<aside> 💡 Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn't … pays it.” Albert Einstein
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Nobody got wealthy exclusively by being thrifty, but first one needs to get the basics in place. After the basics, I have plotted some resources I liked. Once you start getting into them, they open new doors to further resources.
Earning a salary is good, but tracking your net worth is important to set targets and follow your progress. Start by checking your current status by plotting in a table:
| Assets | Liabilities |
|---|---|
| Current account balance(s) | Debt (credit card, car loan etc) |
| Savings account balance(s) | Other liabilities (e.g. taxes outstanding) |
| Investments (ETFs, stocks, bonds, crypto, etc) | Mortgage |
| Real estate |
The balance of these is your net worth and what you will work on increasing. Prioritize paying off debt (excluding mortgage) before starting investing.
Next step is budget. Even easier than above, check your income and into what categories your spending goes. To save more, obviously the former needs to go up and the latter down.
The difficult part is that our ways of spending are not a simple mathematical equation but a set of deeply rooted values, psychological dynamics and desires. To work a budget together as a couple is even more difficult, but worth every effort. When you don’t meet your targets, remember past successes, adjust the budget and move on.
When you have some money to spare, set aside 3-6 months of living expenses so that you don’t need to use your investments when unexpected events occur. Also, if you will need money for large purchases (like your home) in the mid-term, only invest in the stock market the share you can afford to lose a part of temporarily.
Open a depot and start investing. If your horizon is long enough (15+ years) and you can handle seeing the value going into negative temporarily, the easiest option is to find a low cost, wide-spread ETF (e.g. MSCI World) and start transferring money in it on a regular basis (called dollar-cost averaging). One can get very sophisticated with the theme of investing, but gaining the average return of the market is accessible to everyone thanks to index funds and ETFs.
Reaching financial freedom is a very long process on a normal salary, but given current demographics working towards it is most likely the only chance for a dignified retirement. The start is slow, but eventually the compound interest will start working for you.