real money growth

6 saving steps that lead to financial independence


About the author

Hello, I’m the author of, an engineer, and Mint enthusiast. I grew my savings to $93K in a little over 4 years by using simple life-hacks, living frugally, and optimizing daily life tasks. You can call me G.

“Before pursuing a side-hustle to increase your income, let’s optimize your expenses first.” - G

6 Saving Steps That Lead to Financial Independence

Following these steps, you will be able to save and put your savings to work!  No matter how much money you make, these steps will lead you down the path to financial independence.

The 6 saving steps:

1) How to recognize and view an inflated lifestyle

2) How to reduce inflation - this will create savings

3) Where to put savings

4) How to put savings to work

5) How to maintain the simple lifestyle

6) How to continue to put your savings to work


Step 1: How to Recognize and View Inflated Expenses

Similar to gardening, there are times when your growing expenses can be trimmed.  I like to do this at least twice a year and do so by looking over all recurring financial choices to see if any optimization is needed.  How do I do this?  First, I make a list of all ongoing payments for services such as internet, video service, gym, auto-loan, etc.  Once I have my list, and have collected the monthly payment amounts from my account, I then begin to research competitors.  I look for deals - signing bonuses, no-pay starting months, reward points, etc.  These deals can be short-term.  Let’s say Amazon streaming service offers the first three months free - cancel anytime with no fee.  I may sign up for Amazon and cancel Netflix until the first three free months are over.  Then, I may switch back to Netflix. 

My techniques and strategies will be discussed further in step 2.  In order to move on to this second step, step 1 needs to be done properly.  Your monthly service list is the key to completing step 1.  It is not crucial, but if you start to think of the priority of your list, it will help in the next step.  For example, my priorities are paying rent, auto-loan, insurance, school-loans, internet, etc.  Monthly budgets for things like Starbucks, eating-out, or going to the movies are also important to add to the list.  Could you survive with a Starbucks coffee only on Friday?  How about your gym pass?  Could you go without it? 


Step 2: How to Reduce Expense Inflation - This Will Create Savings

For each recurring service I have, I’ll look for competitors who are offering better deals.  If I find a better deal, I’ll put a mark next to the service on my list - that I made in step 1.  If no other deals are better than what I am paying, I consider that service to be fully optimized.  This technique must be done at least twice a year, because service providers like to increase their rates at the same, if not faster, pace.  When I am all done researching, I will then make the phone-calls needed to switch service providers.  The money saved from switching providers goes directly into my IRA accounts - this will be further discussed in step 3.   Sometimes, you may be able to save $20 after pruning your expenses, other times, you may save $200.  It depends on how inflated your expenses are at the time.  It is worth noting that even though we are trimming expenses, when you optimize, you are not sacrificing any services.  You will still keep your automobile, internet, video service, etc.  Now, if you have fully optimized your expenses and are still looking for more to save, you can begin to cut things from the list.

Remember the priority of the list discussed in step 1?  Can you cut Starbucks completely?  What if you substitute it for something else that’s cheaper?  Can you cut your gym pass and work out at home?  Cutting expenses that you can live without, after optimizing the ones on your list, is a great way to free-up some cash for saving.

But … I’m not ready to cut anything.  That’s okay; sticking with trimming expenses for optimization, I have a great example that I am personally looking into.  I signed up for a month-to-month no contract internet service in Southern California.  When I initially purchased the service, the provider sent me the hardware to borrow for no cost.  I paid $50 per month during the first year which is a deal.  Then, when year two came around, the provider increased my bill to $70 per month.  This new value is high for the area.  What do I do?

Well, since my fiancee and I are not married yet, I'll use an internet hack.  No, I’m not talking about borrowing someone else’s internet.  My plan is to send the hardware back to the provider and cancel my internet.  My fiancee will then call the same provider and ask for the $50 per month first year deal.  They will send the hardware to her, and we will be saving $20 per month for the first year.  This is the internet hack.  I will only use this approach if I am unable to first try to convince the provider to lower my cost back to $50.  Who knows, luck may be on my side, and I may not have to use the hack; but, if needed, I have it.


Step 3: Where to Put Your Savings

Once you have completed steps 1 and 2, you should now have some funds freed-up for savings.  If you were unable to free-up funds while completing steps 1 and 2, then your expenses are fully optimized, and your journey will stop here at step 3.  If you’re still with us, then you have some freed-up funds and may be wondering, “so, what do I do now?”  That is a great question!  Ask yourself these questions:

a) Do I have a 401K?  If so, am I contributing the max amount?

b) Do I have IRA accounts?  If so, have I maxed the accounts out this year?

c) So, you have maxed out your 401K and IRA accounts, now what?  How’s your emergency fund looking?

d) Your emergency high yield savings account looks good, now what?  Do you have a standard brokerage account?

With freed-up funds, I will contribute as much I can to my 401K until reaching the yearly limit.  Once I have reached this limit, I will then contribute as much as I can to my IRA accounts.  It’s up to you on the percentage of contribution to the Traditional and Roth.  I tend to contribute more to the traditional, since I know that I will get more back on my tax return.  After I have maxed out the IRA accounts, I will then look at the emergency fund.  Do I have enough if something bad happens?  If I do, then I’ll start looking at my brokerage account.  Honestly, I tend to run out of money well before reaching this point.  But, If I have more funds, I transfer them to my brokerage account.

We can get more granular here.  Simply transferring funds to your 401K, IRA accounts, or brokerage account does nothing until you choose how you would like to invest the funds.  How you choose to invest your savings is determined on your age, risk tolerance, and personal finance goals.  I’m a very aggressive investor and like to control and gauge my risk by choosing to invest in target date funds  - usually around 2050-2055.  You can be even more aggressive.  You can choose a few stocks to invest that may yield very high returns.  Just remember, usually, the higher anticipated return, the more riskier the investment is.

The cool thing about the target date funds is that they are dynamic.  The risk associated with the funds changes over time.  The 2055 target date funds may be high-risk now; however, in ten years, the risk associated with the funds will be much less.  Investing in these funds takes the headache out of investing by removing the work required to balance an unbalanced portfolio.  The target date funds balance themselves over their lifespan.

Index funds have performed very well.  A lot of people choose to invest in these funds, based on the historical data.  There are also investments called ETFs.  Some companies let you trade ETFs for free, as long as you don’t trade them frequently.  James Chen’s description of ETFs on Investopedia is great:

 “An exchange-traded fund is a basket of securities—such as stocks—that tracks an underlying index. An exchange-traded fund is a marketable security. It has an associated price that allows it to be bought and sold. ETFs can contain all types of investments including stocks, commodities, bonds, or a mixture of investment types.” - article found here.

If you are into purchasing individual company stocks, then Robinhood is a cheap way to go.  The company does not charge trading fees; however, you can’t trade too frequently.  The app tracks your day trades and limits you to a certain amount.  If you are into trading frequently, then TastyTrade may be for you.  You can day-trade in a cash account, after your funds have settled, for very low trade fees.  The catch is that you cannot trade with margin.  For some of us, this may be okay, and for others, this strategy may not work at all.

Overall, if you were able to free-up some funds by completing steps 1 and 2, congratulations!  This step, step 3, is the fun step - choosing where to place your funds and how to invest them.  If you are like me, and like to invest for the long run, and do not want to do a bunch of research and work in creating a balanced portfolio, then I highly suggest to invest the freed-up savings in target date funds appropriately chosen for the year at which you choose to retire.  If you plan on retiring in the year 2055, then choose the 2055 target date funds.  If you plan to retire in 2040, then choose the 2040 target date funds, etc.  Further investment breakdowns will be discussed in the next step (step 4). 

The goal is to put every dollar you have to work.  You may find that your relationship with money may change after you make each dollar in your savings work for you.  This was the case for me.  I had always felt that money was working against me.  When you make it work for you, you realize that you are in this together and can help each other along the path towards financial independence.

Step 4: How to Put Your Savings to Work

At the end of step 3, I began to discuss how you can put your money to work for you.  For the longest time, I kept my savings in a brick and mortar bank savings account which earned next to nothing interest.  This was a huge mistake.  I should have been investing each dollar strategically in order to earn worthwhile returns required in the compound interest over time process.  As soon as I realized how to do this, my financial mindset began to change for the best.

Everyone preaches diversification, and I agree with them; however, they don’t preach how to diversify.  Do you buy different funds within one brokerage account?  Should you buy the same thing in different accounts?  Should you even have multiple accounts?  These are great questions that seem to be hard to acquire answers.

One way to attack your savings goals is to set up a structure.  In the world of data and databases, you can take a full backup every night (one savings account), or you can implement a backup chain that consist of a full, differential, and transaction-log backs, daily (multiple savings accounts - savings chain).  This chain allows you to diversify your savings by placing it in multiple accounts.  Not only will this help control your risk, it will create an extra level of security from internet hackers.  So, what accounts should you have and how should you invest the money once it’s in those accounts?

If you have access to an employer sponsored 401k account, you should contribute as much as you can - especially if the employer offers a match.  The match is free money and should be taken.  Think of your 401k as your full backup; this account is the first one in your savings chain.  What’s next?  Well, you need your differential backup.  This is your Roth and Traditional IRA accounts.  Once you contribute as much as you can to your 401k account, if there is any left over, you can contribute the amount to your IRA accounts.  How you distribute the funds between your accounts is up to you.

Now, you may be thinking, what if I can max both 401k and IRA accounts for the year?  What do I do then?  First, you can pat yourself on the back.  This is very hard to do and if you are in a position to do so, be extremely grateful.  Very few people can do this.  If you are able to, you can open up a brokerage account and invest the money how you choose.  Keep in mind here, if you are familiar with database backups, you may have noticed that I left a backup out.  Yes, I did; I left the full monthly backup out - here’s where it comes into the savings chain.  The full monthly backup is your emergency savings account.  I recommend that this be a high yield savings account.  This account will earn you high interest with low risk.  No-penalty CDs should also be considered.

Your emergency fund should be number one priority.  Set some funds aside, and once you have done this, then begin contributing to the first account in the savings chain - the 401k.  Now that we have established the structure - the savings chain - how should you invest your money once it’s in the accounts?  I invest high risk to low risk in the savings chain.  What I mean is that I choose to be very aggressive with the funds in my 401k.  Then, I’m a little less aggressive with the funds in my IRAs.  With my brokerage, I’m a little conservative.  The risk of my investments decreases as I move through the accounts in my savings chain.

Investing is much more than making binary choices.  If you do this, then you will become wealthy over time - this is not necessarily the truth.  To think of investing properly, you need to view it as a spectrum of choices.  A choice along the spectrum may not be right.  It may not be wrong either, and the outcome may be financially beneficial.  There are no right nor wrong ways to invest.  There are however very risky investments that you should stay away from.  It is up to you to do your research and determine which investments fit within your risk tolerances.  Please learn from my mistakes; it is my goal to get us to financial independence as quickly as I can.

Step 5: How to Maintain the Simple Lifestyle

So, you have completed step 4, now what?  You’re currently doing everything that you need to in order to free-up funds to create savings, invest the savings in an appropriate long-term savings account, choose and purchase the right investments that suit your risk tolerance and savings plan, but how do you maintain this lifestyle?  It’s very easy to fall back into the lavish spending way that you once thought was the norm.  Well, practice makes perfect – or at least to as perfect as one can be.

There will always be times that you will “slip” and spend based on emotions and not your current financial plan.  The key is to limit the number of slips and the total amount spent.  You may go out and drop an extra $20 on an appetizer or dessert.  In the long run, a few of these slips should not hurt your financial plan; however, it’s the slips where a large amount of money is spent that will hurt your long term financial goals.  Purchasing a new car when your older car is still functional, buying a new motorcycle when you really do not plan on riding it frequently, moving to a new apartment or buying a home are all great examples where huge slips can occur.

Now, I’m not saying that purchasing a new car, motorcycle, or house is a financial mistake.  These purchases can be financially positive or financially negative.  You must do the math, take the time, and put in the research in order to make logical and sound decisions for these big purchases.

When it comes to tracking the little purchases and granular monthly budgets, I use the Intuit Mint application.  The application shows me how much left I have in each budget category or how much I have overspent for the month – it keeps me honest.  For me, I keep a real close eye on the “Fast Food” and “Restaurants” budgets.  I know that I have overspent in these categories in the past and realize that if I keep a closer eye on them, I will be able to limit my spending.

Budget tracking applications let you know where you are – which is great – but, you also must be aware and financially conscious while making each financial decision.  Do I get animal style fries at NNOut, or do I stick with the cheaper regular fries?  Can I do even better than that and get the double-double and a water instead of the whole meal?  This will save a couple bucks.

Overall, some financial splurges here and there are okay if the splurges are for small amounts and infrequent.  Financial splurges can hurt your savings plan when the amounts are large.  Any purchase over $200 should be carefully though-out and researched properly.  Don’t be afraid to sleep on your choices as well.  I’ve been known to change my mind and develop buyer’s remorse after purchasing things.  Since I know this about myself, I give myself plenty of time before purchasing.  Do I really need the item?  Will it make my life that much easier?  Am I just itching to spend money?  These are all questions that I ask myself.

Step 6: How to Continue to Put Your Savings to Work

Just like many routines, the key is to stay on the path towards financial independence by following the 6 savings steps.  It helps significantly if you choose to walk down this path with someone you are close to.  This person can be, and is certainly not restricted to, a significant other, brother, sister, or best friend.  There is no age that is too old to start the financial journey along the path towards independence, and there most certainly is not a minimum amount of money required to begin the journey.  Remember that you can make each dollar that you’ve earned work for you.  This can be achieved by investing.  Every dollar invested is put to work; its’ job is to make you more money!

If you ever start to feel like you are wandering from the path; it’s okay, take a step back and think about the reason that caused you to stray.  Was it a splurge related to your acquaintances, or was it an emotional purchase?  Can it be prevented in the future?  The goal is to not give up which is so easy to do.  When it comes to walking down the path to financial independence, keep in mind that it is not a race.  Contribute as much as you can to your savings accounts and invest the funds appropriate to your savings goals.  Also, remember to enjoy life along the path; it is perfectly okay to stop and smell the roses.