Financial Freedom starts with two simple actions: save more money and/or earn more money.
You can subtract your way to financial freedom by lowering your expenses and living on less. And/or you can add your way there – earn more money via passive or active income.
We’ve chosen to take the latter option – and are adding our way to financial freedom with a super simple approach as our guiding principle:
Save More Than You Spend
While the above guidepost is simple to say, I know from experience it isn’t easy to implement, and certainly not in the beginning. It can take a good amount of time, along with some serious focus and resolve, to right size the ratio. This was certainly the case for us.
Right Size the Ratio
Let me start with some background… Just 10 short years ago we were at a low point in our financial lives. The idea of even having a save-to-spend ratio was nothing more than a pipe dream.
The year was 2007 and I had just earned a big fat promotion and pay raise. Naturally that meant it was time to sell our starter home and move on up to our forever dream home. Earn more money, spend more money, right? So we did.
We bought our dream home at the peak of the real estate market (Mistake #1), committing ourselves to appalling mortgage terms (Mistake #2), and then proceeded to spend – and spend, and spend some more…
We had to landscape our new home.
We had to buy window coverings for our new home.
We had to buy furnishings for our new home.
We had to host parties in our new home 😉
Net-net – we didn’t save squat in 2007.
Instead, we spent considerably more than we earned – leaving us with a non-existent save-to-spend ratio.
Fast forward a couple of years later, and we finally started to get serious about our finances. While we hadn’t yet considered a goal of financial freedom, we had realized the need to accelerate our savings for retirement.
In 2009 we began setting annual savings goals (what a concept!), which ultimately grew into a big audacious goal to: SAVE more than we SPEND.
To reach our goal, we had two options: spend less or earn more.
Hats off to those individuals who achieve financial independence by resourcefully embracing frugal living. Well done! But, taking an extreme approach to reduce spending wasn’t going to work for us.
We loved our existing lifestyle – we didn’t need more, but we wouldn’t accept less. Simply put, we weren’t willing to economize our life to reach a state where we saved more than we spent. Yes, we took steps to trim some fat, but the real game changer for us came by making more money.
Earn More Money
We focused on earning more to save more. But unlike many folks who start a side hustle to earn more money, we chose to double down on a main hustle: our existing corporate jobs.
As I’ve shared in prior posts, our journey to achieving financial freedom is grounded in our corporate careers. We’ve worked hard to make the most out of our careers – maximizing pay and benefits.
Things haven’t always gone the way we planned, but thanks to several promotions, healthy pay increases and strategic job changes, we’ve been able to grow our combined income nearly 400% over the past 10 years. And possibly even more important, we’ve done this while keeping our expenses relatively flat (except for a few years where temptations got the best of us!).
I can’t stress enough how a calculated focus on career advancement can be instrumental in accelerating the journey toward financial freedom. I’ll share more in future posts on the strategies we’ve deployed to increase our corporate earnings, and lessons learned along the way. But be assured that if we can do it, anyone can do it.
So back to right sizing our ratios… here’s how our focus on increasing income has been playing out against our save-to-spend ratio:
From the time we started getting serious about saving back in 2009, it took us roughly 6 years to steadily grow our income to a point where we achieved a 50:50 save-to-spend ratio in 2015.
Finally this year, 2017, we expect our ratio to flip over close to 60:40. And you can see how maintaining a relatively flat spend over the years has been critical to improving our ratios.
Now our challenge is to maintain our momentum – avoid the distractions of lifestyle inflation – and stay on our steady path to financial freedom. For us, it’s a marathon not a race.
Next week I’ll share more on how we moderate our
Save More Than You Spend guidepost with a second approach
to ensure we aren’t just saving for tomorrow, but also spending for today.