Last updated in September 2020
Everyone can learn how to get ahead financially. You may currently be in a situation where saving money is difficult or nearly impossible. Yet even that does not prevent you from reaching financial independence and early retirement (FIRE).
There is almost always scope to reduce your expenses and increase your income, even if you progress at a slower pace than others. My step-by-step guide will show you how you can start today.
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Table of Contents
What is financial independence and early retirement (FIRE)?
Being financially independent means that you have enough money to never need to work again in your life. This enables you to retire early in your 30s or 40s and enjoy the rest of your life.
The amount of money you need for this depends on your circumstances. However, it is likely much lower than you think. For me, I need £350,000 as a single individual without kids.
The amount of money you need (your FIRE number) may still seem like a lot to save up. Following the key steps below makes saving much easier and makes reaching FIRE realistic for most people.
How to get ahead financially: Introducing financial independence – the four steps
1. Reduce your spending
Reducing your spending is the first step to financial independence. This may seem difficult at first but is actually not that hard. Even if you are on a low income, Monethalia offers tips and tricks to help you have more money left at the end of each month.
My free Never Be Broke Again workbook will help you to start saving, even if you are broke right now. You can gain access by signing up to my newsletter:
Increase your savings to reach financial independence
Monethalia has a dedicated section to help you save money. If you are looking to spend less money, you may find the following articles helpful:
Saving should not mean depriving yourself. The goal should be to live frugally and happily.
How I cut my monthly spending in half without sacrificing anything
When I started to pursue financial independence, I initially set myself (single, no children) a budget of £1,200 a month for all expenses combined. I thought this would be a challenge to achieve as I was paying £510 rent and had high commuting costs (£80).
After struggling for a few months, I finally reached my goal. However, I discovered that I could go further. My total monthly expenses are now around £800 while having the same quality of life as before. Previously, I would have never thought that this was possible.
You probably have more potential for saving money than you are currently aware of. Exploring your options to reduce costs is the first step to financial independence.
To reduce my monthly spending, I started with the easy bits. For example, I switched to ALDI for grocery shopping and used cashback apps such as Shopmium (get a free tub of Ben & Jerry’s with the code q2766a). Over time, I replaced disposable products with reusable ones.
I went on to make more drastic changes such as cancelling subscriptions I had that did not provide much value and moving closer to work to save commuting costs.
2. Increase your income for financial independence
The more money you earn, the quicker you can be financially independent. While this may sound obvious, implementing an increase in income is challenging for many people.
Ways to increase your income include applying for better-paying jobs or asking for a raise. If these are not options for you, I welcome you to the world of side hustles.
Side hustle your way to FIRE
Starting a side hustle may sound daunting, but in fact, the process is really easy. For example, matched betting (NOT gambling) is very simple to start–all you need is £10, a bank account and a working internet connection. Matched betting profits are tax free which is very convenient for side hustle beginners.
Monethalia is committed to helping people earn more. As such, I wrote a range of articles you may find useful for increasing your income:
- Is 20Cogs legit or scam? How to easily make £100+
- How to make £1,000 from home: 10 proven ways
- 100 legitimate ways you can make money
How I increased my income in pursuit of FIRE
My parents are not in a situation to support me, help me with a house deposit, or provide me with a large inheritance. Plus, I work in a profession with pretty average salaries. My lack of a high income was the main obstacle in the path to financial independence. Here is what I did to improve my situation:
- Firstly, I started matched betting and made over £10,000 from it
- Secondly, I set-up Monethalia and now make money from blogging
- Lastly, I switched companies, thereby increasing my salary by 20%
Increasing your income through side hustles is easier than you think and a key component of achieving financial independence.
3. How to get ahead financially – invest your savings
The world of stocks and shares is as scary as a career change. However, if you want to achieve FIRE, there is no way around it as financial independence depends on the interest on your savings.
Once you have built up an emergency fund of three to six times your monthly expenses, any surplus money can be invested. The key is to find a low-fee index tracker. With an index tracker, you automatically buy a whole range of stock, meaning your investment is comparatively low risk.
Index funds are also passively managed. After setting up your account, all you have to do is set up a direct debit. The fund will then grow automatically in tune with the growth of the economy. One example of such a fund is the Vanguard FTSE Global All Cap Index Fund.
There are a wealth of personal finance books available that will teach you how to invest in a beginner-friendly manner. Personally, I recommend Time Hale’s Smarter Investing: Simpler Decisions for Better Results.
How I began investing to achieve financial independence
When I learned about FIRE and looked at my savings account, I was shocked. My cash ISA generated a whopping 0.3% interest! And my instant-access saving account was not doing any better. Assuming an inflation of 2% (the normal yearly price increase for goods), I was losing money!
The first step for me was opening a Ratesetter account. Ratesetter is a peer-to-peer lending company that offers generous sign-up bonuses. For the £1,000 I invested for one year, I will receive 14% interest. You can receive a similar rate through my referral link (check that the offer – receive £50 or £100 for £1,000 invested – is on).
Other steps I took included opening a current account with 5% interest, and an index tracker.
4. How to get ahead financially – set a goal
Firstly, calculate your FIRE number. This is the amount of money you are working towards.
Secondly, ask yourself what you would like to do once you are financially independent? Having a clear vision will help you stay on track. You can make a list or draw a picture of what you would like your future to look like.
It is important to keep in mind that just because you have become financially independent, you do not have to retire. Instead, you may be interested in financial independence optional retirement (FIOR).
I keep track of my post-FIRE goals in my financial independence plan. Currently, it is a mix of things that I lack the time to do right now.
How to Get ahead financially summary
There are four key steps to learn how to get ahead financially and reach financial independence:
- Reduce your expenses
- Increase your income
- Invest your savings
- Set goals for yourself
FIRE is possible for the majority of people. However, it requires you to take action and follow the key steps to financial independence. People have different starting points and some may have to make more drastic changes to their life than others.
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