5 Fresh Grad Tips For Financial Independence
Whether you’ve been forced by circumstance or you’ve decided after evaluating your life, the idea of making the jump a financially independent life is daunting to anyone. Although there is really no magic formula to creating a financially independent life, there are some things that have been tried and tested that more often than not helped.
- Think of your money in hours/days
Once I started working, I began thinking of my money in terms of hours of my life spent acquiring it. For example, if I am paid Php100/day then a ticket to the movies (average cost = Php200) will be an equivalent to two days of my life. This began a cycle of self-awareness wherein I only end up purchasing things that I believe are worth the time it took me to make that money.
Now, this doesn’t mean that I don’t spend. It just means I consciously choose to spend my money on things that I believe matter. This was my biggest tool in managing lifestyle inflation!
- Manage Lifestyle Inflation
Lifestyle inflation is an elephant in the room that most people realize a little later in life. It’s when we spend way more than what we should be able to afford in effort to give others the illusion that we’ve made it.
Now, it’s a given that our lifestyles will generally inflate as we get older. We’ll have other things that we might need to spend on as we age, such as medicine for illness that appear later in life or additional dependents like children, spouses or ageing parents. The trick, perhaps, is to manage to limit it to a rate we can afford.
It’s very easy to fall into the exponential lifestyle inflation trap, especially when you work in fields where appearances matter a lot. The temptation is real when you see your co-workers spending on a lot of things that you feel that you should also be able to afford and therefore have. To be able to manage this, know what things give good value and are worth spending on.
For example, one sturdy office bag from a mid-priced brand that you use everyday for 5 years will come out cheaper than a cheap bag that you would have to replace every few months. I only use 1 black leather bag bought on sale from a good mid-priced brand for work, which matches the color palette all of my outfits. Unless fashion is your non-negotiable, having more than one type of bag for its intended usage (ex. Going to the gym, work or dates) is an extra expense that you don’t need.
- Know your non-negotiables
Non-negotiables are things that are so important to you that you’ll be willing to adjust your lifestyle to be able to afford them. These are the things that can get you through rough times (and days when you want to quit your job), because you know they’re worth it.
Personally, I go on cheap, short trips (on weekends) every month and long trips twice a year. This is because travel is my non-negotiable. I have friends whose non-negotiables are either alcohol, fitness, family or dates with their significant other.
There is no right or wrong kind of non-negotiable (except of course when it involves harming other people), and the sooner you identify it, you can start designing a financially sustainable life that you do not resent. It’s also a great guiding factor as to how you design your budget buckets!
- BYB – Bucket Your Budget
My personal buckets are: Savings/Investments, Travel, Living (Utilities + Rent) & Disposable Income (Entertainment + Relationships + Miscellaneous Expenses). Similar to most employees, my salary comes at the 15th and the end of each month. For the first half of the month, it’s divided into Savings/Investments + Disposable Income. For the second half, it’s divided into Living + Travel + Disposable Income.
Each person will have a different way to bucket their budget, and it’s really a trial and error to figure out what works for you. It’s important to note that your Disposable Income should be the lowest priority and that your lifestyle should adjust to your desired savings/investment plan instead of the other way around.
These buckets will only work if you stay disciplined enough not to “borrow” money from different buckets. Use the money in them for only what they’re meant for. This means you have to treat every other bucket except for disposable as untouchable for your day-to-day use.
The best thing about having a disposable income bucket is that I can freely, without any remorse whatsoever, spend it on whatever way I want. This is because I am sure that I have already covered what needs to be covered and I deserve to spend what’s in that bucket!
- Automate your savings & investments
One genius way to make sure your buckets are in place without much effort is to automate transfers between bank accounts. When I began working, I made sure to set up a savings account with no ATM card where my payroll would transfer my desired savings amount to the same day my money comes in. Eventually, I decided to open another bank account where my money for travel transfers on its own as well. You’ll be surprised to know how well the hassle of making it difficult to withdraw combined with the painless transferring of funds works to discourage unnecessary spending.
I personally suggest BPI’s Save Up Automatic Savings Account, you can read more about it here. It has higher interest rates than the normal BPI savings account and has free accident and life insurance with the amount depending on how much is in your account.
If you don’t have time to keep track of all your investments, you can also set up monthly investment buckets through your savings account. Many banks offer options to streamline your investment options from already existing accounts, or you can even look into investment options like stocks (COL Financial has a great Easy Investment Plan that starts at Php5k a month) or even life insurance (Manulife, Sunlife, Prulife, etc).
At the end of the day, money is only a tool. The goal of every person seeking financial independence should always be to eventually be financially free. If not, you’ll be trapped into an endless cycle of simply working to live instead of living to work.
Hopefully, these tips have helped you in your quest of financial independence. Since we’re all trying to figure out how this works, let me know if you have tips of your own!
