This post is from Xyz who writes over at Our Financial Path. He and his wife are aiming to reach financial independence and retire early in less than 10 years. They write about their travel adventures, their investments, budgeting, and their views about life over at ourfinancialpath.com.
Our story starts off in 2014. I had just started working for one of the biggest banks in Canada and had met my (now) wife just a year earlier. We were living in a small condo in the downtown of Montreal and I always wanted to live in a nice house like where I grew up.
I grew up in the suburbs, playing outside; biking the nearby trails in the forests and sailing on the lake all summer...
I wanted that for my children and for us too. We like the Great Outdoors and wanted to live closer to nature so we started saving for a downpayment. We wanted a house we could grow in, something we could stay in for many many years to come.
We started cutting the small things to increase our savings rate. Our first thing was to cut cable and switch to Netflix. Right there, we went from a $100/month bill down to $10/month. That extra $90 went straight into investments.
We continued cutting and saving more and more of our take home salaries. We went on a no-shopping diet and started paying more and more attention to good promotions for the things we were spending the most on like travel.We even got free flights from credit card bonuses and banking promotions.
After just a year, we had enough for a downpayment and started shopping for our dream house.
Keeping it Steady
At that point, we were not even thinking about our savings rate. We just saved! We had a clear number to attain and knew we could attain it quickly.
Once our boxes were all unpacked and the dust settled down, we started to look back on our finances and how we did in the past year. We used Mint but you can also use a simple excel spreadsheet or wonderful tools like Personal Capital to aggregate all your accounts together. From there we saw that we were saving roughly 35% of our take home pays.
Even if we tweaked our lifestyle a bit, we did not sacrifice much and still lived a very comfortable life so why go back to our old ways? We just continued our savings habits and, now that we were tracking it, were able to optimize our spending even more!
After the house, we needed a new goal, we needed a new motivation.
That's right around the time I discovered MMM and the whole Financial Independence movement. I was quick to share my new discovery with my wife and after that, we were saving for a new purpose. A new calling. We now were hooked on the prospects of financial independence and early retirement.
We since increased our savings rate to over half of our net incomes are aiming to save roughly 60% by next year.
Have a Goal
What really saved us from falling into a paycheck-to-paycheck lifestyle is our clear goals. It is primordial for you to know the Why behind your savings. Whether you are paying off debt, savings for an emergency fund, or investing for your retirement, you need to know the Why behind your actions.
Your goal needs to be attainable and quantifiable. We, for example, try not to think about the dollar amount we need before retiring, that would seem unattainable! We focus on the savings rate, month after month.
- It seems impossible to save enough to have our investment income cover all of our expenses.
- It doesn't seem so hard to raise our savings rate up to 60%.
The two statement above are of great difference; one seems to take an eternity while the other can be attained by next month. Aside from those differences, having such a high savings rate will get you to achieve the first statement surprisingly fast! At that rate, after only a decade or so your investments would completely cover all of our expenses.
A simple change in goal can get you to the same end result without impacting your motivation.
The best way to get what you want out of life is to go at it step by step with attainable goals. If your goal is to save half your income this year, you can do it! Track your spending, cut the unnecessary, and save the rest.
I hope you enjoyed our little story, you can read more about us over at Our Financial Path.com