(This article was originally published in NextIdea, our weekly newsletter on side hustles and pursuing financial independence. Sign up for it using the box below.)
Our financial independence coverage here at NextAdvisor can be summed up in nine words: reduce your expenses, make more money, invest the difference.
The Financial Independence, Retire Early (FIRE) movement inspires many a personal finance enthusiast, but it can also quickly turn into a tornado of numbers. To help you master the basics, we have a new guide you’ll want to check out and bookmark. Send this to your loved ones who look at you like you’ve gone off the deep end whenever you start talking about FIRE.
Here’s a bit more detail about the three strategies we cover.
#1: Reduce Your Expenses
I know, I know — this is the not-so-fun category. But we know that lifestyle creep can sabotage many personal finance goals, and expenses tend to also increase whenever income increases. Finance bloggers lost their minds earlier this year when a report by PYMNTS.com and LendingClub revealed that one out of three consumers making $250,000 a year still live paycheck to paycheck. For many of us, money has a unique emotional charge, and brings up beliefs that may or may not be true.
More money isn’t always the answer if it leads to more expenses. Take a look at where your money is going each month and see if you can cut some costs and keep more cash in your pocket.
#2: Make More Money
This is my favorite category, personally. Whether it be through side hustles, a small business, a new passive income stream, or a salary negotiation, many of us need to start generating more money each month to properly pursue our FIRE aspirations.
Some approaches are more time-consuming than others, but there’s something for just about everyone.
#3: Invest the Difference
As you widen the gap between income and expenses, you’ll want to ensure your surplus is being invested. At NextAdvisor, we recommend investing in index funds as a “set it and forget it” approach, but you might have investing strategies of your own, and certain investments become more or less attractive as the economy ebbs and flows.
One investment option that is currently very attractive is Series I savings bonds. I bonds are “inflation proof” because their returns are designed to outpace inflation; since inflation is high, so is the ROI. I asked personal finance expert Rita-Soledad Fernández Paulino about different scenarios in which someone would want to invest in a low-risk, secure investment like an I bond. Read about those scenarios here:
I bonds currently deliver a 9.62% return, but there are certain requirements and drawbacks you should know about before taking the plunge.
If you’re free later today, Fernández Paulino and I are co-hosting a free webinar on I bonds at 4 p.m. PT (7 p.m. ET) ; register here or click the image below to grab one of the last remaining spots.
Financial independence is a long game. Take small steps this week to nudge your money goals forward and you’ll start to generate the momentum you need to break through.