The key to achieving financial independence is to save and invest money. That is obvious. What is often not so obvious is where those increased savings are going to come from. Below, I’ve outlined seven great ways that you can boost your savings rate
Financial windfalls take many forms. Sometimes they are as predictable as the change of seasons and sometimes they just seem to drop out of the sky like the Chicxulub asteroid that wiped out the dinosaurs. Here are just a few of the ones that I have either experienced or am expecting.
Tax Returns. Almost everyone like to talk about how they’re going to spend their tax return. You know how I’ve been spending mine? By investing them in sound dividend producing stocks in order to increase my passive income streams.
Gifts. I still get gifts from my relatives for things like Christmas and my birthday. If those gifts are of the monetary variety, they will be immediately deposited into my investment account. Even if it’s something as small as $25, into the account it goes.
Reimbursement. Occasionally, I spend money on work related things like travel. Which is okay, because I get reimbursed for it. I make a point to transfer as much of that reimbursement as possible into my investment account.
Prizes. I’ve never won anything big, like the lottery. Probably because I don’t gamble. But I have won a couple of competitions that took place during symposia in graduate school and during my post-doc. That money went straight into savings.
Bonuses. We get bonuses around mid year at my job. I already have a plan to save 50% of whatever I get. The other 50% is going to be allocated to a “fun fund,” so that I can blow some of my income on extravagances while maintaining my 50% savings rate.
Stock Options. After a few years at my job, I become eligible for stock options. I intend to cash these out as soon as I get them and dump 100% of the money into my investment account. We also have the option of holding onto the options and cashing them out later. But I would rather not have a sizable chunk of my net worth and primary salary tied to the same entity.
Inheritance. At some point your older relatives will pass away and you may inherit all or part of their estate. Some people inherit only a few dollars and some people inherit a ton of money. Regardless, one of the best ways to use your inheritance is to channel it into investments.
2. Re-purpose Debt Payments
Whether it’s high interest consumer debt or a rock bottom mortgage, many of us are carrying a debt burden of some kind. Which means that we are making regular monthly payments to service that debt. But at some point, that debt will be paid off. Then what? Why not re-purpose some or all of those payment steams into investments rather than just buying more crap?
3. Side Hustle
Side hustles are part time jobs outside of your primary career. The term job is used a bit loosely when defining side hustles and can include anything from the money you make coaching tennis to your profitable online business selling trading cards. Whether your hustle only brings in a couple hundred dollars a year or a several thousand, channel those funds into investments in order to achieve financial independence faster.
4. Grow Your Career
Never forget about your primary career. Even if you only want to achieve financial independence in order to make a quick exit from the working world, you’ll get their faster if you can grow your career, and turn the increased earnings into passive income streams.
Each time you get a raise or a promotion, try to resist the urge to increase your spending to match your increased income. Of course, you should probably increase your spending some, especially if you’re just starting out in your career. But try to increase your savings more than your spending.
5. Cut Your Budget
Reducing expenditures is a tried and true method of freeing up money that can in turn be saved and invested. Begin by tracking your spending and identifying those areas that aren’t basic necessities or particularly meaningful to you. Start cutting ruthlessly. I can guarantee that you’ll suddenly discover that a ton of cash just got freed up. By now, you know what to do with it.
6. Sell Your Crap
The sad reality is that many of us own way more stuff than we actually use on a daily, weekly, monthly, or even yearly basis. If you aren’t using it at least once a year, why are you saving it? The number one target for sales should be collections. You just don’t need hundreds of DVDs, CDs, books, records, pieces of jewelery, figurines, etc. Unless it has sentimental value to you, put it up on eBay or Craigslist.
7. Get Married
Marriage often gets a bad rap financially, particularly when the stereotype of the money wasting parasite wife is invoked. How many of you are old enough to remember Peggy Bundy? But assuming that you marry someone with a similar financial outlook and goals as you have, the pair of you could make a great financial team on the path towards achieving financial independence. Marriage can be a massive cost saver. If you are a dual income couple, that means that marriage may have essentially doubled your take home pay while almost halving your expenses. Two people don’t need very much room to live. A nice one-bedroom apartment is probably sufficient. But even if you move up to a two-bedroom apartment, it will not cost anywhere near as much as two one-bedroom apartments did. Then there are other savings to consider such as utilities and food. The cost to heat and power your home is not going to go up by much with the addition of a second person. And cooking for two tends to be less wasteful than cooking for one.
Even if your spouse chooses not to work, they can still play defense for your financial situation. All that time spent not working could be channeled into coupon clipping, investment analyzing, do it yourself home improvement projects, and any number of other activities geared towards saving money.
Readers: How many of the above have you taken advantage of? What other ways do you employ to free up or create extra money for savings?