In my last post, I gave you the tools you need to determine how long it will take you to retire early. Then, I summarized four financial levers you could pull to speed up your time to early retirement.

Now, I want to dive even deeper into the best financial changes you can make to retire early.

I consider these the best financial levers for you to retire faster because they are proven strategies that actually work.

Follow along to learn about the four financial levers you can pull today to press the accelerator on your path to financial freedom!

The four financial levers you can pull today to retire early

There are four main financial levers you have control over, which determine how fast you move towards financial independence.

The four levers are (1) Decrease your expenses, (2) Eliminate bad debt to free up cash, (3) Increase your income and (4) Optimize your investments.

Like driving a car, each of these levers have many gears you can shift to. Those gears represent the specific financial changes you can make with each lever.

Some gears have a huge impact on your speed while others may be a bit slower. Regardless, they all move you towards your destination: financial independence and retiring early (FIRE).

With that said, let’s get going!

Financial Lever 1: Decrease your expenses

The first, and easiest, financial lever you can pull is decreasing your expenses. As you know, there are many ways to decrease your spending. But, did you know you could save $10,000 per year or more by making the below changes?

To make things simple for you, I’ve sorted them below so the ones with the biggest positive impact are listed first.

Downsize your housing situation

Your housing costs differ depending on whether you rent or own. If you rent, you likely have a monthly payment, plus add-ons, such as trash collection, a garage fee and pet fee if you have any pets.

If you own your home, you likely have a mortgage payment, home insurance, property taxes, landscaping fees, pool-cleaning fees if you have a pool, and random maintenance costs.

Regardless whether you rent or own, you also likely have utility costs including electricity, water and possibly gas charges. Let’s face it…housing costs really add up! And, they vary widely depending on where you live.

But, it’s highly likely you have room to downsize and/or find a more inexpensive alternative housing situation. And, doing so could save you a LOT of money.

For example, in 2017 Ashley and I downsized from a 2/2 apartment to a 1/1 apartment and started immediately saving $800 per month in rental costs. That’s $9,600 per year! Yes, that stuff adds up!

Our situation was unique, but I’d bet you could save up to $3,600 per year or more!

So, how much do you think you could save by downsizing your living situation? Just do some perusing in your city and see what you could save. Then, answer the following questions.

Do you really need all that square footage you currently have? Or, all of the amenities? If you live in a high cost of living area, can you move to a medium cost of living area that’s close by? Can you get a roommate to share the rent with?

My recommendation before answering yes or no to the above questions is to simply ask “What needs to be true for me to save on housing costs by doing “X”?

Switch phone, internet and TV/cable providers

Did you know the average U.S. household spends $250 to $300 per month on TV, internet and cell phone service? Using the low of $250 per month totals up to $3,000 per year in expenses!

That’s a lot of money on intangible services, but there’s also a lot of savings you can obtain.

For example, in 2017 we were paying $311 per month, or $3,732 annually, on these services.

We used AT&T for everything. Our TV was with U-Verse and cost $98 per month. Our home internet was $21 per month and our cell phone service with AT&T was $192 per month for 2 lines with unlimited call, text and data.

Then, we decided to switch providers and even cut the cord on traditional TV/Cable providers.

Switching Cell Phone Service:

By switching our cell phone service from AT&T to T-Mobile, we were able to save $86 per month, or $1,032 per year!

And, T-Mobile’s services are better than AT&T’s overall! With T-Mobile, we get unlimited everything and even free data and texting in over 210 countries, which is perfect for us since we travel a lot. If you haven’t already, go see what T-Mobile can offer you today!

Switching TV/Cable Service:

Regarding TV/Cable, we chose to “cut the cord.” We cancelled our AT&T U-verse service, then signed up for Roku and Netflix. Those two, plus our local, basic TV channels provide everything we need.

Roku is awesome and is FREE to use. All you have to do is pay a small one time cost for the Roku setup kit and you can start watching your favorite channels, including YouTube on your TV. Go check out Roku and give it a try!

Netflix Standard costs only $10.99 per month and provides a ton of movies, documentaries and TV shows that we don’t get with Roku. So, we chose to combine those two services with our local TV to ultimately replace our AT&T U-verse cable service.

This ended up saving us $87 per month, or $1,049 per year!

Switching Home Internet Service:

Next, we switched our home internet from AT&T to Spectrum. I don’t think we would have saved anything by switching because we were getting a package deal with AT&T before. But, I was ready to leave AT&T for all services after realizing how much they were screwing us over on costs.

So, we moved to Spectrum and actually picked a much faster internet plan, which was 3x faster than the one we had with AT&T. This actually resulted in a $29 per month increase, or -$353 per year.

Summary:

In total, we ended up saving $144 per month, or $1,728 per year by switching our cell phone, internet and TV/Cable providers!

How much can you save each year by switching?

Document what you’re currently spending each month on your cell phone, internet and TV/Cable service. Then, go get quotes from other providers, such as T-Mobile, Roku, Netflix and other local home internet providers.

Minimize unnecessary shopping & entertainment

Do you have 1-click shopping setup on Amazon.com? Are you an Amazon Prime member?

How often do you go to Target to window shop, but come home with unplanned purchases? What about movies or going out every weekend? You know where I’m going with this…

The average American spent $1,833 on clothes and $3,203 on entertainment in 2017. That’s $5,036 per year, or $420 per month!

I don’t think you need to eliminate these costs. In fact, I think you should spend money on things that bring you the greatest joy. Clothes and experiences bring joy to a lot of people. And, they can even help you excel in your career!

So, what if instead of spending $153/month on clothes and $267/month on entertainment you only spent $100 per month on clothes and $200 per month on entertainment?

You’d end up saving almost $1,500 per year!

Download your last few months of credit card expenses and see how much you spent on clothing and entertainment. Include things like manicures and pedicures, cocktails or drinks out with friends and theater tickets or concerts.

What’d you find? How much do you think you can save each year?

Cook at home more than eating out

According to the U.S. Bureau of Labor Statistics, the average American household, including those with and without kids, spent $3,365 in 2017 eating out. That’s $280 per month!

Now, it’s pretty well-known that you could save 50% or more by cooking at home rather than eating out at a restaurant. If we spent just $80 per month eating out at restaurants, we could save $100 per month by eating at home.

Yes, that stuff adds up. To $1,200 per year to be exact!

Download your credit card statements from the last few months and see how much you spent eating out at restaurants, buying coffee and alcohol.

Do you think you can bring that number down any?

Decrease your transportation expenses

According to the U.S. Bureau of Labor Statistics, Americans spent $4,054 per year on vehicle purchase costs and $1,968 per year on gas and oil for their vehicles. That’s $338 per month for the vehicle and $168 per month for the gas and oil.

But, what if you could decrease your vehicle payment down to only $275 per month? That would result in $60 or more in savings per month.

I just checked online and you could get a nice year old Nissan Altima with less than 20,000 miles on it for $15,000 or less. With around 3.0% interest financed for 5 years, your monthly payment would equal $275. Okay, that’s totally achievable!

What about gas and oil? I bet people could bring those costs down to around $125 per month on average. That results in $40 or more in monthly savings.

You can easily save $10 to $30 every three months on oil changes by using online coupons. And, you could get gas at Costco, which I’ve found to be 20% less than local gas stations!

All in, you could save $100 per month or more on transportation costs. That’s $1,200 per year in savings!

Refinance your student loans

There’s no argument that student loan debt is holding back many Millennials financially.

I, like you, personally know how it feels to have so much student loan debt that it gives you anxiety. My wife and I once had over $100K in student loans combined.

But, did you know you could easily save quite a bit of money by simply refinancing your student loans?

Let’s assume someone has $60,000 in student loans with a 15 year term and 9.0% interest on average. Their monthly payment would be $608. If they refinanced and received a 6.0% interest rate on all loans outstanding and kept the same term, then they’d have to pay $506 per month.

That’s a little over $100 per month, which totals up to $1,200 per year in savings!

Of course, not everyone has $60,000 in student loan debt. But, some people may have 12% interest on a lower balance, which could mean they still save the same amount.

Regardless, you’re likely to save quite a bit of money by simply refinancing your student loans.

Check out this article to learn how I paid off the remaining $80,000 of student loans in 2 years.

“In summary, I hope you see how you can save $10,000 or more each year by decreasing your personal expenses. This one is the first lever mentioned because it’s the easiest for you to control and provides the quickest benefits for you.”

Financial Lever 2: Eliminate bad debt

The second financial lever you should pull, which takes some planning, is eliminating bad debt so you can free up more cash for investments.

I consider the following three debt items “bad” because they either don’t have any underlying assets or the asset backed by debt is depreciating.

Pay off any credit card debt immediately

Credit card debt is the worst consumer debt you can have outstanding. That’s because the annual interest rates are north of 20% and there’s no underlying asset that can appreciate in value!

If you’re unable to pay off the full balance of your credit cards each month, then you’re spending too much. If you currently have outstanding credit card debt that’s been outstanding for more than one month, then you need to prioritize paying them off immediately.

Let’s assume you have $5,000 across all of your credit cards where the payments are past due. At 20% or higher interest rates, you’d be paying around $80 or more in interest per month! That’s $80 you’re throwing away, which is why I recommend paying off the balance ASAP.

Downsize your vehicle and get a better alternative

Another consumer trap many of us fall into is buying “too much” vehicle. Unless we’re talking about high-end sports cars or classic vehicles, your vehicle is a depreciating asset. What this means is that it’s constantly losing value every day.

If you buy a new $35,000 car, financed with 2.5% interest along with a $5,000 down payment, then odds are you lose that $5,000 “investment” the day you drive your car of the dealer’s lot. That’s because new vehicles depreciate ridiculously fast.

That’s why I always recommend buying a nice, used vehicle that has less than 30,000 miles. And, never pay more than 6.0% on your vehicle financing! If you’re currently paying over 6.0% interest, then find a local credit union in your city and re-finance your vehicle immediately!

If you currently have a $30,000 or higher cost vehicle, then I recommend seeing if you can resell it and get a nice, used vehicle that costs around $15,000. That’ll save you a ton of money.

Between lower interest and just simply buying a less expensive used vehicle you can easily save $200 to $400 per month on your vehicle expenses.

Eliminate any personal loans

Personal loans are another consumer debt that you should eliminate immediately, but only after eliminating your credit card debt.

Typically, people have personal loans due to consolidating and re-financing their credit card debt. This is a great idea, if you’re not in a position to pay off the credit cards because you can get much lower interest rates. Oftentimes, you’ll get 6.0% to 9.0% interest rates for personal loans.

While these are better than credit card debt, they are still a debt class that doesn’t have an underlying asset that can appreciate in value. Therefore, you need to get rid of personal loans ASAP if you have any.

“In summary, if you have any credit card debt, personal loans or unnecessary vehicle debt, then you may be able to save anywhere from $200 to $500 per month. By doing so, you could free up $2,400 to $6,000 per year of your hard-earned money to invest in your retirement.”

Financial Lever 3: Increase your income

The third financial lever you should pull is increasing your income. While there are many possibilities for you to increase your income, the four outlined below provide the quickest return.

Also, these are most relevant for you if you’re currently employed by a company. The last one is relevant for self-employed people as well.

Ask for a raise

In general, if you’re employed by a company, then you likely get a standard 2.0% to 2.5% raise each year. But, with standard living expenses increasing faster than 3.0%, your pay raise hardly does much.

Plus, if you’ve been at the same company for a long time, then you’re likely underpaid compared to similar roles in your local market.

Unfortunately, it’s rare that your boss will come to you with a raise “just because.” Luckily, most companies have standard operating procedures that provide managers the ability to give you a one-off raise.

How do you go about getting that raise? By simply asking your manager.

Schedule a one-on-one meeting with your manager, outline the value you provide to the team and why you believe you deserve a raise.

I’ve been able to obtain a 5.0% salary increase in the past following this approach. And that’s on top of the standard 2.5% increase provided each year.

Obtain a promotion

Another way to increase your income is to go for that next promotion at work. This one takes some time and requires you to prove your value, which will take a minimum of 12 months in your current role.

But, if you’re able to achieve a promotion, you can easily achieve a 10% to 15% raise.

Switch employers for the biggest raise

In the past, job-hopping would label you as not being loyal enough to companies. Well, since companies became less loyal to their employees, jobs and careers have become a lot more transactional.

I’d love to see more companies keep up with local market pay rates by giving their employees’ raises, but that’s not the case. So, when your local job market is hot, that means you can earn a lot more by switching companies.

For example, I’ve found plenty of opportunities in the last few years where I could get a 20% total compensation increase by switching companies.

Do some searching on Glassdoor for your local job market and see where you fall in the pay ranges. Then, I recommend applying and interviewing for a few jobs to see what they’ll actually offer you. An official offer solidifies what you can earn elsewhere and gives you confidence knowing you can get another job where you want.

Who knows, you may get an offer, promotion and 20% pay increase!

Start a side hustle

Starting a side hustle, or part-time work outside of your main job, can be a great way to earn extra income. But, not all side hustles are equal.

Some side hustles start paying you income quickly and others could take a year or two to actually become profitable. So, I’m only going to recommend those that provide quick income and return on your effort.

Below are some of the best side hustles for earning extra cash on your own time.

Teach English with VIP Kids

If you’re confident in your English speaking and grammar skills, and enjoy helping others, then you can get paid to teach children English online with VIP Kids. You can start earning between $14/hour to $22/hour by teaching kids English in your spare time!

If this aligns with your interests, go sign-up with VIP Kids to start teaching them English.

Provide Consulting Services

If you have a particular skill, or set of skills, that an employer pays you for, then you can likely monetize them by providing consulting services on the side. For example, if you’re a software developer, accountant or finance expert, then there are plenty of opportunities for you to earn money by selling your expertise.

I’ve earned over $5,000 in the last few years by working random consulting gigs for people in my network. What’s a skill and service others need that you have? Go monetize it!

Tutor Students with Chegg

If you have specific knowledge in a subject, such as math, biology, chemistry and more, then you can get paid to tutor students online with Chegg. You’ll start earning $20/hour or more by teaching students things you already know!

If this interests you at all, go sign-up with Chegg to be a tutor.

Pet-sit with Rover

If you love puppies and don’t mind pet-sitting, then Rover.com is your best friend! You can earn up to $1,000 per month by pet sitting. Ready to get started? Then, go sign-up to be a pet-sitter with Rover.com.

Rent Your Spare Room with Airbnb

If you have a spare room or mother-in-law suite in your home and live in a popular city where people like to visit, then you should consider making money with Airbnb. You can earn a lot of money by hosting guests. Some people earn $2,000 per month with only 50% occupancy.

If you have an empty room that’s just sitting there, then consider monetizing it! Go sign-up to rent your room on Airbnb if this sounds like a fit for you.

“As you can see, there are plenty of possibilities for you to increase your income! By asking for a raise, obtaining a promotion or switching companies, you can easily earn a 5% to 20% raise. And, by starting a side hustle, you can start earning as much as you’re able to achieve in your spare time. The money is there when you’re ready to go after it!”

Financial Lever 4: Optimize your investments

Last but not least, the fourth financial lever you have control over is your investments.

No, you cannot control how the stock market performs. But, you can control your investment allocation towards different types of investments. Your allocation will depend on your risk appetite, how much you currently have saved and how far away you are from retiring early.

If you don’t feel like you have any extra cash to invest for your retirement, then go read the first three financial levers above. My hope is that by committing your energy to spending less, eliminating bad debt and earning more money, you can take all of that extra cash and invest in your future.

With that said, let’s walk through five of the most common investments you should start prioritizing for early retirement and financial security.

Build up an emergency fund in a high-yield savings account

It’s a good idea for everyone to have emergency savings set aside for the unexpected. One thing I’ve learned about life is we cannot predict everything that will happen. As a result, unexpected things pop up that you should be prepared for, such as losing a job or having a baby.

But, you need to be smart about where you save that money. If you’re saving it in cash or a low-yield savings or checking account, then you need to get a high-yield savings account.

As of February 2019, various high-yield savings accounts, such as Ally Bank or PNC, are offering 2.20%-2.35% interest rates. If you’re savings are not earning any interest or less than 2.20%, then you need to open a high-yield savings account and put your money to work for you!

If you don’t, then inflation, or the rising costs of consumer products and living essentials, will increase faster than your savings. In layman’s terms, your savings will actually lose value over time.

A good amount to save up is three (3) months’ worth of your standard living expenses.

Obtain your employer’s full 401K match

If you work for a company with a 401K match, then you need to take advantage of the full match your company is offering you.

A 401K match basically means that your employer will invest a percentage of what you contribute into your personal retirement account. This is free money for you! Oftentimes, employers will match 100% up to a certain percentage of your salary.

For example, let’s assume your company has a 100% 401K match up to 5% of your salary. If your salary is $75K per year and you invest 5%, or $3,750 per year, into your 401K, then your company will contribute another $3,750 into your 401K account. That’s an instant 100% return on your investment!

One thing to know is that your company match is based on a vesting schedule. This means you get a percentage of the total company contributions to your 401K for every year you are employed with the company. Most have a five year vesting schedule with fixed vested percentages. That means that for every year of employment until the end of the first 5 years, you would earn 20% of the company’s contributions to your account. If you leave the company before the full vesting period, then you forfeit a portion of the company match. You will have to check your employer’s benefits to see what their plan states.

This one’s a no-brainer. Don’t give up a 100% return on your investment!

Max out your annual retirement account contributions

While your company will not match the total amount you’re able to contribute to retirement, you should be taking advantage of the max limits set by the IRS.

This is important for tax-advantaged accounts because you’re able to lower your taxable income, and pay less income taxes, by investing in your retirement.

You can check out this page on the IRS website to learn more about max retirement investments you’re allowed to make annually.

Max out your annual health savings account contributions

If you have a high-deductible health insurance plan (HDHP) with your employer, then you’re eligible to open and contribute to a health savings account (HSA).

A HSA is a great retirement vehicle because it allows you to set aside money for future healthcare expenses. The best thing about the HSA is that it’s triple tax-advantaged.

Basically, this means you (1) can contribute up to a limit each year to your HSA without paying income taxes on the funds, (2) can invest your HSA account savings in the stock market to grow and avoid taxes on your gains, and (3) you do not have to pay taxes on the healthcare services you receive.

So, if you’re eligible for an HSA I highly recommend setting one up to use for your healthcare expenses. With the current outlook on the U.S. healthcare system we’re all going to need every penny we can get.

If you want to learn more about HSAs, then I recommend this article from ChooseFI. And, if you want to learn more about health insurance plans, go check out my article titled How To Choose a Health Insurance Plan in 5 Easy Steps.

Invest your remaining cash in index funds

After you’ve maxed out the above investment accounts and eliminated your bad debt, you have many options for investing your extra cash.

You could invest in individual stocks, real estate, index funds and more. But, what’s the best path that provides the greatest return with the least amount of effort?

I believe the answer is low cost, passive index funds.

Basically, this is the Bogleheads approach to investing, which was pioneered by the late Jack Bogle, founder of Vanguard.

The theory is that nobody can time the market or consistently outperform the stock market in terms of earning higher investment returns. If that’s true, then we could aim to match the markets returns. That’s exactly what many broad index funds do, which were invented by Vanguard.

History has shown that over the long term the markets return 8% or more on overage. Some years are down years and recessions do occur. But, over time, the market has always provided healthy positive returns.

Plus, by tracking a broad stock market, your investments are diversified because your investments are in hundreds of companies that operate across the world. As a result, this methodology is far less risky than investing in individual stocks.

The most commonly recommended stock index fund in the early retirement community is Vanguard’s total stock market index fund (VTSAX). From 2009 to 2019, VTSAX turned $10,000 into $41,086. That’s a 4.1x increase in 10 years. Also, VTSAX has one of the lowest expense ratios!

If you’re looking for an easy investment approach for your extra cash, then consider investing in index funds. You can learn more at the Bogleheads investing page here and watch some videos here.

“By spending less, getting rid of bad debt and earning more you’ll have a lot more money to invest in your retirement. But, you need to decide where to invest your hard-earned money. Make sure your savings are in high-yield savings accounts, you take advantage of company 401K matches and that you optimize your investments in retirement accounts and index funds.”

Commit yourself to pulling these financial levers to speed up your early retirement date

In summary, the four financial levers you have the power to pull are (1) decreasing your expenses, (2) eliminating bad consumer debt, (3) earning a higher income, and (4) optimizing your investments.

By pulling these levers along with the information in this article, you can press the accelerator on your path to early retirement.

The ideas here are all pretty simple in theory, but the difficulty lies in changing your habits and executing on your retirement plan. This will take some self-control, commitment and small sacrifices.

The good thing is you’re in charge of how fast you want to achieve retirement; and you can set your own pace. If you want to enjoy a big vacation each year, then bake it into your plans.

In fact, figure out what you want to achieve for each of the financial levers above and then add those targets into your personal budget.

Finally, reward yourself and celebrate your success on your path to financial freedom. You’ll have a much more enjoyable time if you do!

Add your spending targets to your budget by downloading this free personal budget template!