First, the bona fides: I left my last full-time salaried job in 1990, at the age of 36, with the goal of never having a boss other than myself again. That was 30 years ago. Today I am mostly retired. My home is a paid-off, comfortable condo in an urban-proximate zip code. I live on Social Security, a small pension from an earlier period of employment, and a small stream of monthly income from writing. My retirement savings approaches the mid six figures but I’m not touching any of it yet; I don’t need to.
Most importantly, I never in my whole working life made more than $50,000 in one year, and most years, especially in the last 25, my annual income was closer to half of that. Your results will vary. Hopefully not by much, especially if you start now.
Minimize your taxes, but not your income
Unless you’re blessed with a dependable self-employment income stream or some fat ongoing gigs, your income might swing wildly from year to year — mine certainly has. Your instinct when this happens is to minimize your net income in order to minimize your taxes. Take every legitimate tax break and write-off expense available to you, but keep your eye on the bottom line. It may seem painful to pay taxes now but the higher your taxable income, the greater your contribution to Social Security. The benefit that awaits you at retirement age or later is calculated on the basis of your 35 most profitable working years. You want to make sure that you have that 35 years of significant earnings in order to maximize your benefit.
A retirement dollar saved now is two dollars that you can enjoy later
You’ve read, heard, and seen this advice before and if you’re not acting on it, you are robbing your future self of security. Make every effort to max out your contributions to a regular IRA every year, and start a SEP-IRA if you have self-employment earnings. Fill that up to the max as well, every year that you can afford to. Both of these things will reduce your taxes. Most tax software will quickly calculate for you what your maximum contribution is to any kind of IRA and you have until April 15 of the year following the tax year to stow the money away. Slow and steady invested savings over a period of 40 years or so will yield amazing results.
Live where you can afford to buy
There is no asset you can own that will appreciate more dependably than real estate. The obstacle to home-buying for many that keeps them throwing away money on rent is that the market they live in is unaffordable. If this is your problem, ask yourself: do you have to live there? Or do you only have to live where you have a dependable internet connection? The pandemic has shown us that many more people can work from home than ever thought they could.
Work towards making your home, at least to start with, in a place where you can put your foot on a rung of the property ladder. There is a good chance you’ll be able to move up later. The condo I live in now is the third property I have owned in 35 years. I made enough money on the first two places that I owned to buy my current home with cash.
Health insurance is insurance against disaster
The sucky profit-driven healthcare system in the US means that anyone without insurance is at risk of medical bankruptcy. Happily, this is a manageable risk. Insure yourself with a high-deductible health plan that works in conjunction with a Health Savings Account (HSA). Do what you can to maximize your yearly contributions to your HSA, just like you do with your IRAs. This will also have the effect of minimizing your taxes and if you are lucky enough to be blessed with good health, you’ll have yet another pot of money when you reach 65 that can be used tax-free towards medical expenses.
Debt is a blood-sucking vampire
Debt on assets that are losing value is one of the most effectives way that you can throw away money. What’s losing value? Your vehicles, your computer equipment, your household possessions, and probably most things that you buy with credit cards. What’s not losing value? Real estate, your education if you’re using it, and (if you’re clever enough) your business. If you can avoid it, don’t do anything on credit isn’t going to give you a needed return on the investment. The goal is to be free of debt that makes you dependent on a particular level of income.
DIY or outsource: what’s the calculus?
An often-touted benefit of being self- or intermittently employed is that you have more time to do things. Do you? That’s great and you can save yourself a lot of money by doing them yourself. You know your own skills better than anyone else does. Make an inventory of what it makes sense to do for yourself and what it makes sense to have others do for you. But always keep in mind that it is worth developing a DIY skill for a number of things that are not that hard, and that can save you bundles of money. Examples:
Cooking getting most of your nutrition from restaurants and frozen boxes is a very effective way to throw away money. I’m often astonished at how much people spend on prepared food and how little they get from it in taste and enjoyment. Healthy and nutritious cooking for yourself needn’t be very time consuming and is often an enjoyable diversion from the things you do for money. If you’re not doing it, learn.
Bookkeeping and taxes How complicated is your revenue stream? If you don’t have employees it’s not that hard to organize it all yourself: you just need to start a system and keep with it. When the end of the year rolls around, provided that you’ve done periodic oversight on what’s coming in and what’s going out, you can use easily masterable tools to organize and file your taxes. Accounting software and tax software packages cost probably 50–80% less than an accountant or bookkeeper’s services.
Repairs, upgrades, fixes Before you fork out any money on a service or repair for a vehicle, an appliance, or a fixture in your house, take a few minutes to watch YouTube videos about how it’s done. Could you do it yourself without inviting disaster? The more often you try, the more you will develop confidence and re-usable practical skills to make things work or keep them working.
The thrift mentality
What’s your association with the word thrift? Maybe thrifty is the first thing you think of and if you’re not careful you may soon verge into cheap, frugal, hard-up, low rent. Forget all that. Your main association with thrift should be thrive. Both words are descendants of an old Norse verb that means essentially what thrive means today: flourish, enjoy well-being.
The essence of thrift is to avoid waste — in all things, but especially in things that are limited in some way: time, money, resources. Take the long view of your life. Imagine it stretching out to your maximum life span and let your stewardship of what you have today reflect the good life you are planning to live for the rest of it. Don’t expend a resource, whether it’s time, effort, or money, on anything that does not promise equal or better value in return.