But my blog has always been about how to improve with a few simple steps, and this graphic is no different. I’m excited about this one – it’s useful in looking at the average American guy, and it gives sound advice for improving your finances and getting active. Enjoy!

At the end of the week, or month, we’ll receive an income – earnings we receive in exchange for that time spent working. We pay all our bills using this income, and with the little left over, try to put away some savings for retirement and spend a little on things to distract us from the realization we have to go back to work on Monday.

When you think about it, working for an income is no way to spend your life. Consider the amount of time parents are away from their kids. Think of all the good one could be doing for their community if they did not have to work full-time for money.

Now back to reality.

Unless you are born into a family of millionaires, or inherit a large sum of money during your life, you are going to have to work to accumulate wealth. There are no shortcuts.

But at some point, most of us should aim to “retire” from the career that helped us generate that wealth, and move on to something more soul-satisfying. Now, if your soul is satisfied writing computer code, or answering telephones, or assembling parts, then by all means, keep doing what you love. The other 99% of us would probably like to do something different, but are not able to because of the need to generate an income from a regular job.

How Do You Replace Your Income?

Replacing your full-time income with investment income is no small feat, particularly if we continue to be in an environment of low interest rates, and similarly low yields on income-producing investments. With lower yields, it means we have to have a bigger pile of capital working for us. What exactly is capital?

My favorite personal finance book, Your Money or Your Life (that’s a link to my review) goes to great lengths to help readers understand the difference between savings and capital. To summarize, savings are dollars earmarked for near-term goals and expenses. This would include things like a down payment fund, or a car replacement fund, college savings, etc.

Capital is money that you specifically set aside to begin working for you. For example, if you have $10,000 in savings above your basic emergency fund and short-term savings needs, you might decide to invest that $10,000 in an income-producing investment, such as a bond, a dividend-paying stock, or even a CD or high-yield savings account.

At a 4% rate of return, that $10,000 would generate about $33.33 in monthly income. That’s not a lot of money, but you didn’t have to work for it either.

Now imagine you had $100k in “working capital” earning a 4% rate of return. That amount of capital would spin off about $333 a month – maybe enough to cover half your grocery budget, or your monthly utilities, or some other day-to-day expense. And the best part? You earned that money without having to work any extra hours, or miss any sleep.

Given these two examples, you can begin to see the secret to replacing your income. Eventually, the investment income each month would cover your basic life expenses. Maybe your lifestyle would require a $650,00 nest egg, where others could easily live on the $1,333 a month that a $400,000 nest egg yields.

Whatever your personal comfort level is, it is at that point that you are officially financially independent. You no longer have to work for an income. You may decide to work a few more years doing something you love to supplement that capital for a cushion, or as I mentioned earlier, maybe because you simply love what you do.

The Accumulation Phase

Here’s the tricky part. For most of our working lives we are in an “accumulating” phase with respect to capital. We may only be able to scrape together $300 a month to contribute towards capital, and if we only reinvested those 4% earnings, it would take a long time to replace our income.

During the accumulation phase, it probably makes sense to look outside these income-producing investments for higher opportunities to increase our capital. That’s not to say we could not augment our overall portfolio with investments more known for producing income, because those types of investments are generally regarded as safer than high-flying stocks and mutual funds.

However, at some point we are going to have to take some risks-calculated risks-for the hope of higher returns. Assuming we have a long investment horizon, we can afford to weather market ups and downs, and use the downs as opportunities to acquire more assets for less dollars.

Essentially, the goal here is to accumulate enough capital in various investments to cover your basic expenses, assuming this total amount was invested in income-producing investments. When your capital has reached this number, you can move it to more conservative investments and begin to live off the income they produce.

For example, you may have $100,000 in a rental property, $85,000 in stocks, $25,000 in bonds, and $30,000 in cash, all earning different rates of return. You’ll know you have “enough” when the sum of all your investments could be liquidated from their current investment vehicle and invested in a safe, income-producing investment such as those previously mentioned (CD ladders, bonds, dividend, etc.).

Total up your savings and investments and multiply by something like the current yield on the 30-year Treasury Bond (currently hovering around 4%). Divide that yearly earnings figure by 12 to determine your potential monthly investment income. You should now have an idea how close, or how far away, you are to financial independence.

Where to Save “Capital”

I can’t tell you exactly where to hold that capital until you’re ready to retire. You are going to have to do some homework here, and decide based on your risk tolerance and time to remain invested, which types of investments work best for your situation.

I will say this – your capital should be well-diversified across a variety of investments. At any given time, it might make sense to hold stocks, bonds, gold, silver, real estate, and during periods of extreme uncertainty, maybe even just cash. This way a real estate bubble, a stock market meltdown, or a period of currency devaluation, don’t completely wipe you out.

And at no time should you consider exposing your near-term savings, such as your tri-level emergency fund, to the same level of risk as your working capital. You might begin to feel that the pile of emergency savings could be better “invested,” similar to your other investments.

Moving that emergency money into capital and investing it all but guarantees you will experience a major emergency, at which point you’ll have to sell investments at the worse possible time, take penalties, etc. to finance your emergency. It’s just not worth the risk.

How to Get Started

Once you are debt free, and have established a year of emergency savings, begin thinking about the next steps of your savings plan. It is at this point that planning for financial independence really starts to become a motivator.

Begin asking yourself questions like…

• How quickly could I pay off my mortgage early?
• How much income would I need each month to live off without any debt payments?
• What would I do with my time if I no longer had to work for money?
• How can I continue to save money every month to further reduce my expenses?
• What types of investments should I look at outside of my retirement accounts?
• What are the tax implications of investing in taxable investments?

For me, the very idea that I may only have to work for some finite period of time, even if that is another 15 years, is motivating. Before I began to plan this way, I just assumed I would work until I dropped. But that’s not a great plan.

There are things I’d like to accomplish outside of my chosen profession, and things I’d like to see and do that I cannot while working full-time for an income. But as I am beginning to understand, it doesn’t have to be that way forever.

The last two years of my personal journey to debt freedom something finally clicked. It didn’t matter how I ordered my debts, how many half payments I made, how many times I transferred balances from card to card chasing a lower rate, or how many times I consolidated my credit card balances. The only thing that was going to get me out of debt was boosting my income.

The 70-Hour Workweek

If you don’t do something radical to improve your income, you will be in debt forever. I hate to break that news to those still in debt who spend their nights creating elaborate repayment plans while dropping Netflix memberships to create an extra $15 to throw towards a $37,000 credit card balance. That’s like trying to dip out the ocean with a teaspoon. You obviously need a much bigger spoon.

So how does one go about increasing their income – particularly those already busting their butt 50 hours a week in a full-time job, trying to be a devoted spouse, a parent to their kids and run a household? The answer:  more work.

For a short period of time you need to find more work. Easier said than done, particularly in an economy where unemployment is high and even part-time jobs are scarce. I started my final push to debt freedom in December 2007, so I understand just how bad timing can be. But you can’t use the broader economy as your excuse to staying in debt, limiting your opportunities and stifling your dreams of financial independence.

Exactly what am I saying here? I’m saying you need to work another 20-30 hours a week earning money for the sole purpose of repaying debt. I don’t care what you do (as long as it is legal), but maximize those 20-30 hours to earn as much as possible.

Part-time retail work at minimum wage may not be the answer. Starting your own business may require capital – something you probably don’t have much of if you are in debt. At great risk of sounding like a back-of-the-magazine ad, I highly recommend considering a low-cost opportunity you can do from home. Maybe something related to your full-time gig that doesn’t conflict with your full-time gig.

If you are a teacher, consider tutoring at night and on the weekends. If you are a programmer, consider doing some freelance work. If you like doing yard work, offer to mow lawns for friends and neighbors. And no matter what you decide, start a blog and write about it – landscaping, programming, child care, pet sitting, delivering pizza – all interesting topics that you can develop into an interesting blog if you put your personal touch on it.

I was interested in finance and frugality. I used to work in the financial industry. I also enjoyed writing. It only seemed natural to declare my side hustle writing about finances (after mowing lawns and part-time work wasn’t yielding enough money to make significant dents in our debts).

Idle Hands are Useless at Paying Off Debt

So that’s not quite how the saying goes, but comparing debt to the devil’s workshop was a stretch (then again, maybe not). The point is that while you are sleeping in, watching television, or “just relaxing,” you are essentially wasting time that could be spent developing a second income stream to pay off debt.

I know you work hard, and you have a family, and you deserve a break. You can rest after you are debt free. For now, you need to work.

After starting Frugal Dad, I made a goal to get up every morning at 4:30am to answer emails, comment on other blogs, write new content, research and do anything else I could do to help build my blog before heading off to my full-time job. Those three hours each weekday morning were some of the most productive times of my life. I was completely focused on my mission.

On lunch breaks, I carried a memo pad and pen and brainstormed ideas for topics. At night, after the kids were in bed, I set things up for the next day, reviewed daily statistics, etc. On the weekend, I carved out a few hours dedicated to trying to get ahead for the next week. I banked a couple posts, cleared my inbox and read 20 other blogs in the personal finance niche to stay current.

It wasn’t easy. My first month blogging I earned $33.88 – that’s only a fraction more than a dollar a day. But I pushed ahead. In six months, I had earned a total of $4,600 (after taxes) to go towards debt repayment. Now I was getting somewhere.

I stayed at it for two more years from that point, and my family just recently celebrated debt freedom. I can’t say it was easy. There were a couple times I wanted to quit. There were many setbacks. There were more than a couple times we were tested with a medical emergency, or something breaking, but we just refused to stop until we got back to zero.

Snowballs, Interest Rates and Spending are Still Important

The order you pay back your debts with the money you earn from your 70-hour workweek is still important. And of course, if you don’t reduce, or at least hold firm, your spending, you will simply spend all this new money and remain in debt (I like to describe this as running faster on the treadmill while someone increases the speed – you’ll sweat a lot harder, but get nowhere).

There are risks associated with working a 70-hour workweek. It puts a strain on your physical health. Relationships may be strained as well. Your social aptitude will suffer. You won’t have a clue who won American Idol, that Lost is finally over, or who’s playing in the Superbowl. It’s alright; you can catch up later and you can always use an pay off our mortgage early, though not quite as hard). We own our cars free and clear. We have an emergency fund for the first time in our lives. We are beginning to learn about investing and savings products that we could never afford. And most importantly, we have options.

Debt has a way of trapping you – in bad jobs, in bad relationships, in bad locations. It’s a suffocating financial cancer that eats away at your future dollars, and your current enjoyment. It adds immeasurable risk to your life. It is not to be ignored for another moment.

You simply cannot win, financially, while you keep debt around. Draw a line in the sand today – no more new debt…ever. Make a plan to boost your income. Make a plan to reduce your expenses. Throw every single extra dollar that comes into your life towards that debt. You aren’t throwing it away, you are investing it in your financial future.

Hopefully, by sharing a few of these bad money moves, it will prevent others from doing the same. And don’t worry, if you are over 30 and still doing these things, it is never too late to start living frugal.

Is Tuition Cheaper at the School of Hard Knocks?

1. Take out three times as much in student loans as your first year’s salary. I’m all for following your passions, but if your passion only pays $35,000 a year, please reconsider borrowing $100k to get the required degree. Here’s more from a couple that owed more than $100,000 in student loans.

2. Trash your college enemies on Facebook and Twitter. Might be funny now, but your future boss probably won’t see the humor in it. Remember, the Web is an open book, and down the line things you say online can and will be used against you.

3. Trash yourself on Facebook and Twitter. The picture of you half-naked partying on the beach at Spring Break will probably get you a few more followers, but remember that future boss?

4. Go to school out of state because you like the football team. I included this one because I did it. Well, sort of. See, I thought I could walk-on for my favorite school’s football team, forgoing scholarship opportunities in-state. It was a dumb move, and one I paid for during the remainder of my 20s.

5. Just get a degree…in anything. Don’t “just get a degree” for the sake of getting a degree. Learn something, and prepare to apply it in the real world.

Work to Live, Don’t Live to Work

6. Accept a job you hate right out of school because it pays a lot. This ties in with student loans. Many graduates are so saddled with debt, they have little choice than to go after the biggest salary, even if it isn’t the best opportunity.

7. Form a partnership with three old fraternity brothers from college. It’s been said the only type of ship that won’t float is a partner-ship. Let the one with the most capital start the business and hire the other two. Much cleaner, and if the business fails, you can all walk away and still be friends.

8. Borrow thousands to start a new business. Entrepreneurship is the spirit that built this country, and I’m all for it. However, consider saving and starting up with cash.

9. Accept your first job offer without negotiating. A little wiggle room often exists in salary ranges, schedule flexibility, paid days off, etc, but you have to ask.

10. Spend $2,000 on your new corporate wardrobe before getting your first check. One of the classic mistakes by new earners. As with most things, it pays to pay with cash. Buy a couple nice outfits for interviews and your first day on the job, but beyond that, make do with what you’ve got until you get your first check or two. Then pay cash to add a new outfit to your wardrobe over time. Also, check out things like Macy’s Coupons and Coupon Codes for great deals on those few nice outfits for interviews.

The Borrower is Slave to the Lender

11. Cosign a car loan for your best friend. I no longer borrow money to buy cars. And I especially wouldn’t borrow money to buy someone else a car, which is essentially what you do when cosigning a car loan. As a cosigner, you are on the hook if they default. And if they need a cosigner, there’s a good chance they will.

12. Give up credit virginity for a free t-shirt. When I was in college, I signed up for a Discover Card before a football game because they were giving away free t-shirts. Dumb. My running joke is that t-shirt probably cost me $500 in interest charges over the next few years.

13. Borrow money from your parents. What kid wants to borrow money from their parents? Not only does it change the relationship between parents and kids, it makes it tough to declare financial independence when we constantly have to turn to the First National Bank of Mom and Dad.

14. Pay off a credit card with a credit card, without closing one of them. Performing a balance transfer from a particularly high-rate to a low-interest rate credit card makes sense in the short run. That is, unless you fail to close the old credit card. If you leave both accounts open, chances are you’ll eventually wind up with double the debt.

Cars Don’t Make You Any Sexier

15. Buy a car because you can “afford the payments.” Ever wonder why car dealers advertisers the cost of a car in monthly payments? It’s because writing $32,000 in window paint isn’t quite as catchy as $379 a month (for 60 months with a balloon payment at the end). See, it just doesn’t have the same ring to it, does it?

16. Drive like and idiot. Driving like an idiot can cost you big time. Makes it hard to save money on car insurance when you are collecting traffic tickets right and left. Not to mention the hit you’ll take on gas mileage.

17. Refuse to buy a used car because you don’t want someone else’s problem. This tired saying keeps coming up when a discussion on used cars takes place. A car transforms from new to used the second it leaves the car lot. A well-maintained, previously owned car, can save you thousands of dollars over a new model.

18. Buy a new car because it gets better gas mileage. Gasoline prices continue to climb, but it’s not an excuse to go and take out a loan on a new car with better gas mileage. In most cases, you’d have to drive thousands and thousands of miles to break even. Buy a car for better gas mileage if you already planned to buy another car, and you are concerned about the environment and your wallet.

19. Don’t shop for car insurance. No seriously; take the first offer you get. Don’t shop around for a better car insurance quote from places like esurance.com. Yeah, that will save you tons of money.

Insurance? That’s for Old People

20. Go without health insurance–even catastrophic insurance. When you are in your 20s, the last thing you are thinking about is getting sick. After all, you were just a teenager a few short years ago and the feeling of invincibility hasn’t quite worn off. Don’t take the risk. At a minimum, look into a health savings account or similar high-deductible plan that will cover you in the event of a major illness.

21. Turn down cheap life insurance because you don’t have dependents. If you die without dependents, someone may not be counting on your income, but it will still cost money to settle your final expenses. Don’t transfer that burden to your parents, or a close friend, because you were too cheap to pay a small premium for affordable life insurance.

22. Refuse to find disability insurance. After all, you are only 26, right? Who becomes disabled at 26? A lot of people. Illness, accidents and other bad things happen to young people, who are more likely to survive them disabled than die. Protect your new salary by finding disability insurance.

23. Don’t go to the doctor. Again, here’s that invincibility thing. At a minimum, follow your physician’s guidelines on annual or semiannual check ups. A little preventive medicine can go a long way towards extending your life and saving you money.

Going to the Chapel and I’m Going…to Need a Truck Load of Money

24. Marry the wrong person for the wrong reasons. Choice of spouse weighs heavily on future success or failure. They say opposites attract, but I’m not sure they stay together forever. Find someone who shares your dreams on subjects that matter most to you.

25. Spend six months of salary on an engagement ring. If you have to spend half a year’s salary on an engagement ring to impress someone you might want to think twice about your choice of partner. I’ve always thought one month’s salary was a good rule of thumb, and of course, pay cash. Further reading: Save Money on a Diamond Ring

26. Blow thousands you don’t have on a wedding. If you are debt free, and are marrying a partner who is debt free, stick to a reasonable wedding and avoid putting yourselves, or your parents, deep in debt.

27. Refuse to accept your partner’s debt. When you marry, you become one. So your spouse’s debts are now your debts. Remove “mine” and “yours” from your vocabulary when discussing debt and marriage.

Home, Bitter Sweet Home

28. Buy a house without an emergency fund. Something interesting happens you buy your first home. Right away, your name is put on a list of those who should be tested, financially. I’m being a little sarcastic here, but it does seem like the minute you stretch to buy a home without proper savings, something will break causing you to immediately reach for the credit cards.

29. Share a mortgage with your boyfriend/girlfriend. I’m not being a prude here. Even if you decide to share living quarters with someone before marriage, please avoid sharing a mortgage (or lease) with them. If you split up, and chances are you probably will, the financial impact is a lot messier with joint ownership.

30. Sign a long-term lease based on the salary you think you will earn out of college. Wait until the ink has dried on that first job offer letter before signing a lease (or a mortgage) for your first place. Better yet, wait six months to make sure you really can afford the payment, else you risk being house-poor right out of the gate.

31. Don’t put any money down on that new mortgage. As many have discovered the hard way, homes can lose value. If you finance 100% of your new home, you have zero breathing room should your home lose value and you be forced to sell. Buying a new home is not cheap, but try to buy yourself a little breathing room by putting 10-20% down (close to 20% is best to avoid paying private mortgage insurance).

32. Stretch to get into a new home because it is a good investment. Repeat after me – my home is not an investment. We need to break this thinking that all young people should buy homes because they are a great investment. Yes, they can increase in value, but like all investments, they can lose value, too. The difference is, when your shares of Apple go down, you aren’t putting the roof over your head at risk.

Kids Are Expensive, and Worth Every Penny!

33. Don’t get out of debt before having a baby. Any parent will tell you, things are difficult before kids are even more difficult after kids. Getting out of debt is no exception, so if possible, try to become debt free before having kids. Having said that, I believe children are a blessing, so don’t put off having kids just because you are in debt.

34. Offer to pay expenses for your grown children. This move alone will guarantee that they will never grow up.

35. Wait until kids are 16 to start saving for college. Who even thinks about saving for college until they are 16, right? Problem is, tuition increases and inflation become factors from the moment your kids are born. You have to save diligently to stay ahead of them both.

36. Give your six year-old a cell phone. My oldest is almost 11 years-old. After four years of begging, I’m starting to come around on the idea of her having a cell phone to take to sleep overs, sporting events, etc. (situations where we may need to contact her or vice versa). Her phone will be a real boring one with the only features being strong parental controls.

Investing in Your Future

37. Open an online brokerage account to trade single stocks before funding a 401 because you want to get rich quick. This point really doesn’t need further explanation. In my own experience, I remember opening an online brokerage account to trade single stocks in the late 90s because even people my age were making thousands in their sleep. Problem was, I got in at the top, was poorly diversified, and worst yet, I wasn’t contributing to my retirement account at the time. Talk about needing to re-prioritize!

38. Pass on a Roth IRA. Opening a Roth IRA at an early age may just be the single best retirement strategy for young people. I know you can’t get the earnings until your 59 1/2, but when you do, they are tax free! And don’t forget, in the even of a real crisis, you can withdraw Roth IRA contributions at any time, tax and penalty free.

39. Dump all extra savings into company stock. One of my first jobs was for Lowe’s (the home improvement store). I worked with a guy in his fifties who dumped 100% of his earnings into company stock (through the employee stock purchase plan and an outside brokerage account). He obsessed over the stock price because mild swings cost him thousands of dollars from day to day. I just couldn’t live like that.

40. Get your investing advice from late-night infomercials. Who hasn’t been tempted to flip houses, sell MonaVie, or stuff envelopes for hundreds of dollars a month? The problem is, for every legitimate opportunity, there are 1,000 scams.

Shopping, Food and Rock and Roll

41. Shop for clothes with labels that impress your “friends.” It’s time to be a grown up. Impressing your friends with clothes is something we did in high school.

42. Eat out every single meal. Eating out has its benefits. No preparation, no clean up, more social interaction, etc. However, it will clean out your wallet a lot faster than cooking at home. If you are a horrible cook, spend the difference on a few cooking classes.

43. Buy a television that consumes 80% of the square footage of your apartment’s living room. Some plasma televisions cost more than the car I currently drive. Unless you sit 30 feet from your television in a giant living room in a McMansion, it’s hard to justify a television worth more than your vehicle. If you are in the marketing for a television, it’s worth checking Amazon for a coupon code before doing so.

44. Don’t set up a monthly budget. One of my high school teachers had a sign hanging in her room that read, “If you fail to plan, you plan to fail.” Nothing could be truer when it comes to managing your money. Get over your fear of creating a personal budget and spend a little time telling your money where to go.

So there you have it; 44 ways to ruin your financial future. Hopefully, you’ll avoid most of these along the way, but even if you don’t, winning with money over the long term is about finding discipline and financial maturity. And that maturity can come at any age – 22 or 42. The advantage of finding that maturity at 22 is that by 42 you could easily reach financial independence, and have limitless opportunities ahead of you.

*This post was featured in the Carnival of Personal Finance #256: Market Crash Edition

Beautiful country outside of Ketchum, Idaho

Money’s list provides a pretty good starting place of cities to consider. Since any relocation wouldn’t happen until we reached financial independence, employment is not a top consideration. We are more interested in qualities like a low crime rate, plenty of green space, and relatively low property values and taxes. Here’s a look at Money’s top ten places to live:

1. Louisville, Colorado Money’s description of Louisville includes “dry, clear weather, little crime, good health care, and low taxes.” Add in the Rocky Mountains, 30 miles of local trails and eight world-class ski resorts within a two-hour drive, and there is little not to like about Louisville, Colorado. I traveled to Denver a number of times on business and fell in love with the Rockies, the climate and the outdoor activities.

2. Chanhassen, Minnesota When I think of Minnesota I think of cold winters. However, with cold winters comes a variety of things to do that a family from the south has never experienced. Ice fishing, ice skating, sledding, and hockey all sound pretty fun. And since I love cold weather I’d fit in just fine. Not sure the wife and kids feel the same way, though.

3. Papillion, Nebraska According to Money, the typical single-family home in Papillion starts for about $100k less than the first two cities. Interestingly, the property taxes were significantly higher.

4. Middleton, Wisconsin Another cold weather locale, but one with lots to see and do. Even though the town is only seven miles from Madison, most residents enjoy hanging out in their own community.

5. Milton, Massachusetts Single-family homes go for $460, 000 here, which just about eliminates the town from our list of potential spots to relocate. Add in a close proximity to Boston and it just doesn’t feel like a good fit for us.

6. Warren, New Jersey Ditto on the above comments. To close to New York City for my tastes, and ridiculously high home values (half-million and up).

7. Keller, Texas The knock on Keller was “rapid growth” and “strip malls.” We aren’t interested in a fast-paces lifestyle, so Kelly might not be a good fit, either. Besides, I’m not sure I’d be escaping the heat moving to Texas.

8. Peachtree City, Georgia Of all the cities in the top ten, Peachtree City sounds most like where we currently live. At only 35 miles from Atlanta, I’d worry about the urban sprawl eventually swallowing our tranquil place.

9. Lake St. Louis, Missouri Lake St. Louis has an interesting history. Developed forty years ago as a “resort community,” it has now developed into an attractive spot for permanent residents. Two major problems with Lake St. Louis – ridiculously high annual dues for their Community Association, and proximity to a General Motors plant which plant to layoff nearly 2,000 workers.

10. Mukilteo, Washington First, a confession. I’ve always wanted to live in the Pacific Northwest. I love the idea of being close to both Puget Sound and the Olympic and Cascade mountain ranges. Toss in a great school system and low property taxes, and Mukilteo seems like a top candidate.

Another area of the country we have strongly considered is Idaho. Idaho has a very low crime rate, low property taxes and insurance rates, and they offer more wilderness area than any other state in the lower 48 states. Unfortunately, they do have a relatively high state income tax rate and low average wages, but since we wouldn’t need much income after financial independence neither of these facts are a big detractor.

Speaking of state taxes, Kiplinger.com put together a nice interactive map along with a state-by-state guide to taxes on retirees. You can learn which states impose their own estate taxes, which 7 states have no income tax, and what are the most pension-friendly states?

Again, we won’t be in a position to relocate any time soon, but it is fun to scope out different places. Wherever we do decide to retire, we plan to have a place with acreage to give us a little room to roam. I’d like to have a big garden, and a few rows of fruit trees. When looking for a place to buy, we would gladly put more money towards land than the home itself, and wouldn’t mind adding on to the house or remodeling with cash over time.

Interested in finding a home in one of these locations? Search the MLS for homes!

The most important lesson I learned (or had reinforced) from the book is the idea that I just need to get started. Many of us are paralyzed by the investment choices so we sit around and do nothing. Suddenly, we’re fifty-five years old with barely anything in savings, and twenty years left on our mortgage. That puts you about as far away from financial independence as you could get!

Here I sit at almost 32 years-old, and not a lot of savings to show. But, we’ve had some big wins in the last several months. We’ve knocked out a lot of debt, paid off our car, and rebuilt our emergency fund after a family emergency took its toll. In the next year we’ll be debt free, except the mortgage, and can then really begin to focus on our dream of a semi-retirement before traditional retirement age.

Maybe I’ll continue writing in semi-retirement; maybe I’ll find some other side hustle I enjoy. Regardless, in 15-20 years I’d like to find myself doing more meaningful with my days than working in an office. I’d like to teach, mentor, and coach young people. I’d like to do more volunteer work. I’d like to do many of the things I’ve had to forgo to this point just to keep the family checkbook in the black. When we reach financial independence we will have the freedom to use our life energy for something more worthwhile to use than earning a paycheck.

In the coming weeks and months I’ll begin to share more about my strategy for achieving financial independence. Some big decisions will have to be made regarding our future plans. Will we invest in taxable accounts, or tax-advantaged retirement accounts (or both)? Will we go with mutual funds, high-dividend stocks, bonds, cash, or some combination?  How will real estate play into our plans? What will we do for health insurance? How does our kids attending college affect our plans?

Lots to sort out, but fortunately we have plenty of time. Our number one priority is becoming debt free. In the mean time we continue to save in retirement accounts, but soon we may add other investments to the mix. Of course, I’ll be seeking your input along the way as well. From the comments, I know many of you are now enjoying a semi-retired lifestyle and I deeply appreciate your input, as do other readers.

While this post was about “financial independence,” it’s worth mentioning on Independence Day that many men and women around the globe are putting their lives on the line for our independence. Many others have come before them and paid the ultimate sacrifice. Take a moment today to remember those who serve their country, and their families. Without their sacrifices the idea of financial independence would be merely a dream.

It was a great timeout from the daily grind, and a nice reminder for me about what is really important in this world.  My son didn’t care that we drove to the lake in a twenty year-old truck, or that the lake was surrounded by homes four times the value of our home, or that we passed up a dozen restaurants on the way home to enjoy peanut butter and jelly sandwiches.   All he remembers is that his dad took a couple hours out of a busy schedule to enjoy some one-on-one time to feed those ducks.

Fab Five

The Secrets of Financial Freedom: An Interview with the Millionaire Next Door.  I find stories like this so compelling because they serve as examples that people really can reject our consumer debt-driven society and experience financial freedom on their own terms.  (@ Get Rich Slowly)

How to Prepare for a Power Outage – Without a Generator.  Severe weather is starting to crop up here in the south (there is a brilliant lightning storm occurring as I type this), and it won’t be long before hurricane season.  That means we’ll probably have to spend some time in the dark in the not-s0-distant future.  Take note of these tips for making life without power a little more bearable. (@ Five Cent Nickel)

How Much Do You Need to Save for Early Retirement? I’ve been pondering this very question here lately.  And on a related topic, I’ve been wondering if I should do more investing outside of retirement accounts so that I can access the money before the IRS says I’ve hit “retirement age.”  (@ Million Dollar Journey)

No Credit Cards – Here’s Why.  A very convincing argument against using credit cards.  I know this argument will never go away, but the more antics credit cards pull the less I want to use their product. (@ Gather Little By Little)

Ways To Save On Mother’s Day.  I urge anyone with a fracture in the relationship with their mom to take this Mother’s Day as an opportunity to reach out and make the first move towards healing that relationship.  After nearly losing my mom this past year, I am even more appreciative of the special relationship we enjoy to this day.  Happy Mother’s Day to all the moms out there! @ Free From Broke)

Best of the Rest

• Cheap Housing Option: Buy a Mobile Home
• Announcing the New Money Tips Network
• Financial Confession – I Don’t Budget
• Save Money on Cell Phones
• When Things Go Right
• An Auction Experience to Remember
• How to Save Money on Life Insurance

Site of the Week

No site of the week this week because honestly, I just haven’t had much time to look around.  Perhaps you could share one of your favorites in the comments below.

The Ten Commandments for Frugal Living

1. You shall not put money before happiness. So many of us make the mistake of putting money ahead of happiness. Whether it is declaring a major in college because of the promises of a high salary upon graduation, or accepting (or putting up with) a dead end job we hate simply because we make a lot of money.

We all have to suck it up occasionally and work through something we don’t want to do, but for the most part, look at the opportunities in life as chances to increase your happiness factor.

2. You shall not idolize things. By things I mean inanimate objects. These things have no inherent value. They are only worth the value you assign to them. Do not worship these things and be consumed by them. When I was 16 I had a picture of a Ford Mustang on my wall because it was “the car” I desperately wanted. Though I never got that particular car, “car idolatry” followed me for a while until I did finally make a new car buying mistake around twenty years-old.

3. You shall not take the name of Dave Ramsey in vain. Alright, so that’s a bit of a joke. But seriously, if you do not agree with something you hear from a “financial guru” there is no need to endlessly bash them. Simply take the good with the bad. No one says you have to adopt every piece of advice these financial personalities share.

There are many things I like about Dave Ramsey’s personal finance advice, and a couple areas where we differ. The bottom line is, develop your own plan after doing a little critical thinking over the idea of others.

4. Remember to rest, occasionally taking breaks from ultra-frugality. My grandfather wrote a letter to me when I turned 20 years-old, and it is something that I still treasure today. He said, “Stop and smell the roses. Life is to be enjoyed.” What great advice! I’ve used it over the years as a reminder that while living frugal, saving money and reducing debt have been my top financial priorities these last few years, I also have to make time to enjoy life. Take vacations; enjoy a football game with your family; take your wife out to dinner. But do it all with cash!

5. Don’t blame your parents for your financial problems. I hear a lot of people today blaming parents for financial problems, or their lack of financial education. Personally, I find that a lazy excuse. There are too many libraries, radio and television shows, blogs, and similar resources on the subject of personal finance to not be able to educate yourself.

If you ran up credit card debt because your parents never taught you about debt, guess what, you just learned a painful lesson. Consider it tuition to The School of Frugal Living, because after you work for two years at night five days a week part-time to pay off credit card debt, you will have a new respect for debt, and for the struggles your own parents went through.

6. You shall not kill your dream of financial independence. Tell someone at work you dream of retiring at 45 and watch their reaction. They will give you ten reasons why your idea is crazy. What about health insurance? How can you afford it? What if you live to be 80? What it social security isn’t there in your sixties? On and on and on.

So, many of us hear those objections, believe them, and subconsciously find ways to scuttle our plan for retiring early. Ignore those people. They have already given up on their dream, but you don’t have to. Never let anyone kill your dreams.

7. You shall not commit financial adultery by hiding money issues from your spouse. For a long time, my wife knew little about the credit card debt I had accumulated while trying to finish my online degree. I thought I was doing a good thing by not burdening her with the worries of mounting debt. I was wrong. I resented her for spending money when I was trying to pay off debt, and she didn’t understand my reluctance to spend because she thought we were living with more than we had. It was a recipe for financial, and relational, disaster.

Thankfully, I wised up and came clean about all of our finances, and together we developed a plan to attack our debts together to realize our dream of debt freedom. I’m proud to say we are nearly there, and I never could have done it without her help.

8. You shall not steal money that doesn’t belong to you. No matter how desperate you get, resist the temptation to steal money. I’m a big fan of the film Cinderella Man. One moving scene depicts the aftermath of a son’s decision to steal meat from a local butcher shop to help feed his starving family. His father discovers what his son has done and makes him return the meat. He tells his son that no matter how desperate things get, he is not to steal something that does not belong to him. It was a powerful lesson about an agonizing decision – the decision to steal to feed your family.

When I worked for a bank, I saw several employees get in trouble for stealing money. Later, we found out they were having financial problems of their own, and stole the money to help pay their debts. If you find yourself in a serious financial bind, resist the temptation to steal in an effort to get out. It will undoubtedly cause many more problems.

9. You shall not attempt to swindle your neighbor. Much news has been made of the recent Ponzi scheme busts around the country. These things have been around for a while, but with the help of technology they seem to be more prevalent than ever. But you don’t have to be running a Ponzi scheme to violate this commandment. Letting your neighbor in on a “can’t miss real estate investment opportunity” you know to be garbage violates this same commandment. Falsely pumping up a stock to neighbors to solicit their investments so your own shares increase in value is also violation.

10. You shall not covet your neighbor’s BMW. Be happy for others. Don’t be overly judgmental of the purchasing decision of others. And whatever you do, don’t be jealous of their possessions.

We once lived across the street from a guy who bought a new car every other year. He also had a huge RV, and all the toys a guy could want – jet skis, an ATV, a huge, plasma television, etc. For all I know, he could have been $100,000 in debt! Who could be envious of that?

The idea is that you can estimate how much is needed in savings to generate enough income to pay for an item.  The only factors you need to know are how much something costs you now, and at what interest rate your money will grow.  Of course, determining both in this period of a inflation and fluctuating interest rates is tough, but you can get a general idea of how the math works by looking at a real-life example.

Photo courtesy of Behdad Esfanbod

A Working Example

We are fans of Netflix because it offers a relatively frugal entertainment option for family movie nights.  It’s cheaper than going to the theater, and cheaper than an expanded cable package.  At roughly $9 a month, our Netflix membership sets us back $108 per year.  To continue paying for Netflix out of passive income earning 4% per year, I would need a $2,700 ($108×25) savings balance.  Since most of my savings are now earning closer to 3% I would need to multiply my costs by a factor of 33.33% (100/interest rate).  This increases the amount needed to pay for Netflix after reaching financial independence by $900 to $3,600.  Maybe I should just cancel Netflix!

A Bigger Example

I have heard stories of people paying off their homes, cars and all other debts and living quite comfortable on a couple thousand dollars a month, or less.  Assuming our goal is the high end of that estimate, how much of a savings balance would be required to spin off $24,000 a year in income?

If earning:
3% interest, you would need $800,000
4% interest, you would need $600,000
5% interest, you would need $480,000

And you thought you needed to be a millionaire to retire early! This exercise does fail to account for inflation, both in terms of cheapening dollars and the costs of goods and services over time.  I doubt Netflix, or a similar company, will continue to offer one-at-a-time unlimited rentals in the year 2030 for $9.  However, running these numbers does emphasize the importance of minimizing the number of expenses you commit to early on.

Our Netflix membership alone puts us $3,600 further away from financial independence.  Our cable bill, although relatively small at $12/month, puts us $4,800 away from retiring early.  When you start to convert monthly expenditures to the amount of money required to cover their upkeep it really helps you prioritize what is important in your budget.

Homework:  Apply this formula to some recurring expense in your current budget and report the results in the comments below.  Does this required savings amount change the way you feel about continuing to pay for the item?