Toward FI

S1 E2: Building Wealth Through Smart Financial Choices and Behaviors

• Toward FI • Season 1 • Episode 2

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Ever wondered what it really takes to achieve financial independence? Join us on the Toward FI podcast as we demystify the critical behaviors that propel you toward financial freedom. Learn how to master the fundamental pillars of saving, earning, and investing, starting with the creation of a budget and distinguishing between needs and wants. We’ll walk you through practical steps to progressively save 15-20% of your paycheck and automate contributions to retirement accounts such as 401ks and IRAs. This episode underscores the importance of maintaining these habits over the long haul and resisting the temptation of lifestyle inflation. Remember, financial independence is a marathon, not a sprint!

But that's not all—we also delve into the power of networking and cultivating industry connections to supercharge your income. Discover strategies to potentially double your earnings in just five years, whether you're aiming to climb the corporate ladder or launch your own business. We’ll discuss the importance of acquiring relevant skills and maintaining a laser focus on financial growth. Plus, get a sneak peek into future topics like setting up a FIRE (Financial Independence, Retire Early) portfolio and crafting your own FIRE goals. Tune in and embark on this diligent journey towards financial independence with us!

Toward FI :

Hello everybody and to the Toward FI podcast, where we learn, earn, save and invest together, all while enjoying every minute of our journey towards financial independence. At , it's all about achieving financial independence to set the stage to achieving the fullest potential of our lives. Today, we're going to talk a little bit about some of the fundamental behaviors needed to achieve financial independence. The mere process of calculating the amount that you need to achieve financial independence can be waxing and daunting in itself. On top of that, if you're just starting on the journey, it can be quite defeating to hear all the terms and complex skills that you need to be a successful investor. There are discounted cash flows and IRRs and intrinsic values and all that jazz right. When I started my journey, I first bought a book on financial statement analysis, and now they're on evaluating stocks, with dreams and aspirations of being the next Warren Buffett right. It took me time to go through them. Ultimately, all that happened was I made a few lousy investments and resigned to the fact that, well, I wasn't a Warren Buffett right. Honestly though, as time passed, I realized that none of that actually matters. An average person can achieve financial independence by investing prudently and knowing some basic fundamentals of the market. We'll definitely get to how we invest in a future episode, but today, what I really want to focus on are some fundamental behaviors that are required in order for us to achieve financial independence. Remember that this journey towards financial independence is a really long one. It's a marathon, right, and the most important thing that is required as we go through this journey is going to be the discipline of sustaining the behaviors that are required to achieve financial independence. Financial independence is built on a three-legged stool. There are these three legs are saving, earning and investing. Now you might look at that and say, wow, that's really profound right. Such basic things. Honestly, though, these are hard to sustain and hard to continue to focus on over an extended period of time. So let's spend some time today and talk through how we actually set it up.

Toward FI :

Savings are such a simple thing to do, right? I mean, you have some money, you don't spend it, you sock it away. That's it, right, but it can be a really hard thing to do consistently over a period of time. The tendency to save can be highly related to your upbringing. There's research that suggests that In eastern countries like China and India, the idea of savings is quite common. In fact, taking debt is actually looked down upon. Any millennial from an Eastern culture would probably remember, you know, hearing their parents talk about savings and spending money judiciously. Now, for good or for bad, our generation has taken to credit cards and personal loans, taken on huge student loans and mortgages as well, basically driving towards debt versus towards savings. Now, it's not bad to take calculated debt, but at the same time, it's really really important to focus on savings.

Toward FI :

So to achieve financial independence, you have to master savings. No matter how much you make, you can always save a bit. It starts with recording where you're spending your money, knowing where your money is flowing out to, knowing what you truly need to have a happy life, and then sock away the rest. Right Now, this distinction is really important. It was a pivotal moment in my life as well, when I started to recognize the difference between the needs and the wants. So if you haven't done the act of putting together a budget, analyzing where you're spending money, I suggest you start there. Right, it really doesn't matter where you put the money away. I mean, put it in a bag, put it in your savings account, leaving it in your checking account, and, if you're so advanced, put it into a brokerage. But the point, though, is that first one we want to set up is that idea and the habit of saving money. If you have saved 1% of your paycheck this month, then let's step it up to 2% next month. Let's look at our budget and find ways to do that, but, slowly but surely, we want to make our way to 15% to 20% of your paycheck. Now, if you are in the US and every country has a similar approach but if you are in the US, one of the easiest way to do this is to automate your savings into a retirement account, like a 401k or an IRA. You really don't feel the hit initially because of the tax savings that comes along with it, and you can never go wrong saving for your own retirement.

Toward FI :

Now, I'm a big fan of Reddit, right. It's a very active community. You always come out with a nugget of wisdom. I love following the FIRE channel in Reddit, and it's always great to see people who have achieved their FIRE number and decide to quit, right, it's very, very inspiring to me as someone who is, you know, still quite a way along from achieving that FIRE goal, find it amusing when I come across the usual disgruntled member who says you know good for you, you must have a very high salary. That's why you got to financial independence. Well, that's kind of true right To get to something like 50% of your paycheck saved, you do need to earn quite a bit right.

Toward FI :

However, the important part to understand is that the person saved a huge chunk of their salary. They did not let consumer distractions or lifestyle inflation affect how they have saved their money right, and I think that is really what we need to be inspired by. At the end of the day, no matter how you cut it, the habit and mindset of saving is really what makes the journey towards financial independence possible. So, right as we set up this first habit of saving, the first thing to do really is create a budget, understand where you're spending money and find a way to get to that 15 to 20 percent of your paycheck saved right now. Once you've achieved your habit of saving and you're chocking away a good 15 to 20 percent of the salary, then it's really time to grow that income now. Let me repeat that it's time to grow that income now. Let me repeat that it's time to grow the income, not necessarily grow the savings. Right now, let me share, you know, a version. Now, this is a true story but I've just, you know, kind of versioned it a little bit for the podcast over here.

Toward FI :

Um, but there were two neighbors that we lived next to growing up, right, one of our neighbors was a miserly man. He he watched every penny he spent. He was a super saver, right, I mean, he would even wear worn out clothes and probably saved a very high percentage of his salary, right. And he saved this money into in his bank, which, in those days, you know, paid really, really good interest. Now, on the other hand, we had another neighbor who lived a better life. Right, you could see him hustle. I still remember the image that I have of that neighbor is him studying on the terrace of this house, right, which, by the way, I was a school kid back then and it was so weird to me because I'd always asked myself why does a grown man with a job want to study? I thought the whole point of getting a job was that you didn't have to study anymore, right? But turns out that the second neighbor was focused on career growth. Right, he was focused on growing his income. His hard work paid off and he was consistently promoted. Over time he likely 5x'd his income, because I remember hearing my dad talk about it when I was a child. Obviously his savings outperformed the first neighbor because even though he was saving the same 15%, or maybe even higher, as the other neighbor, his salary was much higher.

Toward FI :

So the moral of the story is that savings is important, but it's not as useful as the only skill. If you want to make enough money to achieve financial independence earlier, then you must match your ability to save with your ability to earn. Let me repeat that again If you want to make enough money to achieve financial independence early enough, then you must match your ability to save with your ability to earn. You don't need to have a fancy job or a fancy degree. Trust me, I know many millionaires who own their own businesses and don't even have a college diploma. So there's no excuse and, honestly, there's not a lot of luck involved. It's really about a personal urgency to grow. You know I remember hearing this from my mom growing up that if you really want something in your life, if you're willing to work hard for it, the entire world will conspire to make that happen right. So luck is made when you show the hustle and urgency.

Toward FI :

So, if you're in you know a job, find out what it takes to get to the next promotion. If you're not in a job like, or if you don't think there's another promotion, is there a side hustle that you can take, like drive an Uber or something else? Right, find skills that you need to acquire the next promotion or the side gig and learn it. Right. Invest the time. There's nothing better than investing in yourself. If you need to be a better communicator, practice in front of a mirror. If you're an introvert you know and afraid of networking, practice with friends. Go to a bar. Find a stranger to talk to. No matter how you cut it, you're going to have to take initiative, to do what it takes to be competent for the next role. And once you're competent, even if your company doesn't recognize you, you have put yourself in a powerful situation because now you can switch jobs and even increase your earnings even more.

Toward FI :

Earning is very, very important right Now. Let me give you the math behind it right. A promotion at work in most companies is about an 8 to 10% increase in salary. Now, because we have a habit of saving. We know that we shouldn't succumb to lifestyle inflation and should be saving any of our increases in salary, right? So if you kind of sock away all of that money, you've just increased your savings rate by about 30% without sacrificing any quality of life. If you manage to have, say, five promotions in the next 10 years, your savings rate will triple, even by that math, right? And if you're in a high-demand industry with a highly, highly valuable skill, you could even 10x your income in 10 years. That's crazy, right, but here's the truth. There are so many people who have called it quits really early because they've been able to achieve their goal by possessing highly valuable skills in high demand industries, right. The point, though, is that each one of us can do it. There's nothing about you know like there are a few gifted people who can do this. What's really needed in all of us is the foundational savings mindset and then the high energy hustle mindset to improve our earnings.

Toward FI :

Now we do need to talk about the third behavior of investing right, and we will, you know, talk about it. In a future episode, we'll talk about the two word five philosophy on investing and walk through a portfolio idea. But, honestly, if you just took all your savings and opened, you know, put it in your target date retirement account, retirement fund, or if you just open a brokerage account, take 80% of your savings, put in an S&P 500 fund, 20% into a bond fund, you'll do better than most people in the market. I mean, even Warren Buffett suggested putting money into an S&P 500 fund, right? So there are index funds in every country. Whether you're in India or China or any other place in the world, in Europe, you know, there's always index funds that you can put your money into.

Toward FI :

The financial industry is more connected than it's ever been before, right? So there's no excuse to kind of you know, not know investing. It's a pretty easy, straightforward route to do, especially if you're in the starting points of your financial independence journey. Right, there's a lot of concepts, like you know, how to be more tax efficient, how to think about transitioning when you're nearing retirement, there's a lot of those topics, but, honestly, nothing that is material, you know, especially for those who are in the beginning to middle phases of their financial independence journey. So let's quickly recap. This has been a really long episode, but I think that these are really really important fundamental behaviors to set up so that we are setting ourselves up into a good rhythm to kind of conquer this journey towards financial independence.

Toward FI :

So, step one build a foundational behavior of savings. Record all your spending. Set a budget. Kill anything in that budget that doesn't add value to your life. Right. Demarcate between what are your needs and what are your wants. Right. Channel this money into your savings. Keep repeating this exercise, you know, starting with 1% this month to 2%, next 3%, and try to keep increasing it until you get to 15% of your salary. Right?

Toward FI :

The second behavior we want to build is focusing on growing our income. Right. Growing in our careers, increasing the amount of money that we earn so that, in effect, the amount of money that we save increases. Right, find out what it takes to get a promotion or do a side hustle. Assess the most valuable skills in your industry and acquire those skills.

Toward FI :

Put yourself out there, learn to network, make new connections, make new friends and really find out what clicks in your industry. Right. Most importantly, ask yourself this question what is it going to take to double your income in five years? What do you need to do, from a job perspective or a business perspective, to achieve that, as you think about that, really, really focus and practice these skills. Thanks again for listening to this episode. Obviously, we always have a ton of fun topics coming up, including how to set up a FIRE portfolio, how to construct FIRE goals and maintaining a focus on the financial independence journey while you're on this marathon, and, of course, a lot more topics like that. Until then, let's continue to put our heads down, work towards financial independence. Cheers, guys, thank you.