When Olivia from Birds of a Fire first arrived in Manhattan with a new job in 2016, she didn’t live the frugal life. She also wasn’t thinking about reaching financial independence.
“I’ll admit, I got used to the insane prices and crazy spending,” recalls Olivia. “$10+ lunches? $5 coffees? Brunch Saturday and Sunday ($50), and hanging out on Saturday nights ($50+). I don’t think I cooked more than a handful of meals per year for two years.”
She didn’t know any better. Olivia was just following her friends’ lead. “All of my friends were doing it, and so I followed as well. When the graduates one year above you go out and do this, you kind of follow, because monkey see, monkey do.”
She thought this behavior was normal. She was also told that people in the finance industry only saved their bonuses. But Olivia did save more than just her bonuses. “I did utilize my retirement accounts and put the extra in brokerage, but I wasted so much money on stupid things.”
Coffee Adds Up
Once Olivia decided she would start living more frugally, she did some research on her recurring expenses and found a few shocking numbers. For example, she bought coffee at Starbucks religiously. She spent around $4.50 per visit. After analyzing her situation, she came up with how much she could save by not buying coffee and investing that money instead.
For exercise purposes, and because she loves spreadsheets, Olivia ran some numbers. “Imagine investing that $4.5 you spend on coffee everyday and putting it in the stock market instead,” says Olivia. “How much do you think you’d come out with in 40 years when you retire at 65? Historical averages have the SP500 return ~8% a year, so I used that in my analysis.”
The answer is mind-boggling. And I admit, I never worked in finance like Olivia, but even if the amount fluctuates, it still deserves some serious attention. Olivia says, “If you are 22, and you drink coffee 7 days a week, that will cost you 583K if you plan to retire at 65.” You can find her full explanation here.
Hustling to Become Financially Independent
Olivia has the luxury of being young — she’s in her twenties. When I was in my twenties, I certainly wasn’t thinking about financial independence. But Olivia is focused and a hard worker.
She says, “The perfect time to work 70 hours a week is in your 20s so you can retire in your early 30s. It’s harder to do this the later on you go in life.”
She breaks down the numbers like this: “Throwing around some numbers, it’s around an hour a day to eat, an hour at the gym 5 times a week to stay healthy and active, an hour a day for your commute, 8 hours a week to hang out with your friends, roughly 30 minutes a day on hygiene related activities. If we assume you’re living a normal, healthy life, then let’s say there are 84 “free” hours based on the above.”
Those numbers give her eight hours of sleep a night. And for the average person who works 9-5, that gives you 44 hours free each week. Olivia mostly works during her free hours — and also uses Citibike — biking to and from work. She saves $1,000 a year and burns approximately 1,000 extra calories a week.
Some other interesting things Olivia does include, spending two hours each Sunday to meal prep for the week. Her weekly meals sometimes cost her only $40. And she mostly only drinks free water when out and brews her morning coffee at home.
5 Free Things You Must Do
When discussing retirement, Olivia sincerely believes anyone her age (mid-twenties), who also makes a decent salary, can retire early. But you can’t sit around. She says, “Get yourself in gear and ensure your financial future. Once you get the basics down, instead of retiring at 65, there’s no reason you can’t retire in your 30s if you start out early.”
Her basics include five things.
- Get three to six months worth of expenses in an emergency fund. So, where do you store your emergency fund? In the highest-yielding savings account.
- Get your basic retirement accounts in order: 401k and IRA. Make sure you’re at least contributing up to your 401k match. Once you’re done contributing to your 401k, open up an IRA to fund $5,500 each year.
- Fund your HSA. Certain insurance plans that are classified as High Deductible Health Plans (HDHP) are allowed a Health Savings Account (HSA). They are arguably the best kind of tax-advantaged retirement accounts.
- Track your finances. There are so many ways to optimize your spending and saving, but if you’re not tracking and analyzing it, then you’re just guessing and hoping.
- Get an investment plan. She recommends getting a free investment plan with Ellevest.
So, start changing your ways, and join Olivia in early retirement.
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