How A Normal Person (Like You) Can Become Financially Free

Matt Lillywhite

I’m not a rich asshole or someone who’s always had a lot of money. In fact, I’m quite the opposite.

See, I know what it’s like to have an empty bank account. Actually, I’ll rephrase that. I know exactly what it’s like to have a negative bank account while being kept awake by the prospect of being unable to afford basic groceries.

I used to suck at managing money. Growing up on the poverty line, I wasn’t surrounded by many people who were geniuses when it came to personal finance. Instead, the only thing I knew how to do was spend every cent of my paycheck. So that’s what I frequently did.

But now, everything is different. Over the past few years, I’ve managed to significantly increase my income to a point where I can comfortably live downtown. I’m also saving, investing, and doing many other things that enable me to live a pretty damn good life.

Here are several strategies I used to become financially free. Each of them changed my life forever. Hopefully, they will do the same for you, too.

First, Write Down Everything You Spend In A Month

A lot of people talk about the importance of financial responsibility. But in the past, I was financially irresponsible. See, I used to spend money without even knowing how much I had left in my bank account. Honestly, I just did whatever felt good in the moment.

As a result of my bad spending habits, I had very little money to spend on the things that actually matter (like rent and groceries). It often felt like I was driving off a financial cliff, just to get an adrenaline rush, with no clue how long it would be until I horrifically injured myself at the bottom.

But once I started writing down my monthly expenses, everything changed for the better. I quickly adjusted my spending habits to match my income. And within a reasonably short period of time, I felt like my finances were no longer out of control.

According to CNBC, “Keeping track of your expenses on a regular basis is an important part of managing your overall finances. Not only does it help you see where your money goes, but it can also reveal to you your spending patterns.”

Go through your bank statement and write down everything you spend in a month. Many people, including myself, like to do this on a spreadsheet as the data can be downloaded to your mobile phone and laptop. 

Sure, it might take a few minutes. However, doing this will help you gain clarity on your spending habits to see if they are sustainable (or not). As an example, here are my monthly expenses:

  • Rent $2,850
  • Investments $1,500
  • Savings $1,000
  • Food $300
  • Cellphone $50
  • Transportation $50
  • Subscriptions $25

*The price of all items mentioned above have been converted into US dollars*

Next, Create A “Worst-Case Scenario Fund”

In March 2020, I was enjoying a vacation in Australia. But when the borders shut due to the pandemic, I had to get an emergency flight out of the country. It wasn’t cheap.

But since I had enough money in my worst-case scenario fund to cover the cost of a flight, I immediately purchased a next-day ticket back to London so I could be with my family.

In essence, a worst-case scenario fund (sometimes referred to as an emergency fund) is a place to safely store 3–6 months worth of expenses. Quoting an article published by Investopedia:

“The first step is to determine how much you spend each month. Housing, transportation, and food will likely be the categories that eat up most of your cash. The average household spends 62% of its income, which averages $73,573 before taxes, on these items, according to the BLS Consumer Expenditures report. Once you know your total expenses for each month, multiply that number by three. Reaching that number will be your initial goal.”

When you have some cash set aside for a rainy day, you’ll undoubtedly have peace of mind knowing you can afford any unexpected expenses that might arise in the future (such as a medical bill). 

I’m empathetic to the fact that you may not be able to contribute thousands of dollars to a worst-case scenario fund right now. But that’s okay. Consider adding $5, $20, or whatever you can afford.

Focus on making a tiny bit of progress each month. Because when you continually put one foot in front of the other, you’ll inevitably create a better financial future over time.

Then, Try To Embrace The Subtle Art Of Delayed Gratification

Research published by CNBC shows that, “Consumers cough up $5,400 a year on impulse purchases.” Most of the time, they’re completely unnecessary and result in you having way less money to spend than you previously thought. 

Whenever you want to buy an item (that’s not necessary, such as groceries), wait seven days to avoid making a financial decision that you may later regret. Chances are, the desire to impulsively buy something will have faded away.

Once You’ve Done All Of That, Start Investing A Percentage Of Your Monthly Income.

Of course, it’s important to ensure that you can live comfortably on your income. Plus, it’s great to have a fund that you can use in case of an emergency. But those aren’t the only steps you need to become financially free.

Let me explain. Inflation is eating away at you all the time. If your entire net-worth is in savings, its value will steadily decline over the long-term. As the Bank of Nova Scotia reports:

“For savers and investors, inflation erodes the purchasing power of their investable assets. This is especially true of cash. An under-the-mattress approach to saving would mean $100 today would only be worth $97.09 next year, at a 3% inflation rate. Over time, the impact of inflation is greatly amplified, with that same $100 worth only $74.41 a decade later.”

Learning how to invest is a skill that’s enabled me to become financially free over the past few years. After all, my net worth isn’t dependent on the hours I work every day.

Make your money work for you instead of against you. Learn about different asset classes (such as stocks, bonds, cryptocurrency, and real-estate). Then, diversify your portfolio so that your net worth isn’t tied solely to one asset’s price.

I used to live on the poverty line in the United Kingdom. But once I started implementing the above strategies, I began to turn my life around. Now, I can sustainably afford my lifestyle, sleep peacefully at night, and have a lot of confidence in my financial future.

If you want to improve your finances, consider implementing the same techniques into your own life. Write down your monthly expenses. Create a worst-case scenario fund. Embrace delayed gratification. And finally, invest a percentage of your monthly income.

I’d be lying to you if I said that you’ll change your life overnight. Chances are, you won’t. But if you can make a tiny bit of progress each day, the power of compound interest will create a significant improvement in your finances over a long period of time. So what are you waiting for?

Start now.

Disclaimer: This article is for informational purposes only. Before making any big financial decisions, consult a financial professional.

Photo via Unsplash

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