Everyone tells you that you have to get out of debt as quickly as possible. Everyone tells you that you have to save money. But far fewer people tell you how they did it themselves. Being financially independent means that even if your main income stream vanishes, you will be good. It means that you have at least 1 more income stream. And with that income stream, you can cover your bills and still survive. Yes, it might be hard, but you got it cover with you 2nd, 3rd, etc income. Our financial journey and wellbeing relies on independence from the current market and job situation.
When I took loan 2 years ago, the very first thing I did was to go to the bank. I asked for an automatic scheduled monthly debit transfer from my salary to my savings account. The amount of that transfer was ~2x the loan monthly payment. I knew that if I couldn’t push myself to save 2x the monthly loan payment, I shouldn’t have taken it at all. That’s how I started my financial independence journey. I knew that I might regret taking this loan, but I somehow knew it will all be good. And it was! I quickly stepped in in terms of unnecessary spending, cut them, and felt good. I felt good because finally, I realized that I can build an emergency fund.
Before that loan, I never did any budgeting or any real saving at all. Of course, I tried quite a few times to budget my expenses, but I failed. I didn’t spend more than I earned, but I failed on keeping records of what I paid for. I kept trying with smartphone apps and notebooks, but this wasn’t working for me. This is when I realized that I actually have good spending habits. My parents never spent money on stupid or overpriced things. They both were looking for the most value for money. That was probably one of the most valuable lessons in terms of securing my financial independence.
My personal spending habits were never excessive.
Yes, sometimes I spend on an expensive gadget, but I tell myself “this is it for this year”. And indeed it is. Apart from this, I always knew that things like phone bills, fees, and taxes are mandatory. I knew how much they were (mostly a static amount of money). When it comes to things like coffee, alcohol, going out, etc I limit these easily. I pay almost everywhere with my debit card, receiving SMS for every transaction. SMS always contains the amount spent, plus the amount left in my account. Knowing what date is today, days left till payday, and the amount needed for bills, makes things easy.
I kept doing the same when I took the loan, but also took into account the savings. The thing was that these savings were “created” right after payday. This way I knew how much money I have left in total till the end of the month. I quickly adapted to these spending habits and kept an eye on my finances and savings. I just had to think if there is something I could cut from without sacrificing my comfort. In the beginning, there wasn’t anything to cut from.
I knew that one of the steps into financial independence is building an emergency fund.
In order to build one, a person needs to know the minimum amount of money he or she will need in a month. I knew that pretty much that would be around 1000 Euros for me. Before I started saving, I had an emergency fund for about 1 month. That wasn’t enough, so I told myself that I need to have it covered for at least 3-4 months. After that, I could tell myself that I am financially independent for, well, 3-4 months. Everything on top of that would be real savings.
My partner was into food prep so taking food to the office became a thing. It was also fun and bonding, so we kept doing it. We decided to spend Sunday afternoons in cooking and food prep. That required a bit of planning on the menu, but it saved me about 15-20 Euros/week. In our country, the average salary for Q1 2020 is ~650 Euros (data source). Now you can understand how important these 15-20 Euros/week are. That contributed a lot to my savings and my overall financial status.
Last year we discussed at home about investing. What could we do, type of investment, how, which broker to choose, etc. In our own social balloon nobody was investing (or at least we didn’t know about it). We knew our earnings outrun our spendings, so instead of keeping money in regular accounts, we could put them to work. We were looking for companies which could manage our money and invest them. Then realized that earnings would be insignificant. We thought about real estate investing, but knew that the market is about to go down soon.
Beginning of 2020 my partner told me Revolut are opening their investing platform. We both have accounts there, so I looked at it and this was it! Then I started to read about the stock market and finance. Balance sheets, EPS, PEG, current ratio, etc were the things I was having interest in as we planned to invest for growth. I knew what is short selling and didn’t want to have anything to do with it. I had to put a monthly limit on the money I invest. A reasonable starting amount of $50 a month felt right.
There are a lot of Instagram and YouTube people sharing valuable info about finance and investing.
It is easy to disregard the ones sharing “motivational” stuff, this is of no help. I started following the ones that clicked the best with my own plans. Conveniently some of them are recommending others and you’ll find more and more quickly. Another valuable resource I found was the Finance Theory I course at MIT OpenCourseWare on YouTube. The topics are easy to understand, important and the professor is a good professional.
This is how I started my investing journey. How about you?