Money Fasting: Your Start To Financial Freedom:
Fixed money is the best way to get out of debt, build an emergency fund, prepare for retirement, and be on your way to financial freedom. Many of us lapse into lifestyle inflation because of the urgency to buy more expensive homes, cars, and vacations, even when we’re not on track for our long-term financial goals. A commitment to make quick money until you are well on your way to your financial goals IS LIFE THAT CHANGES. The first few months of adjusting spending are painful until you adjust to your cheaper lifestyle. After that, it’s exciting and rewarding to see how you progress with your financial goals. In this article, we’re going to look at how fast money can accelerate your journey to financial freedom.
What is fixed money?
Fixed money only spends money on necessities (housing, food, public services, and transportation to work) and reduces all other expenses. Living on a budget until you reach financial goals will change your life. With compound interest, you also adjust your cost, PI, to the yield of compound interest. You can invest money in investments (the key to building long-term wealth) instead of debt. Fasting with money can also prevent lifestyle inflation. Depending on how fast you’re on the road, you can even get FIRE (Financial Independence Retire Early) — like this “FatFire” couple who retired at age 30, even at a high cost.
How Fast Money Can Help You Achieve FINANCIAL FREEDOM
How can lack of money help you avoid lifestyle inflation and achieve your financial goals?
1. Get your financial goals in order
This is the most important step that people usually skip! You will make MUCH faster progress if you know EXACTLY what your next financial goal is. I recommend working with one goal at a time.
As written above, this is the order I recommend for working on financial freedom:
Debt Free – Pay off all debts (except fixed interest rates)
Comprehensive emergency fund (3-6 months cost savings on a separate and intact account – because you NEED an emergency fund)
Towards retirement – How much should you save each month for retirement? Calculate your required monthly retirement savings.
Other financial goals (e.g. saving for an affordable home, saving for study)
LAST (optional): lifestyle updates (e.g. home improvements, new cars for you, etc.) This key is optional because you’d rather increase your investments to get BRAND (financial independence, early retirement)
2. Start tracking your progress with NET WORTH
Budgeting is great (see Step 4 below), but I think monitoring equity is an easier and more effective way to track progress towards your financial goals.
3. Create a wedge between income and expenses
To change your finances, you need a barrier between your expenses and your income. This gap is sometimes referred to as the “margin” or “savings rate.” Fixed money creates a larger margin that you can apply to your NEXT FINANCIAL GOAL (pay off debt, create an emergency fund, invest for retirement, save for house payments, etc.)
Once you receive your paycheck or raise, pay the necessary expenses (food, housing, utilities, and transportation) and save the rest for your next financial goal.
4. Track your expenses to build a needs-based budget
Once you start spending money quickly, start tracking your expenses (the best budget programs here). This allows you to set a budget that starts with your NEEDS before adding WISHES. This will help you identify the unnecessary expenses that you can eliminate to reach your goals faster. Avoid the temptation to be higher every time your income rises. If you spend all your bonuses and raises, you will not be able to achieve your financial goals. Only focus on buying until you are well on your way to achieving your goals.
5. Debt to Pay (and Avoid Future Debt)
Debts and loans (other than a fixed-rate loan) are a guarantee that you have fallen into the trap of lifestyle inflation. Many of us think that if we can afford the payment (for example, to pay off a car loan), it means we can afford it. It is a pitfall to invest money to pay interest instead of building wealth!