WHEN I TURNED AGE 24, a friend and I took a road trip from San Francisco to Vancouver. It was 1975. I was excited—it would be my first visit to Canada.
I didn’t know what to expect when we got to the Canadian border. All I knew was we didn’t need passports. The border officer gave us a suspicious look. After being on the road for a spell, we didn’t look our best. I was unshaven and wearing my usual T-shirt and jeans.
I remember the officer kept asking us how much money we had on us. It seemed that was his biggest concern. We tried to convince him that we had enough money for our visit by showing him the cash and credit cards we had in our wallets. Eventually, we were allowed to enter Canada.
I’ve never forgotten how I felt that day at the border. I felt inadequate—not good enough. But later, I realized there wasn’t anything wrong with me. I just didn’t look like someone who had a lot of money.
I learned an important lesson that day: Looks can be deceiving, particularly when it involves people and money. This is especially true for individuals who live below their means, so they can save more money. And yet that’s how most people build wealth.
If I were to teach a class on how to become financially independent, I’d start the class by showing the picture below. The stairs led to my old studio apartment in an alley above a garage. My home was the first door on the left. I lived there for five years until the new owner increased my rent by some 30%.
I’d then show the class a second picture. In 1985, I bought the 789-square-foot, one-bedroom condominium in the photo below. I lived there for 35 years. Both homes allowed me to save a lot of money by keeping my housing costs low.
I don’t expect everyone to live as spartan a life as I have. But if you can keep your living expenses low, it’s an important step toward financial freedom. Here are five more steps that can lead to financial security:
1. Start saving early. The earlier you begin saving and the longer you leave your money untouched, the easier it is to accumulate wealth. Since the dollars you invest compound, you don’t need to save as much overall as those who start saving later.
2. Automate your investing. Put your regular savings on autopilot by having money automatically deducted from your paycheck. That’s a relatively easy and painless way to set aside a large sum each year. If your employer offers a 401(k) plan, the annual contribution limit for 2022 is $20,500. Under the catchup rules, those age 50 and over can contribute an additional $6,500.
3. Save at least 15% of your gross income. Many financial experts believe that if you start early and invest at least 15% of your pretax income each year, you should have enough money for retirement. For instance, a Fidelity Investments study found that if you saved 15% of your gross income each year from age 25 to 67, and received Social Security, it would ensure you had enough income to maintain your current standard of living in retirement.
What if you have a 401(k) plan with an employer matching contribution of, say, 5%? You’d only need to save 10% of your pretax income.
4. Maintain your health. Saving for a long-term goal like retirement can take many decades. Poor health that prevents you from working and generating income is one of the greatest threats to financial security.
According to the Centers for Disease Control and Prevention (CDC), more than a quarter of American adults—or 61 million people—live with a disabling condition. Meanwhile, the Bureau of Labor Statistics reports that only 31.4% of those ages 16 to 64 with a disabling condition were employed in 2021. Seeing your doctor regularly and eating a healthy diet are two ways to increase your chances of a long and prosperous career.
5. Protect your wealth. The unexpected can ruin your financial plan. Shield yourself from lawsuits by purchasing an umbrella liability insurance policy. It offers additional liability coverage on top of the coverage included in your home and auto policies.
Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor’s degree in history and an MBA. A self-described “humble investor,” he likes reading historical novels and about personal finance. Check out his earlier articles and follow him on Twitter @DMFrie.