If you’re like me, you’re on the path to achieving financial independence.

But it’s not always smooth sailing.

Getting started on the FIRE path can be overwhelming, especially with the number of YouTube videos and articles (including this one) on the topic posted every day.

To keep it simple, I’m sharing 5 rules I live by to achieve financial independence and (possibly) retire early.

1. Control your debt

Debt often gets a bad rap. And maybe for good reason.

It can help you build your wealth if you understand how to use it strategically.

If you’re in control, then debt can be a powerful tool in your financial toolkit.

But many people underestimate the devastating effects that high-interest debt can have on their finances.

Let’s look at some common forms of debt and how they can be good or bad depending on how they’re used.

Mortgage

A fixed-rate mortgage can be a great way to get into real estate and pay off a house over time. It’s predictable, there’s no surprises.

However, a variable-rate mortgage could potentially cause financial distress when interest rates increase. Since you’re not in control of the rate, it could end up taking a huge chunk out of your monthly budget and quickly turn things south.

Student loans

Shelling out tens of thousands of dollars for education might not be a great idea if you’re not sure what you want to do.

I didn’t have a clue what career path I wanted to take, which led me to switch programs several times in university. I graduated in six years and most of what I do today was self-taught or learned on the job.

Before taking out student loans, consider if post-secondary education is even necessary for your career. Alternatives like community college, online education, or trade school can cost less than a degree and still lead to a rewarding career.

Also, consider the potential return on your investment.

Taking out a $60,000 loan to end up making $60,000 after you graduate doesn’t seem like such a good deal, especially when factoring in the missed opportunities of earning an income or starting a business during those four years.

Credit cards

Credit card debt is the worst and should be avoided at all costs. Its predatory rates at 20% will make you wish you never opened the card in the first place.

One missed credit card payment can quickly snowball into a mountain of debt, making it increasingly hard to pay it all off.

However, if you’re diligent at paying off your credit card statement every month, then credit cards can offer some great benefits, such as travel points, cash back, or bonuses.

Just remember: never carry a balance.

Paying off debt

Remember that paying off debt, whether high-interest or low-interest, is never a bad thing. Sometimes, it’s more of an emotional decision rather than a financial one.

Aim to be 100% debt-free by the time you’re ready to retire so you can live worry-free without owing any money.

2. Build a safety net

This rule is non-negotiable.

Having a safety net to fall back on can literally save you from becoming homeless.

It will also allow you to take more risks, like pursuing your dream of becoming the next Michelin-star chef.

Emergency savings fund

Build a safety net for peace of mind.

You never know if you’ll be hit with a health issue and be forced to pay a large sum. Or if you suddenly get laid off and are left with no income.

How will you get by?

A good rule of thumb is to save three to six months’ worth of living expenses in the case of an emergency and you lose your income. Think realistically how long it might take you to find a new job and save that amount in a high-yield savings account.

Diversifying income streams

In addition to having an emergency savings fund, a safety net can also mean having multiple income streams.

If you ever get laid off, you won’t lose all your income at once. Having a bit of money coming in while you search for your next job or start up a business can make a huge difference.

Gain valuable skills

Always improve your skillset and stay up to date with the latest practices in your field. You might not have interviewed since you left college, but by reinvesting in skill development, you’ll at least stand a chance when you get thrown into the job market jungle.

3. Pay yourself first

The only way to get financially ahead is to pay yourself before spending. After you’ve covered your basic living expenses, debt repayments, and emergency savings, the rest of your money should go into these buckets.

Registered accounts

First, max out those tax-free accounts. Any investment gains you make will be yours to keep without paying Uncle Sam a cut.

Tax-deferred accounts are the next step and can be a good way to lower your tax obligation for the year.

If your company offers an employer match, always take it. Why would you turn down free money? Consider it a bonus on top of your salary.

Taxable accounts

If you have any money left over, shovel the rest into a taxable brokerage account.

4. Practice mindful spending

Don’t go crazy spending every day like it’s Black Friday, but don’t pinch pennies either.

Buying Starbucks and avocado toast won’t ruin your financial plan.

Keep it simple: Spend on the things that make you happy. Don’t spend on the things that don’t.

If you’re mindful of what you spend on, and you’re still feeling tight on money, focus on the big ticket items like housing and transportation. This is where the majority of your money goes and can have the biggest impact on your budget.

Look to minimize these expenses, such as by moving to a lower-cost-of-living area or taking public transportation instead of Uber.

4.1 Never skip out on new experiences

Life is for living to the fullest, not sitting in a box, counting numbers on a spreadsheet.

While you’re still young, say yes to:

• Traveling
• Sky diving
• Music festivals
• Climbing mountains
• Meeting new people

The beautiful thing about life is that you can do whatever you want. Life is really what you make of it.

When you reach financial independence, you don’t want to look back and wish you experienced more things while you were younger.

5. Health is wealth

The future is unknown and out of your control.

This is something I constantly remind myself of.

Don’t try planning out too far into the future. You’ll just stress yourself out over something that you can’t control.

Instead, focus on the present:

• Go for a run.
• Lift some weights.
• Cut out the junk.
• Get your sleep right.

Take care of your body and mind because one day, you’re gonna be old.

And all the money in the world can’t buy your health back.

I like to say treat your body like a retirement account.

Invest early and consistently. Financial gains aren’t the only ones worth chasing.

“Don't use all your health to chase after wealth, only to spend all your wealth later to get back your health.”
― Joseph Prince, Unmerited Favor