You're walking down the street at a late hour when a mugger jumps out of nowhere and asks: "Your money or your life?" Now, if this was a sketch in a sitcom, you'd go "I'll take both, thank you very much", but, alas, this is a life or death matter. You stop for a second there and realize that you've never lived your life according to what you actually value.
If you value your life more than money, then you better act accordingly. Now. How?
You start by taking stock of all the money that entered your life and all the money that you've spent. Try to think of everything in order to come to a close enough estimate. Think of all the assets you have( house, stuff, IOUs, investments, savings, checking accounts.. everything that you can sell for money) and liabilities( debts, repairs, insurance, expenses..etc). Calculate your net total assets. Now, you know exactly where you are in life financially. Mind feels clear now. No so fast! Something is missing: you still don't know how much you're trading your life energy for. If you're getting paid 25$/h, say, and you subtract all work related expenses(food, commuting, clothes, gifts, events...etc) you can calculate exactly how much you're getting paid per one hour of life energy. Go further: calculate exactly how much every activity you do is costing. How much are the things you're buying worth for the life energy you're putting into it?. E.g, a 10k$ car would cost you 500 hours of life energy if you're getting paid 20$/h.
Next step would be to draw your personalized wall chart; a chart where you track your expenses and your income on a daily basis.
You have this wall chart now( hanged on the wall somewhere in your room) where you can see it everyday and remind yourself of your ultimate goal: Crossing over. No, not to the other side. To becoming an FIer( financially independent). Two steps are remaining: Minimize your expenses which doesn't necessarily mean that you have to stop buying things you love or restrict your calorie intake. No. The idea is to value your life energy because at the end of the day your life energy is the currency you're paying with. Couple of ideas: Don't go shopping unless you've written a list of what you really need, lest you get lured into the trap of buying gazingus pins you don't actually need. Maximize your enjoyment of the things you already have. Do it yourself (DIY economy): there are numerous skills that take like a week to learn through youtube videos and what have you, and which makes you more valuable to others around you, not to mention the money you save in the process. Anticipate your needs; research value, durability, multiple use, quality. Ask for a discount( few people do it).
Since you're now aware of your life energy being on the line, always ask yourself these 3 questions when considering doing something for money: Am I getting my life energy's worth for the job? does this job align with my values? What would I do if I didn't need to work for money?
Okay, time to find ways to maximize your income. Increase your abilities, always be learning new skills, you value your life energy so ask for a higher pay. You know your job is temporary and you're only working for money and preferably somewhere that aligns with your values and consistent with your health and integrity so that you get to the cross over point( 25x your annual expenses) faster.
You know the drill by now: Save more, get an increasingly higher pay, feed your investment portfolio, and then let compound interest work its magic.
The journey to the cross over point is going to be full of ups and downs, so there are some things you can do to safegaurd against any financial crises in the future: open an Emergency fund( 6 months salary on the side); Have a Cache( a term originated with travellers hiding their provisions underground in caches back in the day). In your case, you wanna to have a surplus of money beyond the 6 months salary.
Growing money/investing/ preserving capital:
Our goal is to free our life energy from the shackles of the 9-5 complusory-work-because-i-have-a-lot-of-debts-i-need-to-pay, and be free to pursue more valuable work and contribute more to the betterment of society.
Here is what you need to know about investing: Investing is risky but risk can be managed and rewards change accordingly. If you're young, your risk tolerance is high; if old, there are low risk investments. There are accounts like IRA and 401k( employers provide) where you can put your money and let it grow tax-free. and it is recommended that you max your 401k out in order to take advantage of the matching( free money) the company offer. There are different types of investments such as stocks(shares in a company), bonds( loans), exchange traded fund(ETFs), treasury bonds( performance has dropped in the last decade), agency bonds( favorable by socially responsible investors SRIers), certificate deposits CDs, Real estate( high risk because of expenses and taxes). The most popular kind of investment nowadays is investing in index funds( a pool of funds that matches an index such as the Dow jones or the SnP 500); Index funds don't require middlemen( passive management), have low expense ratio, and diversified across national and international stocks. There are also government/municpal bonds with maturity dates. These are lowest risk.
There are questions you should ask yourself before making any investment: does it align with my values? is it in line with my tolerance risk, does it provide overall diversification for my investments, will the returns pay my expenses, how easily can I liquidate, what sales/penalties do incur if I get out, what are the federal, state, and local tax implications of this investment for me( is it tax efficient for my income bracket or situation?
Investment incomes come in many forms: Dividends( share of profits distributed to stockholders), Royalties( intellectual property), rent, capital gains( proceeds from selling shares beyond principal investment), interest paid in instalments in the case of bonds.
Once your income investment covers your monthly expenses, and you've set aside a 6 months cushion and a cache, you officially become an FIer and you can allocate your time and resources to more fulfilling pursuits.