Unfortunately, that isn't true for most people. People lose their jobs and in short order they lose their extremely meager savings (perhaps enough to survive a month!) and then they lose their home that they were making mortgage payments on or they get kicked out of their apartment (which they couldn't afford either!) because they stopped paying their rent.
We all need to budget our personal spending because there is no reason why we can't lose our income before the official retirement age or lose our ability to work before that age.
Most importantly, one needs to change his or her attitudes toward money. Money isn't a right and we aren't entitled to any specific lifestyle or spending. Those who have the money can spend it as they can see fit.
Rule #1:
Live BELOW your means.
If you take home $1000 a month, NEVER spend 100% of it. Make a point of keeping your regular expenses at or below 60% or $600. You probably won't make early retirement with only 40% for irregular expenses, debt repayment, and savings, but it at least your savings will cover real irregular expenses and you should be able to grow a decent emergency fund between personal finance disasters.
If you want to retire early and truly be financially independent you need to save and invest at least half of your after-tax income. The greater the percentage that you save and invest every month, the faster you'll see the benefits.
At first you'll see that in an emergency you can pay your bills without using a credit card or having to ask for a loan.
Your money needs to make you more money. Eventually your investments will be large enough to pay your bills then you will be able to quit your job, retire, change jobs, go from full-time to part-time, or make your hobby your new profession.
Rule #2
KNOW where your money goes.
It is great to believe your regular expenses are less than 60% of your take home pay, but you need to either track all expenses or periodically track them and be pretty consistent with your spending. An easy way to verify is to add up money put in savings and investments and debt reduction (monthly credit card and mortgage payments are not debt reduction) If the total is at least 30% of your take home that leaves about 10% spending for irregular and entertainment. if it is less than you need to be more careful at planning and tracking your expenses.
Be specially careful with bank and credit card fees. Below minimum balance, late payment, and missed payment fees can be huge! There are also account maintenance fees on some bank accounts. Credit cards often have annual fees. These should be covered in your REGULAR expenses until you get rid of them.
Rule #3
Don't give up after making a mistake.
Ok, you spent a lot of money at a night out with friends. Accept that it happened and it was a mistake if it was over budget. Just don't give up your budget. Track your expenses better and stay home some other night you normally go out so it balances out to an acceptable level. Making a mistake doesn't mean it is time to throw in the towel. This month you had a setback. Next month you'll make progress!
Rule #4
Make lifestyle changes
If you are used to living beyond your means, you will have to reevaluate what is really important to you. Do those expensive nights out at the disco and the daily taxi drives or the expensive SUV really make you happy? I really doubt it makes you happy beyond a few days.
Reduce or eliminate expenses that don't make you happier or healthier. Downsize your lifestyle. Cook at home more, eat out less. Rent or own a home that is big enough for you and your family. Share your apartment or rent out extra rooms. Make coffee at home instead of going to an expensive coffee shop every day. Don't buy new trendy clothing every season if conservative timeless styles will do. Buy used clothing and shop at garage sales or online for used goods in good condition.
Not everything good will cost you money. Libraries have books, museums often have a free day, parks are generally free.
Limit your consumption when you go to expensive places. Buy one drink instead of 4. Buy the daily special instead of a regular menu item at the restaurant when you go out on a date or with friends.
Rule #5
Focus on big expenses, subscriptions, and simplicity.
A simple lifestyle gives you freedom. Cutting from your budget services you never or rarely use makes sense. If you only watch one movie per month, why pay more than the cost of a visit to a movie theater for those movie channels? If you don't use internet on your cell phone, why pay for the service? If you don't use it or rarely use it, reduce it then cancel it. For example start with your cable and internet bill. Start by reducing from the full package to a package without movie channels and wait a month. Did you miss them? Probably not if you are like most people. The next month go to a more basic package or go to just what you actually used the previous month. Do you always watch TV online? Cancel the television service and just pay for internet. Do you always use the internet on your breaks at the office, cancel your internet service at home. The same goes for magazine and newspaper subscriptions. If you don't read half of the magazines, then it makes more sense to just buy one at the news stand when an issue has an article you want to keep. Better yet, go to the local library to read magazines and newspapers!
Can you walk, ride your bike, or take a bus to work instead of driving your car?
The biggest expenses are normally rent, transportation, food, and utilities. Reducing those will make the biggest dent in your monthly expenses.
Rule #6
Record your income, savings, and investing in a spreadsheet.
You need to make a budget, but recording your general spending or every single expense will keep you honest and on track. Personally I don't record every expense, but I do make a point of saving 40-50% of my income as much as possible. Yes that means sharing the apartment, not using a car, etc. You need to decide what you value until you have substantial investments paying your bills.
Today, tracking your expenses compared to your budget is easier than ever since you can use Google Docs spreadsheets and update your figures anywhere you can find a safe internet connection.
Rule #7
Learn the difference between an asset and a liability and start investing your savings in a variety of assets.
What you don't spend once you are living below your means, can go to your emergency fund and investments. Start investing right away. Inflation eats the buying power of cash savings, so it is important to take some risk by investing. Certificates of Deposit are probably the safest, but they generate little income. Stocks are high risk, but they'll normally grow faster than inflation or pay dividends. Rental property can make regular income for minimal effort, but you need a big up-front investment as a down payment and there are of course property taxes, mortgage payments, and home owner fees. Find a balance that is right for you, but invest in assets instead of spending money on liabilities. Assets generate income and/or grow in value. Liabilities cost you money.
Rule #8
Pay yourself first.
Every time you get your paycheck or get paid for a service you provide or a product you sell, put a % of the payment in your savings and investments. It should be equal to or greater than the % you decided in your budget. No, 10-15% is NOT sufficient. That won't cover real emergencies nor your retirement unless you started saving when you were 20.
If you have a regular salaried job, you know how much money you make every paycheck so you can regularly have money transferred to your savings and brokerage accounts. A freelancer should just deposit a % with each payment received.
Why pay yourself first? It is too easy to see money unspent and buy something that you want (but probably don't need). Once the money is invested, it isn't so easy to spend it on something trendy, or cool. Once you have time to think about it you probably will decide that you didn't really want it that much or it can wait another month or two until the price drops.
Although a 10-15% savings rate is not enough for financial independence or even a decent retirement if you are new to budgeting and saving, it is a very good start if you aren't used to living on less than 100% of their paycheck.
Rule #9
Buy basic goods more than processed goods at the supermarket.
When you go shopping you see most things at the supermarket are processed ready to heat and eat. Unfortunately most have added sugar, salt, and fat. If you are busy it is nice to have something to eat quick, but eating mostly processed food will increase your food expenses. Natural oatmeal is easy to prepare and much cheaper than processed cereals. Potatoes can easily be sliced on a cutting board (carefully!) and fried in canola oil for much less than a bag of precooked french fries. Fried rice is extremely easy to cook and of course it is much cheaper than precooked fried rice. Tea is cheaper than soda and much healthier too.
Rule #10
Only buy deals for things that you'll actually use before they go bad.
Couponing is one example. Yeah, you'll save money with coupons, but you'll notice that coupons are not available for unprocessed natural goods. Eggs, oatmeal, fresh fruit and vegetables, are already cheap. Processing adds costs and makes them expensive therefore the coupons. If you buy basic goods then coupons don't make sense. If there is a promotion on your shampoo then you're probably safe, but if you live alone you probably won't eat 2 kilograms of tomatoes before they spoil. It is hard to guess how much you'll consume, but if you know you don't eat more than 500 grams of something every week and normally less, then don't buy more if it will spoil. I know I never eat more than 2 kilograms of carrots in a week. Sometimes I eat only one so I try to plan according to my average consumption.
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