Alright, if you’re reading this, it means you’re ready to get started! That’s amazing news!
But how do you get started on the path to financial independence?
When we’re just getting started, it can all feel a bit overwhelming. How do you get there? What do you need to do?
In this article you will find 10 essential steps to make progress quickly on your journey.
If you’re just discovering the FIRE movement or simply want to take control of your finances to build more security in your life, then this is for you.
I have found that one of the main reasons some people never benefit from these simple common-sense concepts, is that they don’t even consider it, either because they don’t think it’s possible or because for whatever reason, they think it’s not for them.
And that’s a shame, because that is often also the people who would benefit the most from better personal finances.
As we’ve discussed before, just getting started on the journey to financial independence brings amazing benefits, and they only get better as we progress.
So yes, the very first step someone needs to take to start making progress is to…
1. Get the FIRE mindset
It’s only when you realize that you can make a difference that you can take control over your finances and get started. Yes you can learn. Yes you can build some financial security. Yes you can gradually build financial independence in your life. Yes you can make a difference.
It takes a bit of courage at the beginning, especially if your finances are a bit messy, but it’s not complicated. Observe your finances, take notes and then gradually build systems that work for you.
When it comes to investing for example, the financial industry thrives on you thinking it’s too complicated so they keep things confusing on purpose. But it doesn’t have to be this way. It’s much simpler than most people think. You can do this. You can take control and shape your destiny. That’s the FIRE mindset.
And to help you build that mindset, the best thing you can do is to…
2. Join the Financial Independence community
The path to financial independence challenges many of the social norms most people live with. Joining a community of like-minded people is a great way to learn from other people who are on the same journey and develop our FIRE mindset.
In Belgium, there are 2 primary communities:
- On Facebook, the place to be is the FIRE Belgium Group, where you can ask questions, participate in online conversations, join meetups in-person (highly recommended!) and online to learn about personal finance and investing. It’s a great place to connect with real-life people. FIRE Belgium also has tons of resources, such as the Beginner’s Guide to Index Investing and the Index Investing for Beginners Workshop.
There are also 2 subgroups, one in Dutch and one in French. - On Reddit, there is the BeFIRE subreddit, mostly anonymous and with tons of resources as well.
Once you join, you will probably start reading about all the incredible things people are doing to make progress on their journey and you will probably come across very advanced questions, related to topics you don’t quite understand (often discussing small details related to taxes or investing), but often that’s not what you should focus on.
Instead, if you’re just getting started, then the very first thing you should consider is…
3. Understand your financial situation today
At its core, personal finance is about understanding and improving 6 numbers in your life. And financial independence is about optimizing them so that you live a happy and fulfilled life.
The 6 numbers to track are:
- Income: how much money you earn or receive from various sources
- Expenses: how much money you spend or donate
- Cash Flow (or Savings) = your income minus your expenses: this is how much money you are actually keeping
- Assets: the value of what you own
- Liabilities: the debt you owe to others
- Net Worth = your assets minus your liabilities: this is your actual wealth
Measuring and tracking these 6 numbers is the foundation of good personal finances. You can do it on paper, with a spreadsheet or an app.
And then you can work on improving them.
You can start by estimating those 6 numbers for today and then go back in time to see where you were 1 year ago, 2 years ago, etc. If the numbers are improving you’re already on the right track!
The next step to build financial security and freedom is to
4. Forecast your finances of tomorrow
Once you have some historical data for those 6 numbers, you can start forecasting!
You will have to make a few assumptions of course, such as your expected income and expenses, etc. And then you can see where you are heading.
Are the numbers going in the right directions? If yes congratulations!
If not, congratulations as well. At least now you know and you can see what will happen if you don’t change anything.
Having clarity over where your current situation is taking you is essential if you want to improve.
In either case, you can now run scenarios to test different changes to your plan.
- What would happen if you were able to save XXX euros extra per month?
- What if you delay a certain purchase?
- What happens if you sell YYY or ZZZ?
So this is where we start looking at what would be the impact of saving more money.
And to do that I always recommend people start with…
5. Quick wins: how to find savings fast
Reducing expenses is often the very first step people take when considering financial independence. And this is due to several factors:
- We often have more control over our expenses compared to our income
- For people were previously not paying much attention to their expenses, there is often great potential to save, without painful compromise or deprivation.
In fact, reducing spending is all about aligning your expenses with your values.
Here a couple of ways you can find quick wins:
- Easy: Check past monthly/annual expenses and identify all subscriptions
- Cut those you don’t need
- Change or negotiate all the other ones
Identifying recurring expenses that you don’t really use or need is very powerful. It’s like plugging leaks in a bucket you’re trying to fill.
- A bit heavier: Home inventory and cleaning
Get all the stuff you have not used in the past year and decide: do you keep, sell, donate or discard?
This technique is nice to use if you have lots of stuff, and especially if you’re struggling because you cannot store it all.
And as you sell or get rid of stuff you will
- save space (physical and mental)
- save money (storage, maintenance, cleaning, etc.)
- make money:
You can sell on ebay, FB marketplace, or second hand stores.
Cutting unnecessary expenses and selling unused items should help you get started with your savings.
Now, if you want to go a step further, you should also consider…
6. Set up your budgeting strategy
Once you have a good idea of your 6 key numbers (income, expenses, cash flow, assets, liabilities and net worth), you need to decide on your budgeting strategy.
Setting up a budget and sticking to it is a great way of making significant progress with your savings. There are several options when it comes to budgeting. You can use the zero-based budget, the 50/30/20 budget, the envelope budget, the value-based budget or the “pay-yourself-first” budget. You can find a good overview of these 5 strategies here.
I also like to call the pay-yourself-first budget the anti-budget strategy, because you essentially take out what you save right when you get your salary and you’re then free to spend the rest as you wish. The only constraint is that you make it all the way until your next salary without touching your emergency fund, your savings or your investments.
I find that the anti-budget strategy works quite well for people who are naturally frugal. Everyone else can greatly benefit from a more detailed budget.
With your early savings and a good budget strategy, you should be able to rapidly build an emergency fund (a few months worth of expenses, to be used only in case of real emergency).
Once you have an emergency fund and you’re able to save a significant amount of money, it’s then time to…
7. Learn about investing
Learning how to invest is an essential part of the journey to financial independence.
There are many ways of investing, but in the financial independence community the main approach is index investing in the stock market.
This approach is preferred by many in the community because once it’s in place it is the most effective way of growing wealth: it provides maximum diversification, it is low cost and highly tax optimized, and it’s the most passive, simply because buy-and-hold is proven to be the best performing strategy over the long term.
This is probably the most knowledge intensive part of the journey to financial independence. And if you don’t know anything about investing it can seem complex and feel very overwhelming.
But it’s not complicated.
At the very least it’s a lot less complicated than what the financial industry wants you to believe. And for the most part you can learn and manage your investments on your own, like many people in the community do. We call ourselves DIY index investors.
There are 3 main ways to start index investing:
- Full DIY: you learn on your own, using the free resources and the support from the community.
- DIY with a coach: you learn from more experienced investors. It will cost a bit of money but it greatly accelerates your learning and reduces your chances of making mistakes.
- Investing through a robo-advisor. You simply outsource the implementation to a specialized firm, for an ongoing management fee (often around 1%). This allows you to start fast, but the cost adds up over time and will significantly impact your journey to FIRE.
We discuss this in more details in this article.
If you’re interested in getting started with index investing, be sure to check out the free workshop on index investing for beginners in Belgium. The workshop has been designed to help very beginners to start investing with confidence.
Real estate also plays a big role in the journey of many people in the FIRE community, but it requires more work, is less diversified and is certainly not as passive as index investing. Done well however, it can be a great accelerator to FIRE.
Something interesting happens when you start investing for financial freedom.
All of a sudden money takes on a new meaning. Instead of spending money on buying stuff or experiences, you can now spend money to buy security and freedom.
So you can now ask the question: how do you…
8. Optimize money for value
Money is a very powerful tool. It’s a tool that you can use to shape and transform your life.
And it all starts from how you see money.
If you only see it as this thing that passes through you (you earn it and you spend it) it won’t do much for you. But if you see it as a way to create security and freedom, it can be a game changer.
An important step on your way to financial freedom is to align how you spend money with your values.
FIRE is not about saving as much as you can and living like a monk, it’s about getting the most value out of life by optimizing your finances.
To do that, you need to give yourself permission to spend on what’s important to you and learn to cut on the rest.
Part of what you probably value now is more financial security and financial freedom, so when you’re thinking of spending on something, ask yourself whether this money is better spent on this or on additional security and freedom.
From there, it’s all about finding the balance between spending on things we want and need today vs. saving and investing for security and freedom.
Many people see investing as an exercise of delayed gratification, but I believe that’s just the wrong point of view.
Saving and investing gives you security and freedom right away. The reward is immediate. The growth of your investments is simply a really amazing additional benefit that multiplies your security and freedom.
Once you’ve mastered the notion of optimizing money for value, and you’ve done your work to increase your savings, the natural next step is to look for ways to …
9. Earn more money
Earning more money is the natural next step on the path to financial independence.
It’s not talked about very often in the community because everyone has a different way of earning money, through different jobs and different businesses. And so the technical aspects of increasing income are often quite different.
But it’s an area that you should not neglect if you want to accelerate your path to FIRE.
Just like all the previous steps, the most important part to be successful is to have the right mindset:
- Yes you have some control over how much you earn. And this is true for everyone, in any category of jobs and business. You are in control. You can learn, you can negotiate, you can change, you can grow, you can earn more.
- Most often, income is related to how much value you can deliver, to how much (hopefully positive) impact you can have. So to earn more, you need to deliver more value and increase your impact.
You can work towards increasing your income in your existing career, by being more valuable to your employer or clients, or you can create new income through a side-hustle or entrepreneurship.
No matter what, the key is to keep learning and growing.
So we’ve talked about many aspects of personal finances and I’d like to conclude by saying that none of this really matters unless you can…
10. Find happiness and fulfillment now
FIRE is an amazing goal to pursue. When you discover that there is an alternative path to the old boring work until 65 then retire, it can be very exciting. And it’s normal to dive in deeply at the beginning. After all that is how we make the necessary changes in our lives to benefit from financial security and freedom.
But there is also the danger of focusing so much on the future and wanting the end goal so bad, that we forget to enjoy the present.
As with anything, there are some extreme cases in the community, of people cutting on every possible expense, to the point where they sacrifice an important part of their social life, and sometimes even their health. To me, that’s completely missing the point of FIRE.
FIRE is about optimizing money to live more and give more. It’s about building a system that gives us security and freedom and allows us to live more in line with our values. It’s about using money as a tool to help us find happiness and fulfillment, today as much as in the future.
The journey to FIRE can be very long. It can often be decades away if you discover this very young or if you’re not in a great financial situation. So make sure to pursue happiness as much as you pursue FIRE.
FIRE is an incredible tool, but it does not solve all problems. In fact, many of the problems you have in your life today won’t go away if you reach FIRE, so don’t wait and work on solving them now.
Do stuff that makes you happy, meet people, find a job that gives you satisfaction, fall in love, play with your kids, take care of yourself, take care of your parents and siblings, fight for the causes that are important to you, donate to the organizations you want to support.
Be present today and build your future at the same time. We only have one life, so let’s make sure we make the best of it.
Next steps
Here are a few things you can do to continue on your journey to financial independence:
- Learn to invest in a simple and effective way – watch the free workshop on index investing for beginners in Belgium.
- Join the FIRE Belgium Facebook Community
- Sign up to the FIRE Belgium Newsletter
- Subscribe to the FIRE Belgium Show, on YouTube, Apple Podcasts, Spotify, or Google Podcasts.
- Connect with Sébastien and say hi on LinkedIn or Facebook!
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