The First Step to Financial Independence – Earn More or Spend Less?

Everyone is looking for a secret way to become financially independent. The reality is that there are two ways to move towards financial independence faster, earn more or spend less. Also winning the lottery, counting cards, or helping out that Nigerian prince who has been hitting you up for a great investment.

Of course we all want to accomplish both, but the path to accomplishing these is much different, and one is much easier than the other.

Earn More

How can someone earn more money?

  • Get a second job
  • Get a raise at current job
  • Get a new job
  • Further education
  • Start a business

When trying to increase your salary or negotiate a job offer your employer is your enemy,…

None of these options are easy or low effort. Getting a second job takes a lot of your time, many times a raise will be minimal or on a yearly basis. When trying to increase your salary or negotiate a job offer your employer is your enemy. In my next post I’ll highlight what I did to increase my salary over 300% in three years.

You can find what I earned the past month here.

Spend Less

Spending less is minimum effort, maximum reward. It’s often stated that a penny saved is more than a penny earned, which is absolutely true. Let’s examine this.

The best part about this is that you don’t need to ask your boss or interview with anyone to reduce these costs. It’s all up to you, well maybe your significant other as well, but mostly you!

If I earn $100 more dollars I’m going to be taxed something, in my case around 20%. That means $100 earned is really $80. However if I save $100 there is no tax. That $100 stays $100, an immediate savings of 20%! The best part about this is that you don’t need to ask your boss or interview with anyone to reduce these costs. It’s all up to you, well maybe your significant other as well, but mostly you!

What are some ways that you can reduce costs significantly?

  • Rent/Mortgage
  • Car Payments
  • Dining out
  • Electronics

A lot of the time you’ll see someone highlight something like skipping Starbucks or eating lentils all the time. These strategies do save you money, but I’d really call these “advanced frugal techniques” as they don’t give you nearly as much bang for the buck.

How Have I Applied These?

I’ve applied each one of these major strategies to decrease my time to FI. You can find what I spent last month here. Let’s look at these one by one:

  • Rent
    • $300 decrease starting next month from moving to a neighborhood further out
  • Car Payments
    • I opted for a $10,000 compact car rather than the luxury vehicles that are so common around where I live
  • Dining out
    • I’m not extreme here but have cut my food budget to around $450 a month, and moving to a lower cost neighborhood means I’ll spend even less.
  • Electronics
    • I don’t have the latest iPhone, a 55” 4k tv, or 3 iPads with one for the couch, one for the toliet, and one for my nightstand. I’d guess I save around $100 a month by not needing the latest and greatest

All together this is somewhere around $800-1000/month. This translates to a possible $12,000 a year saved, or in 15 years at a 5% interest rate a total of $265,955.88!

Sacrificing a little now means a lot in the future, gratification now means you need to sacrifice a lot in the future.

Take Away

Realistically most people aren’t going to make all of these sacrifices for 15, or even 10 years. The point is that just doing one of these things, or maybe a few of them for just a few years can make a huge difference. Sacrificing a little now means a lot in the future, gratification now means you need to sacrifice a lot in the future.

Moderation is really the key. Going extreme one way could alienate friends, family, loved ones, and even prevent your own happiness. Find a balance that works for you. If that’s earning lentils and beans great and if it’s buying off brand shoes instead of designed that’s perfect too.

What things have you sacrificed for financial independence? Do you have any spending habits others consider “wasteful”? Let me know in the comments!

One thought on “The First Step to Financial Independence – Earn More or Spend Less?”

  1. I think everyone should strive to do both, earn more and spend less. If you just focus on earning more, lifestyle inflation may be a killer. If you just focus on spending less, there’s only so much ‘fat’ you can cut off your budget.

    The car for us is a big one, we only have 1 car between the 2 of us. I use public transport to get to work.

    Tristan

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