The more I talk to people about money, the more I realise – those of us who seek out knowledge to improve our financial lives are in the minority. Bizarre as it seems, the majority of the population don’t actively try to learn about personal finance. (I know, right….?). So on the basis that the more content that is out there, the more likely it is that people will stumble across it, I’ll add to the pile with my take on the evergreen question – “How can I get to financial independence?”.
New and Shiny Isn’t Always Best
Let me kick this off by saying there’s nothing new here. There are thousands of personal finance blogs out there and most of them talk about the same few things. Really, there’s no interesting way to tell the same story – it’s basic and it’s simple and quite frankly it’s a bit boring. And getting rich shouldn’t be dull should it?
Let me say this though – sometimes it’s ok to be boring. Sometimes it’s ok to write about the standard stuff because it’s the standard stuff that works. And why look for the new and shiny when the tried and tested is a home run?
Do You Want to Work FOREVER…..?
My opening paragraph may sound like a put down to most of the population but it’s not. Many people are perfectly happy with their lives and love their jobs – in fact love their jobs so much they are willing to work at them f-o-r-e-v-e-r.
Are you one of those? If you are reading this, I suspect not. I think you hate your job. Or you might not completely hate it but you get no satisfaction from it – you work because you have to earn money to survive. If that’s you, you may be trapped in a vicious cycle of work and consumption – the hamster wheel if you like. Work – spend – work – get pay rise – increase spending – work – bigger car – work – get promoted – yippee bigger mortgage – work – spend – work…..
You may recognise yourself in that description. I recognise my old self in there for sure.
It’s symptomatic of modern society that people work so hard for their money then let it slip through their fingers. Stressing themselves into an early grave only to fill their big homes with things; turning cash into trash – the blind belief that life is about working to acquire more and better and bigger stuff.
Maybe it’s something about getting older, (and in spite of the fact I used to be one of them) but I find myself less and less patient with the hamster wheel complainers. If that’s how you choose to live, happy days, good for you, keep running on that wheel. Just stop complaining about it. But if that’s not you – if you know there is something more, something better…..read on. I can help you.
How to Achieve Financial Independence
“How is that even possible?” That’s what people ask me if I talk about my plans to retire early. I haven’t had a windfall by the way – that would be far too exciting. I’m just following the lead of the pioneers who have gone before me and am getting rich the boring way. So how is it done?
By spending less than you earn and investing the difference.
That’s it. That’s what several years of reading, listening to podcasts and deep thinking boil down to – one simple sentence. Boring and dull with no bells and no whistles.
Everything else is a function of that sentence. Creating a gap between what comes in and what goes out and using that gap to get rich and buy your freedom. Spending the gap on assets – index funds are the easiest place to start. Repeating month in and month out. Setting the compounding machine to work.
If only we could make things a little more interesting – speed things up a bit; we all want to race to the part where we are rich and free don’t we? Well, the bigger the gap between your income and your expenditure, the quicker you will get rich and buy your freedom. That means focusing on both sides of the equation – earning more and spending less.
How Can I Earn More?
Earning more could mean doubling down at work to get promoted quicker and rewarded better. It could mean finding ways to create other streams of income – a second job or some passive income.
These are some of the things that have worked well for me to create extra income:
- Finding a company to work for that pays regular bonuses
- Bank account welcome offers and interest rate loopholes
- Matched Betting
- Peer to peer lending
- Stocks and shares investments via index funds
- Selling things on eBay
- Selling things at car boot sales
- Buying property below market value, then refurbishing, refinancing and renting out
How Can I Spend Less?
On the other side of the equation, spending less is just about optimising how you spend. Cutting out the waste, being mindful of what you choose to spend on so you can keep spending on the things that are important to you, all the while widening that gap.
These are some of the things I optimise that have helped me save:
- Gas and electricity – switching supplier regularly
- TV – realising I didn’t need Sky, Netflix and Amazon Prime and selecting one
- Food shopping – meal planning and bulk buying items on offer
- Subscription services – cancelling old subscriptions I no longer use (or had forgotten I even have) and avoiding starting anything that carries a monthly subscription.
- Fuel – using PetrolPrices.com to find cheapest fuel stations in my area
- Insurance – never ever accepting a renewal quote without first checking the market for a cheaper quote
- Credit cards – whenever possible spending using a cash back credit card making sure to pay the balance off each month
Always Invest the Difference
Remember, none of this will buy your freedom unless you invest the gap. It would take a lifetime of stashing money in the bank to make you rich; to really achieve financial independence you need to invest and harness the power of compound interest. Saving £500 a month in a bank account paying 1% interest would see you accumulate £63k in 10 years. Not bad. But investing that same £500 a month in an index fund at 8%, returns a whopping £92k in the same timeframe.
So what do you think? Is it more exciting to spend all your money, drive new cars, wear designer jeans, collect china figurines and **insert your choice of stuff you mindlessly buy here** and then rush off back to work to pay for said stuff?
Or to be boring, get rich and be free?
Life doesn’t have to be a hamster wheel.