Episode Details

Regular listeners and readers know by now that Financial Autonomy is about gaining choice. Maybe that choice is retiring early (eg. the FIRE goal that's popular in the US), but it could just as easily be the choice to work in a different career, start your own business, work fewer hours or days, or the choice to take a job closer to home, even though that means taking a paying cut.

So whatever your Financial Autonomy goals is, what are the common strategy options that you could use to make progress from where you are today, to where you want to be in the future?

I should mention at the outset that there's no need to take mental or physical notes, you can grab that checklist by clicking on the image below.

If you are to gain choice in life, a prerequisite is that you not be under financial stress. The more easily you can meet your and your families living costs, the more options you have.

1 Pay down debt

A good strategy option to start with is to pay down debt, and avoid most new debt. Start with your most expensive debt – perhaps a credit card or a personal loan, and focus your energy on getting this cleared. Then move onto the next. If you have a home loan, this is not likely to be something you can have paid off in a year or two. But if you have paid off your other debts, it does make a lot of sense to then focus on reducing this debt as quickly as you are able to. This will result in you building up equity in your home, which then gives you several options that will help in pursuing your Financial Autonomy goal.

For instance let's say you want to re-train in a new career and need to go back to school for a year. If you're well ahead on your mortgage repayments, you may be able to reduce repayments to the minimum for 12 months, or go interest only, to reduce your ongoing expenses. You may even have re-draw capacity that you could live off if need be.

Or what about if your Financial Autonomy goal is to start your own business? Through a focus on paying down your home loan, and building up equity in your home, you have financing options to get your new business off the ground.

2 Can you reduce your housing costs?

In most households, putting a roof over your head is the largest expense. Whether you are renting or paying off a mortgage, it's not uncommon for 30% of income to go towards housing, and I've had people come into the office who spend over 50% of their income just on having somewhere to live. Given the size of this expense, even minor savings here are likely to be more impactful than many other savings measures that are more in the "penny pinching" realm.

With an awareness that housing is a major expense item, can you think of any way to bring this cost down?

When I bought my first home, a small 2 bedroom flat, I rented out the spare room. That rent was really helpful for me in being able to make the budget work, and it came with the bonus of having someone around to talk to.

I heard of someone just recently who was able to buy a fairly low cost house that was in need of some love. He spent a few months fixing it up, then moved into the smallest room and rented out the other 2 rooms. The rent he received from his two housemates was almost enough to cover his mortgage repayments, and so the cost of putting a roof over his head with close to zero. Plus he could share the utility bills with his housemates, further reducing his expenses.

If you're renting, could you move to a lower cost option? Could you share with others?

3 Could you reduce your transport costs?

If housing is the biggest expense, transport costs often come in at number 2 or 3. The last car I bought was a year old and still had 4 years of warranty left on it. In comparison to buying the same car new, I saved a third, about $10,000, of the new car price. So as a starting po