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Brad BarrettJonathan Mendonsa

AN ILLUSTRATED GUIDE

FINANCIAL INDEPENDENCE MADE SIMPLE

WELCOME TO CHOOSE FIEarn more. Spend Less. Enjoy the journey. These three ideas behind Financial Independence are simple. Yet, they’ve made an outsized impact in our lives. They’ve allowed us to leave our jobs in corporate America and to pursue businesses and projects that light us up. They’ve allowed us to be present for our families and to reclaim decades of our lives back. They’ve allowed us to attain mastery, autonomy, and purpose in the things we choose to do, on our terms. We discuss these ideas behind FI in depth in our book ChooseFI: Your Blueprint to Financial Independence. We’ve also crafted an online video course in case that is your preferred medium. Because we know every one of us learns in different ways, we’ve also created this illustrated guide to break down FI into simple actionable steps. These steps may be simple, but that’s not the same as being easy. Financial independence is a personal choice and journey - so if something doesn’t fit your lifestyle - that’s okay! Use the tips you find helpful and toss the rest! To help you stay the course, we’ve created more resources and a community of more than 75,000 individuals who are on the same journey.

We think your 10-year future self will thank you for choosing financial independence, and we welcome you to YOUR ChooseFI family!

Brad BarrettJonathan Mendonsa

MORE FREE RESOURCES ORDER THE CHOOSE FI BOOKTAKE THE FI 101 COURSE

As a rule, you should aim for a savings rate 40-50%. That probably sounds like a lot–and it is! But if you adhere to the traditional 15% savings rate, it would take 40 years to reach financial independence.

FI Starts With Savings01

Saving TipAre you taking full advantage of your employers retirement savings program? If your employer has a 100% match you can DOUBLE your savings by maxing your contribution.

Housing is likely your largest expense. Getting this for free or very cheap goes a long way towards increasing your savings rate. House hacking is when you find a way to eliminate or greatly reduce your housing costs.

House Hacking05

Housing Saving TipDo you have a family member or friend you can share housing with? Can you buy a duplex and live in one half while renting the other half? Can you downsize your home to reduce costs?

Aside from housing, your car and the costs associated with it is likely one of your largest expenses. Reducing or eliminat-ing the amount you drive can help you reach FI faster.

Automotive Hacking06

Automotive Saving TipCan you rideshare or take public transportation to work? If a car is necessary, drive a car that is reliable and inexpensive to maintain. Finding a mechanic that is specific to your car can also save you money.

If you choose to go to college, don't pay full sticker price! By optimizing all the great programs and scholarships out there, you'll save thousands of dollars in tuition and living expenses, and maybe graduate quicker too. 

Hack College07

College Saving TipContributions to your state's 529 plan are often deductible from your state's income taxes. Consider maxing out your annual tax deductible amount.

Lowering your living expenses can help you reach financial independence in two ways:

1. Lower living expenses allow you to save more money. 2. Lower living expenses means you need less needed in your nest egg.

Lower Living Expenses02

Living Expenses Saving TipHave you considered cutting your cable/satellite and use Netflix and other less expensive options for entertainment? Also, try driving an older car or negotiating for a lower cell phone bill.

Prioritizing paying off debt is important on the path to financial independence. The sooner you pay off your consumer debt the sooner your financial freedom clock begins.

Eliminate Debt03

Eliminating Debt TipIf you currently have credit card debt, consider doing a balance transfer over to a card with a 0% intro rate and pay it off as quickly as possible.

The path to financial independence is not about living a life of deprivation. You can travel more than you realize for free or very cheaply using travel rewards. The general idea is that you use credit card rewards (earned through sign-up bonuses) to cover your travel expenses.

Use Travel Rewards!04

Travel Saving TipIf you don’t have excessive credit card debt and can responsibly manage credit cards, consider a card that has travel rewards.

CONTENTS

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01 INVESTMENT HACKS | 02 LOWER LIVING EXPENSES TABLE OF CONTENTS

Broad based low cost index fundsThere are a multitude of studies that show that on average, actively managed mutual funds struggle to match and often under perform their relative indexes. In large part, this is due to the headwind of the higher fees that are associated with actively managed funds as compared to index funds.

An actively managed fund that charges 2% per year would need to outperform the index by 2% just to match what you could earn in the index. This is extremely difficult to do over longer periods of time.

You can invest in the low-fee Vanguard Total Stock Market ETF (VTI) using a fee-free trading account, like with M1 Finance.

A total stock market fund will track the stock market as a whole. Your returns will match the returns of the market. If you would like to include bonds in your portfolio, the same can be said for a total bond market fund, such as Vanguard's Total Bond Market Fund.

Simply put, the goal of the FI movement is to save 25 times your annual expenses. It is thought that once you have this amount saved you can begin withdrawing enough

from your investment accounts to cover your expenses. At this point you would be considered “financially independent” and no longer need to work for money.

It makes the FI community uniqueAiming for a 50% savings rate is one reason the FI community is so unique. We all work together to share tips and encouragement to live this lifestyle. This is support and information you won't find at your neighborhood barbecue.

Rental properties are loved investments by the FI community.For a small down payment there is the potential to immediately generate cashflow and many people in our community have beaten the game using this strategy. This strategy is put into overdrive when you stack with a concept like house hacking. Home

For Rent

01 FI STARTS WITH SAVINGS

How much should you invest?The FI community puts a lot of emphasis on “savings rate”. This is the percentage of your income you are saving or investing. As a rule, we aim for a

That probably sounds like a lot–and it is!Traditional personal finance usually aims for a 15% savings rate. But then it can take 40+ years to reach FI. Seem impossible to save that much? We have tips and tricks for lowing your living expenses. One place to put a part of your savings, like an emergency fund, is with a high-yield savings account.

savings rate of

40-50%

The 4% Rule “Of Thumb?”Saving 25 times your annual expenses, where did that number come from? It is largely based on a 1998 study called the Trinity study which looked at what percentage of investments a retiree could reliably draw throughout all investing timelines without running out of money.

This study is not without some well founded criticism,

in particular it has been questioned whether thedata from this study could be extrapolated from the regular retiree with a 30+ year retirement to the early retiree with a 60+ year retirement timeline.

The study concluded that 4% was a safe withdrawal rate with a 95% rate of success

02 LOWER LIVING EXPENSES TABLE OF CONTENTS

Lowering your living expenses is a major focus for the FI community. Having lower expenses allows you to reach financial independence more quickly for two reasons. First,

it allows for a higher savings rate. Every dollar you don't spend is a dollar you can invest. Secondly, lower annual expenses reduces the amount needed in your nest egg. Review these

cost saving tips and implement the suggestions that make sense in your life.

71

Shop around for the best deal on home, auto, and

life insurance.

Use cost effectiveentertainment like

Netflix and Hulu.

Install a smart, automated home

thermostat system.Reduce expenses on clothing, grooming, and consumable habits (like

smoking and drinking alcohol.)

Drive an older car that does not have

a car payment.

Have a green thumb? Try growing your own

vegetables to save money on groceries Use public transit or

ride a bike to work.

Reduce your food cost by cooking meals at home.

Reduce or eliminate monthly subscriptions

like newspapers and magazines.

Greatly reduce or eliminate your

cable bill.

Reduce your cell phone bill lowering your data usage or use a prepaid plan.

Sell unused items for cash

02 LOWERLIVING EXPENSES

01 FI STARTS WITH SAVINGS | 03 ELIMINATE DEBT TABLE OF CONTENTS

There are two schools of thought for paying off debt. The first way is to pay off the account with the smallest balance first. This will give you a good place to start and you will see and feel progress toward your end goal quickly. The second way is to pay off the account with

the highest interest rate first. This will get rid of your most expensive accounts first, thus saving you the most interest over time. Choose the strategy fits you best. The most

important part is to stay motivated to keep paying down debt.

03 ELIMINATE DEBT

Create a budget. Knowing exactly where you are spending your money each month will allow you to make better decisions. You can spend money on things that are important to you, while cutting out things that are not. You might be surprised at how much money you can find to pay towards debt when you are spending with intention.

Getting a quarterly or holiday bonus? Put your extra cash toward your debt instead of a vacation or home upgrade.

Can you transfer your balance to a card with 0% interest? This can help save you a lot of money on monthly interest charges.

Explore refinancing your student loan debt. Look into Credible to see if refinancing it would save you money. Or, consider consolidating your debt. The less interest you pay the more you can save for financial independence.

Pay more than the minimum balance. Even if it is only $10. Every dollar extra you can pay means paying less in interest.

Cut up or hide credit cards from yourself. You will be surprised how much faster you can pay down credit card debt when you do not carry the card around with you.

02 LOWER LIVING EXPENSES | 04 USING TRAVEL REWARDSTABLE OF CONTENTS

Understand the spending requirementsMost cards will have a minimum spend requirement to earn your sign up bonus rewards. In order to reach your spending requirement, put your food and gas and some discretionary spending on the particular card that you have signed up for, and use that card exclusively until it is finished or nearly finished, then pivot to the next card. Don’t be in a rush - as long as you complete the minimum spend requirements in the specified amount of time you will earn your rewards.

2

Utilize additional earning opportunitiesIf you live a very frugal lifestyle and do not have enough expenses to run through the card, plan your minimum spend around a big purchase. The card can be used to pay your property taxes or income taxes, and if you are close but need a little extra, you can get a jump on holiday shopping.

3

Use your reward cards with a purposeTravel reward cards usually offer more in terms of rewards than cash back cards. For example, if a cash back card offers 1.5% in cash back then spending $3,000 will earn you $45. However, with a card that offers travel rewards, that same $3,000 in spending may get you between $600-$1,000 in free travel. In order to maximize your rewards, stop using your credit card sporadically, but instead use it with intention and purpose.

4

Do NOT open department store cardsThis is a waste of an application. Department store cards often have a low limit and can only be used at their store. The rewards you get from department store cards is often very low. Don't waste an application to save $10 on your bargain clothes when the alternative is getting hundreds in free travel.

5

Find the right travel rewards card for youFirst, consider what travel you and your family like. Do you have a honeymoon to a tropical location coming up? Or maybe a familyvacation to a theme park? Do you value flight miles or maybe hotel reward points? Understanding what travel rewards are offered by different cards will help you narrow down your search. Also consider the annual fees that different cards have (and if they are willing to waive for the first year.)

1

Understand how this strategy affects your credit scoreWhen you open a line of credit, the company offering the credit does a hard pull on your credit score. The hard inquiry will decrease your credit score by 2 to 5 points, and this rolls off after a few months. Then the credit card company also looks at your utilization. If you have a $20,000 limit and only owe $100, this is a low utilization rate. A low utilization rate is looked at favorably and can boost your credit score. Again, this strategy of using credit cards for travel rewards is only recommend for people who can keep a $0 balance month-to-month.

6

04 USING TRAVEL REWARDS

The path to financial independence is not about living a life of deprivation. You can travel more than you realize for free or very cheaply using travel rewards.

This is an easy way to reduce a large expense in your annual budget! The general idea is that you use credit card rewards (earned through sign-up bonuses) to cover your travel expenses.

Heads Up...This strategy isn’t for everyone!If you have a poor credit rating, you use credit cards to make it from paycheck to paycheck, or, you are about to apply for a large loan, this strategy is not for you.

03 ELIMINATE DEBT | 05 HOUSE HACKINGTABLE OF CONTENTS

Want to travel for almost free?Sign up for our totally free course!

MODIFY A VANJust you? Consider modifying a van into

a tiny home and living here.

TRADE FOR HOUSINGDo you know an elderly person who could

use help? Consider living with an older person, helping them with household tasks in

exchange for housing.

USE AIR BNBDo you travel a lot? Have a big event in

your town? Consider renting your home while you are away. You could pay for a

month of your mortgage is just one weekend!

DOWNSIZE YOUR HOMEIn the market for a new home?

Consider how much room you actually need and downsize to a smaller home that

is more affordable

RENT A ROOMHave a spare bedroom or office you can

rent out? This allows you to both reduce your housing costs and invest in real estate. Say you

purchase a three bedroom home and have a $1,500 per month mortgage payment. If you rent out

two bedrooms for $700 each, your monthly housing cost is now $100 per month!

RoomFor Rent

BUY A MULTI-FAMILY HOMEConsider buying a multi-family home.

If you purchased a duplex, and your mortgage was $1,200, can you rent out the other side

for at least $1,200? This is the ultimate form of house hacking.

MOVE TO CITY WITH A LOWER COST OF LIVINGIf your income is not tied to a physical

location, you can significantly reduce your expenses by moving to a location where

the cost of living is lower.

On average, housing accounts for around 33% of your budget. Consider some of these house hacks to lower your living expenses.

04 USING TRAVEL REWARDS | 06 TRANSPORTATION HACKINGTABLE OF CONTENTS

05 HOUSEHACKING

Remember!Some cities and HOA’s

have regulations onhome rentals. Checkthe rules in your area

before decidingto rent.

05 HOUSE HACKING | 07 COLLEGE HACKING TABLE OF CONTENTS

Aside from housing, your car and the costs associated with it is likely one of your largest expenses. Reducing or eliminating

the amount you drive can help you reach FI faster.

Can you ride your biketo work or to run errands? Biking can save big bucks

on car expenses.

Drive for a ridesharing app. Rideshare apps let you choose when and where you drive, so you could pick up a ride

during your commute and get paid for going where you need to be anyway. You can even expense most of the

commute! Don't want to drive people around? No worries, your car will still

make you money!Is your work location too far to ride your bike? Consider

taking public transportation like the bus or lightrail.

Search around your area for the best mechanic for your car, whether it’s a Toyota or

Tesla. Perform regular maintenance to prevent

issues.

It’s a fact: some cars are just made to last longer. It’s easier for you. Consider these models that make it to 200,000 miles with

the least amount of problems.

Toyota CamryHonda AccordToyota PriusHonda CR-VToyota Sienna

•••••

Honda CivicToyota CorollaToyota 4RunnerToyota HighlanderFord F-150

•••••

Driving an older, used vehicle will save you money. It is usually less expensive to keep an older car on the road then

make payment on a new vehicle.

Of course, driving your car less will extend the life of your vehicle and

reduce maintenance costs.

Reducing the number of miles you drive every year can put you in a

less expensive insurance category.

06 TRANSPORTATIONHACKING

Work with a CPA to lower your taxable income. The

less assets you have in taxable accounts, the more

likely your student is to get aid.

Lower your taxable income

Now that your student is in college, they should be doing

what they can to earn an income. Maybe it’s finding work in the

university or a gig off campus. Consider rideshare side hustles

that are more flexible

Working in College

Consider having your student do dual-enrollment, earning college credits while

still in high school. Or take gen-ed courses at a less

expensive community college and transfer credits

to a four year institution.

Consider Dual-Enrollment

07 COLLEGEHACKING

At ChooseFI, we know college is not for everyone. There are plenty of high demand, well paying jobs that do not require a college degree. However, if your child's dreams include

college, you'll want to start working now to reduce the cost. No need to pay hundreds of thousands of dollars to obtain a degree. Here are several college hacks that can

lower the cost of college and avoid some, or all, of their student loans.

Your student should complete the application for Federal Student Aid

(FAFSA). Not just for the chance to score a Pell grant or some funds from the college of choice, but many private-

sector scholarships require this as part of their application process.

Complete the FAFSA application

Consider having your student stay in state. Even if an

out-of-state institution is more prestigious, in-state schools can

cost half as much.

Stay close to home

Have your student make a scholarship plan as early as junior year in high school. Look

for dozens of smaller scholarships of $500-$2,000 each that require a short essay and prioritize those rather than shooting for

one big one. Your student should batch multiple applications in one sitting to save time and have a template essay to tweak

for each application.

Develop a scholarship plan

Housing for your student.Can your student live at home and

commute to school? This could save $10,000 a year! If that is not feasible,

consider house hacking, which is buying a home and renting to other

students to cover the mortgage.

Learn more about house hacking

06 TRANSPORTATION HACKINGTABLE OF CONTENTS

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