to become financially independent, and the earlier you start the better. There are several ways to achieve it, and our way is not the only way. I’ll expand on some of these points in coming weeks, but this is how we did it.
- Save as much as possible. This might seem obvious, but you can’t make any progress without actually saving money. If you read FIRE related material, almost all of the authors save at least 50% of their household income. With two of us making a good salary, the obvious plan was to live on one salary and save the other.
- Max out your 401K. If you work for a company that has a 401K savings scheme, contribute as much as possible up to the max contribution (currently $18,000 per annum), the deferred tax on the money is a big draw. If you can’t max out then at least contribute enough to get the full company match. If you do not take this opportunity, you are simply leaving money on the table
- Participate in Company Stock Programs. If you work for a public company, chances are you can purchase stock at a discount price (this is *not* the same as stock options). If your company offers you stock at say 90% of the price, then even if you buy and sell immediately you are making 10%. However you want to make sure you don’t end up with too much of your net worth consisting of your own company’s stock. that’s a recipe for disaster.
- Work Overseas. Not an option for everyone but if you work for a multinational company there is a good chance that there are opportunities overseas for hardworking, competent employees. If you take up these opportunities, often you will get great benefits such as free housing, salary bonuses, paid for vacation and great private schools. During our 20 year career we worked in India, Mexico, Norway and the UK, and we made great memories in each of these locations. Admittedly it helped that both myself and Tuffy worked for the same company, but most companies will help find positions for spouses. I strongly believe that if you have the opportunity to work outside your comfort zone you should do so, the cultural as well as financial benefits are unparalleled.
- A Long Term Investment Strategy. If you are starting this journey in your twenties, then you are likely to be in the “market” for 50 plus years. In which case you don’t need a conservative investment portfolio, you can survive market downturns and take advantage of these to increase your holdings. Also we aim to get a good amount of our post FIRE income from passive money such as dividends, which helps to protect our capital.
- Real Estate Investments. When we moved to Houston in 2012, we bought a house in a high end part of the city that was larger and more expensive than we really needed. However we knew that we were fairly close to the bottom of the market for that area. When we sold 5 years later were able to make a considerable profit on our house. Admittedly not as much turn around as cities like San Francisco or Seattle, but enough that we can comfortably buy in Portland all cash.
- Living in Our Means. When I worked almost everyone around me bought lunch everyday at local restaurants or the non-subsidized canteen. Alongside one or two Starbucks everyday, I reckon these people were spending $60 – $70 a week on food and drink at work. This money adds up fast and could have been invested rather than spent. To reach FI you don’t have to forgo your entire social life, we’ve had amazing vacations and tasted some amazing restaurant meals, but we have a budget and we don’t go over it.
What other techniques are you applying to maximize your savings?