Off the bat you might be thinking that I make a lot of money and it is easy to save half. Unfortunately, that is not the case. I work in a school and although I am paid more than what I think I should it is nothing crazy! I supplement some of my travel through travel hacks which helps get me free flights. I also have side hustles to help get extra spending money which also comes in handy - last year I almost made $7,000 doing my favorite one. 

To some people this may seem really strict but for me I have all my needs met and am still trying to delay gratification as long as I can. If there is something I truly want I try and do more tests to save up and get it. At this point my priority is to save to set myself up for later on and that is reflected in my budget!

Financial Independence (FI) is the idea that you have enough money to cover your living expenses without having to work.  It's that magical moment when your investments start paying you more than your expenses.

That sounds pretty sweet huh?

Getting to that point can be hard because you either have to save a ridiculous amount of money or have a business that supplements your income. My goal is to have a little bit of both.

Another term that is being used frequently is FIRE, or Financial Independence Retire Early. This is a similar concept but with the goal of being able to retire early, obviously. I mean, it's right there in the name.

What's the difference?

To me, financial independence is the concept of having money set aside, or an alternative stream of income, to allow you to live the life you want and/or pursue your passions. I think this idea is much more attainable and realistic for people since you would still be bringing in money. 

To me, FIRE is the concept of having a lot of money in the bank and strictly living off that without bringing in any additional income. As the acronym states, you are financially independent and are going to retire early!

I'm way more interested in the FI path because I know I'll stay busy and eventually I'll want to monetize that. Maybe I'll want to coach basketball, just work 3 days a week, real estate will always be a hobby that makes me money. I'll be up to something other than waking up just to nap and watch Netflix.

The first step is to figuring out how much you spend each year. If you don't know how much money you live off, or at least a ballpark, you can either track your expenses or create a budget to help figure that out.

Next, we can calculate how much you'll need in your investment accounts. Trinity University did a study and found the safe withdrawal rate to be 4%. Basically you should be able to take out 4% of your investment each year without touching the principal.

In theory, if you saved a $1,000,000 you should be fine living off $40,000 each year with your million dollars staying in tact. If you want to know how much you'll need to save to be able to do this you can multiply your living expenses by 25. If you currently live off $60,000 per year you'll need $1,500,000 to retire and keep your lifestyle. 

If you are like me, you might be wondering how you'd get access to that money if it's in a retirement account? ​ Wouldn't there be a penalty? There is this whole thing called the Roth Conversion Ladder that I'll have to write a post on. You basically transfer money out of your retirement account into an IRA and withdraw after 5 years.

So how long does this take?

Using a compound interest calculator at investor.gov here are some projections on how long it would take you to get $1,000,000 if you started with $0 and got an 8% return compounded annually. 

I don't know about for you but that is saving a lot per month on a consistent basis and still looks like it'll take a long time. 

Naturally there are different levels depending on how much you are able to live off each year and I learned these definitions for this post. Side note - it makes me laugh that from a far the FI community rejects the normal American status symbols like cars, houses, and clothes, yet created their own to describe how "independent" they are. Anywho,  here are the two levels. 

LeanFIRE
This approach requires you to have a low spending rate each year (typically less than $40,000/year). By this qualification I could be financially independent! At my lowest point I was living off $970 a month when I was  house hacking in my quadruplex. I would be able to cover those expenses if I moved back into my 500 sq ft unit and never got a new car, or had a kid, or had any real changes in my life! I'll keep going as that doesn't feel like "independence".

FatFIRE
FatFIRE is the level of financial independence that allows you to live a more “high-class” lifestyle. If you plan to spend $80,000 a year keep in mind that you'll need $2 million. 


Earlier I talked about how my goal is financial independence as that seems easier to get, and hopefully you can now see why. Working in a public school as a Speech Language Pathologist I'll never be bringing in the big bucks or able to invest at the rate I used in my projections. But, slowly increasing my rental portfolio and investing the way I am will allow me to achieve financial independence much quicker and provide me a more enjoyable path along the way. 

With the start of every new school year I get excited about nerding out on making a new budget! I looking forward to seeing what my take home pay will be and where I'll be putting my money over the course of the year.

​Let's check it out!

If you are curious on how to create a budget you can learn more here, or to see my past budgets you can click here. This will also be the first year I'll be experiencing the magic of a health savings account but that isn't listed here as this is only my take home pay! Also, just a reminder I work in a school and am NOT paid year round so I need to be more cautious with my savings so it can last me over the summer!

Budget For August 2019 - May 2020
 
Monthly Net Income - $3878
 
Savings
$ 690 – Savings Account
$ 325 - Travel Account
$ 1000 - Future House Account
$ 100 – Car Account
 
Total Savings: $2,115
Remaining: $1763
 
Fixed Costs
$ 775 - Mortgage
$ 70 - Car Insurance
$ 30 - Gym Membership
$ 15 - Netflix
 
Total Fixed Cost: $890
Remaining: $873
 
Variable Costs
$ 300 - Food
$ 100 - Gas
$ 175 - Electric/internet
$ 298 - Fun Money
 
Savings: I put all this money into a high interest online savings account. I know I should probably put it in the stock market but part of me just feels more comfortable knowing I wont lose it. As I said above I am not paid over the summer and need money to cover that time period so I put money into a savings account for that and to max my IRA. I'm still plugging away and throwing little bits of money into a car fund. Even though I just purchased my third property, I'm already beginning to save for the next one. I also always gotta save for more travel!
 
Fixed Costs: There have been some big changes here compared to my last budget. The first being I no longer have a loan payment, screw you loans! I also have a housing payment again. You'll also notice I don't have a phone payment. I'm on a plan with my mom to save us both money and she offered to pay it until I was done with my loans. Well, screw you loans I am done and told her the time has come for me to start helping to pay. She said it was only a $15 difference in having me on there and would let me know if she needed it. I feel very lucky, plus, extra savings!
 
Variable Costs: Electricity will be a variable as I have no idea what it will cost and I have found that $700 a month for food, gas, and fun is typically more than enough. My life isn't that fancy so I feel $175 a week is fine. Plus, I do my side hustles for extra income and that helps to pay for some of the finer things in life that I want, like a new grill for my house!
 
I will be living off 54.5% of my income. This is not the 76% savings rate I was at but that is okay. I couldn't live in my little unit forever. The irony is the unit I was living in will now be rented out for $775, which would cover my housing expense, and put me at a 74.5% savings rate. 

I knew the best way to do that was to create a budget since I was disciplined enough to stick to it. There are fancy spreadsheets but I just opened up Microsoft Word and created a document. If you need help creating a budget click here.
 
I work in the school system and adjust my budget based on the school year schedule. Listed below are my real budgets from the corresponding years.  
 
Budget For August 2014 - July 2015
 
Monthly Net Income - $2985.31
 
Savings
$ 100 – Personal Roth IRA
$ 100 - Travel Account
$ 250 - Savings Account
$ 75 – Car Account
 
Total Savings: $525
Remaining: $2460.31
 
Fixed Costs
$ 450 - Rent
$ 54 - Car Insurance
$ 1061 -Loans
$ 29 - Gym Membership
$ 8- Netflix
$ 50- Robinhood Stock Trading Account
 
Total Fixed Cost: $1652
Remaining: $808.31
 
Variable Costs
$ 300 - Food
$ 100 - Gas
$ 408.31- Fun Money
 
This was my first salary job and my first budget. I was paid year round on the last business day of every month. This made budgeting easy as I took care of all my fixed costs and transferred money into my savings accounts at the beginning of the month and lived off what was left.

Savings: I have 8 separate savings accounts that I transfer money into. They each have a purpose as I project future needs or wants like travel, a car, or a rental house. When the time comes for these expenses I'll be prepared.
 
Fixed Costs:  I budgeted for a phone but my mom offered to pay for it until I was done with my loans, so I added that money into my loan payment. My student loan payment was $315 a month and I was paying off my car loan, which was about $200 a month. I paid the minimum on both and put extra toward the principal on the loan with the least amount remaining or the one with the highest interest. The debt snowball! Robinhood is a stock trading service that I used to see if the stock market was something I would be interested in doing… it was not. I started putting that into my IRA instead which worked better anyways. 
 
Variable Costs: I never track my spending. I simply knew I had $200 per week and wasn’t able to spend more than that. I say $200 because that is my monthly fun money, food, and gas added together and then divided by 4 for the number of weeks. I rarely came close to spending all of it and eventually built up a reserve in my fun money account. That came in handy any time I have an inconvenient expensive, think new car tires, or spend over my weekly amount on a weekend trip, that money is there.
 
If you combined my loan payments and savings I was living off 47% of my income.
 
Budget For August 2015 - July 2016
 
Monthly Net Income - $3095.46
 
Savings
$ 100 – Personal Roth IRA
$ 100 - Travel Account
$ 400 - Saving Account
$ 75 – Car Account
$ 75 – Ring Account
 
Total Savings: $750
Remaining: 2345.46
 
Fixed Costs
$ 450 - Rent
$ 54 - Car Insurance
$ 1100 -Loans
$ 29 - Gym Membership
$ 8- Netflix
 
Total Fixed Cost: $1641
Remaining: $704.46
 
Variable Costs
$ 300 - Food
$ 100 - Gas
$ 304.46- Fun Money
 
I was still being paid year round, on the last business day of every month.
 
Savings: I increased my savings and even though I was single, I started putting away money for an engagement ring. Those things ain’t cheap and I wasn’t going to finance something.
 
Fixed Costs: Only real change was increasing my loan payments. 
 
Variable Costs: I built up a nice cushion in my fun money account and cut back there and saved more.  $176 per week was more than enough for a single guy.
 
If you combined my loan payments and savings I was living off 40% of my income.​
​
Let’s enter the time machine and fast forward to present day to see how things have evolved!

​​Budget For August 2018 - July 2019
 
Monthly Net Income - $3709.48
 
Savings
$ 300 – Savings Account
$ 200 - Travel Account
$ 1475 – House Account
$ 100 – Car Account
$ 250 – Real Estate Business Account
 
Total Savings: $ 2325
Remaining: $ 1384.48
 
Fixed Costs
$ 70 - Car Insurance
$ 414 -Loans
$ 30 - Gym Membership
$ 11 - Netflix
 
Total Fixed Costs: $525
Remaining: $859.48
 
Variable Costs
$ 175 - Electricity
$ 300 - Food
$ 100 - Gas
$ 284.48 - Fun Money
 
I'm paid bi weekly, and not during the summer, which makes things more tricky. I look ahead for months that have 3 paychecks, and try and save those to hold me over during the summer.
 
Savings: I'm buying a house in the fall of 2019 and am aggressively saving toward that. I put money into my real estate business account to help cover repairs and improvements.
 
Fixed Costs: This area had the biggest change. I don't have a rent payment because I'm house hacking a quadruplex and live for free. To see the numbers on that check out my first deal. I have also reduced the amount I am paying toward my student loans. I am able to access student loan forgiveness in the fall of 2019 and can’t pay more unless I want to lose free money!
 
Variable Costs: The hardest thing to predict is my electricity bill. I have it as low as $39 in the winter when I only use a space heater and as much as $230 during the summer. It is a crazy place but I’d rather be on the safe side and build my reserves for the expensive months.
 
If you combined my loan payments and savings I am living off 26% of my income.
 
If you have looked at my articles on side hustles you know I have more than just my day job as a source of income. My real estate income stays within the business for repairs and improvements. All my income that comes in from my contracting goes directly into my house account. The money I earn from website testing is used for bigger life events like flying to a friend’s wedding in Mexico, taking my mom to a concert, or buying my dog, Harper.
 
My budget has changed and I tinker with it, but for the most part my spending has remained about the same and I just increase my savings.
 
For the time being, and only having a dog to rely on me financially, this works for me! Every circumstance is different and do what makes the most sense for you. If you are having trouble don’t hesitant to reach out. I clearly enjoy this stuff!

​I know that title sounds like click bait but just continue reading and you’ll realize it’s not. You’ll learn you can create a budget and customize it to allow you to spend on whatever you want AND save money.

​We'll go over the steps to make a budget and then work to personalize it for you.  ​

​Before you start to make a budget, try and figure out what your financial goals are. Mine were, and are, being able to aggressively pay off loan debt, save money, and still travel. I wanted to do all that but not feel like my life was compromised. If you want to see my actual budgets you can here.
 
Part One: What Is Your Net Income?
Your net income refers to the money you actually get per month. Your gross income refers to the total amount before all your pre tax deductions, taxes, Medicare, etc. are taken out. For this we only care about the money you have access to every month.
 
Part Two: Determine Your Total Expenses.
This will be broken up into fixed and variable costs. Fixed costs refer to the expenses you have every month that are going to stay the same price, such as, your rent/mortgage, car insurance, gym membership, Netflix, etc. Variable costs are things that can change every month. This would be your food, gas, or entertainment. Everything you spend should be accounted for.
 
Part Three: Subtract Expenses To Equal Zero.
Your income minus your expenses should equal zero. If you have money remaining, that is awesome! You can already begin to save or pay extra toward loan debt, if you have any. If you are over, you will NEED to start to find places you can begin to cut.

Part Four: Be Conscious Of Your Spending.
This could be tracking your spending to see how much is going out. There are apps for this, I hear Mint or Personal Capital are great. I personal don’t track my spending, I don’t have that level of dedication. I simply know a rough estimate of how much I can spend each week and try to stay under that. It is almost a game at this point. I don’t always succeed but I do more often than not and that is all I can really hope for.
 
If you need help creating a budget you can use either of the following excel spreadsheets. The simple is just that, it is super easy.  If you are interested in your percentage breakdown, or want to plan for different things every month, like holidays or birthdays, you can use the changing budget.

Now that we have a rough outline of a budget let’s begin to personalize it so you can stick with it!
 
Part One: Evaluate Your Spending?
You have now allocated all your money and can see where it is going. Earlier I asked you to determine what you were creating a budget for and now I want you to think about what is important to you? Does the spending in the budget you just created match what is important to you or your goals?
 
Part Two: Stop Spending On Things That Don’t Matter.
If you saw that you spent $150 ($5 per day) on coffee in the past month but waking up and going to your local coffee shop or Dunkin’ makes you happy, then keep doing it. If you realize it doesn’t really matter but is just a convenience thing, suck it up and make it at home and save that money.
 
If you like fine dining but don’t care about what car you drive, don’t have a car payment. Maybe you like the social aspect of getting lunch with coworkers or going to happy hour but you don’t really care about shopping for the latest clothes. You get the point. Choose the things you don’t care about and reduce your spending there.
 
These are the areas that can make a big difference. If you don't really care about going out for lunch but do it because you are a bum, stop being lazy! If an average lunch is $10 and you eat out 5 times a week for 4 weeks, that is $200 a month, or $2400 a year. That's a lot of money you could use elsewhere!
 
Part Three: Spend On What You Care About.
If you want to be successful, spend on the things that make you happy and not on the things you don't care about.
 
For right now, the car I drive or where I live aren’t a priority. I drive a 10 year old Toyota Camry with 120k miles and plan to drive it to 200k. I like not having a car payment and want to use the money in other ways. I went from living with Craigslist randos for 5 consecutive years to living in a 500 sq ft apartment, but never spent more than $450 a month on rent, and am currently living for free. See how by checking out my first deal.
 
Clearly I love to travel and I make that a priority. 2019 will be the third consecutive year I take an international backpacking trip when I go to Asia for a month. But my flight to Asia will be free through travel hacking. Those trips aren’t always cheap and I am okay with that because I cut back in other areas. I spend on what I care about!
 
Part Four: Enjoy The Benefits! 
Here is the fun part! Now that you have identified your goals, what is important, and have cut the expenses that do not matter, let’s spend that money!