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7 Super Tactical Steps for Reaching Financial Independence

Disclaimer: As mentioned in the headline, this is a very tactical post. I will list all steps that you need to take in a pill format without getting too much into the “whys”. If you want a shortcut for all major actions that you need to take to get on the path to financial independence, this is where you will find it.

Before you continue, there is a prerequisite. You need to know what your average monthly spending is. This will play a key role in determining how much you’ll be able to invest.

I track all my spending through Mint by connecting all my bank accounts and credit cards. You can use it or create an excel sheet if you want to do the work manually. It doesn’t matter. What matters is to have a good understanding of your monthly spending level. Since monthly expenses fluctuate, I like to look at last 6 to 12 months to have an idea about how much I’m spending.

While making your calculations, make sure to capture any infrequent spending and distribute it to your projected monthly expense. For example, you spent $4,800 in the last twelve months on unexpected things, then add an extra $400 to your monthly spending run rate ($4,800/12). Let’s say you spend $5,000 on an average month on recurring things, then your Adjusted Monthly Spending will be $5,400. Hope it makes sense.

Once you have your “adjusted monthly spending” number, you are ready to continue.

You will invest the difference between your income and spending by following the steps listed below. Obviously the less the spending is, the more you can invest. In another article, I will be giving tips about how to increase this investable amount.

STEP 1) Get Rid of Crazy High Interest Debt

First step is to eliminate all of crazy high interest debt. This includes all debt with over 8% interest. This typically includes credit card debt, car loans and personal loans.

STEP 2) Build a 9-month Emergency Fund

This the amount that you will keep in cash in a high yield savings or no-penalty CD account. If you need it next week, you should be able to access it easily. The total amount that you will keep in this bucket is 9*Adjusted Monthly Spending. I used to keep my emergency fund at Wealthfront when it had better rates. When they decreased the rate to a ridiculously low level, I moved my emergency fund to a no-penalty CD account at Ally.

I prefer a 9-month fund vs. 6 months. It gives you more security in the case that you lose your job and enables you to look for the job that you really want rather than jumping at the first opportunity because of the financial stress.

STEP 3) Max Out Tax-Deferred Accounts

While there are handful of these, most common ones are your 401K, IRA (and backdoor conversion to Roth) and HSA. You will max out all of these accounts that are available to you.

For 401K, make sure to get the full employer match (if they offer it) while you’re maxing it out.

For IRA, open up a traditional IRA account and open up a Roth IRA account (even if you are not eligible to directly contribute to it because of high income). Contribute to your traditional IRA with after tax dollars (aka just write a check) which doesn’t have any income constraint and then convert it to Roth IRA once you see the amount in your account summary page. It takes couple of clicks, it is called backdoor Roth conversion and it’s perfectly legal.

For HSA, you need to have a high deductible insurance plan. If your employer offers it (most do), open a HSA account and max it out. Do not take money out of your HSA account even for qualified medical expenses. Ever. This is going to serve as a retirement account, not just a fund for your medical expenses. HSA is a unique account that is not taxed at any stage (contribution, growth, distribution). When you reach the age of 65, HSA is treated like a traditional IRA and you can use it for any purpose without a penalty.

Investing in tax deferred accounts and see them grow will start building confidence. It’s an amazing feeling to grab a mojito (or old fashioned) every now and then, check your accounts and see your investments grow.

STEP 4) Get Rid of Rest of the Debt

Once you got rid of crazy high interest debt, built your emergency fund and maxed out your tax-deferred accounts, it is the time to eliminate any remaining debt. This will probably include your student loans (and maybe car loan if you have a low interest rate). Paying off your debt means paying it off aggressively with all your available investable savings. Paying off debt not only decreases your liabilities and gives you a peace of mind, it also amplifies your investable assets.

Paying off debt is actually the same as making an investment. You are guaranteed a return of whatever the interest rate on your debt is. Let’s say thanks to eliminating debt where you were paying $500 a month, now you will be able to save and invest that amount. It will compound to over $750,000 in 30 years. Whaaat?! Yes, not too shabby.

STEP 5) Open up a Brokerage Account and Invest the Rest of the Savings

Now it is the time open up a brokerage account to be able to invest the surplus. Three most reputable FIRE friendly firms are Charles Schwab, Vanguard and Fidelity. I use Charles Schwab and I’m very happy with their offerings, web and mobile interfaces and customer service. Opening an account takes 5 mins, just follow the instructions on the site.

Once the account is open, you can just go to the transfer tab, enter your bank account info that the funds will be transferred from and enter the amount. They will do the rest.

For your money in tax-deferred accounts and brokerage accounts, you will need to choose what to invest in. I invest in 3 things only, a total US stock market index fund (e.g. SCHB in Charles Schwab, VTI or VTSAX in Vanguard), an international stock market index fund (e.g. SCHF in Charles Schwab, VTIAX in Vanguard) and a total US bond market index fund (e.g. SCHZ in Charles Schwab, VBTLX in Vanguard). If you want to learn more about “3-fund portfolio”, check out this page on the Bogleheads site (

Of all my investments, I keep 70% in total US stock market index fund (SCHB), 15% in international stock market index fund (SCHF) and 15% in total US bond market index fund (SCHZ). This is called my target allocation.

Please note that I add up all of my investments independent from the platform that they are invested in (401K, IRA, HSA, brokerage account etc.) and look at the allocation at the aggregate level.

STEP 6) Rebalance Your Portfolio

As time passes, the value of your investments is not going to change proportionally. Some may increase in value, some may decrease, some may increase faster than others etc. Therefore, the relative value share of your investments will start to deviate from the target allocation. Therefore, you will need to rebalance your investments from time to time to get back to your target allocation.

My preferred method of rebalancing is through making new investments without any selling and buying. For example, if relative value share of your stocks is less than the target allocation, just keep buying them until you reach the target share.

While this is my preferred method, this may not be practical for some for couple of reasons:

- The market moved very significantly and closing the gap with new investments will take a long time,

- You may have reached a significant portfolio value and rebalancing only through new investments isn’t adequate to move the needle,

- You may be already “retired” therefore you may not earn an income to make new investments.

If it is the case, then we move to the next method. Pick a random date every year (mine is June 1st for no specific reason) and make any adjustments and rebalancing if necessary. Here’s what I mean.

Let’s assume that your target allocation is same as mine (70% domestic stock, 15% international stock, 15% bonds) and you determined your random rebalancing date as October 1st of every year. As of October 1st 2020, let’s assume that you have the perfect allocation. In the following twelve months, market did not perform well and stocks lost value and bonds gained value. When you look at the allocation of your portfolio, you realize that it shifted to 60% domestic stocks, 10% international stocks and 30% bonds. In order to get back to your original target allocation, you will need to sell the asset that gained value (bonds in this scenario) and buy the ones that lost value (domestic and international stocks) after you make a simple calculation to determine the amounts. Now you are back at 70/15/15 allocation.

Beautiful aspect of this mechanism is that it automatically enables you to buy assets when they are at a discount and sell when they trading at a premium.

Tip: It is a tax savvy move to do this rebalancing within tax-deferred accounts if you can to eliminate any tax implications.

STEP 7) Chill, trust the process and be patient

This may look like the easiest step, but it’s the hardest. You will see wild fluctuations in your account balances, you will experience recessions where the market can do down 30% in a day. At these times, the worst thing that you can do is to panic and sell. Just remember that it is a natural part of market dynamics and since the stock market started, it always went up in the longer term. Only people who maintained their calm and stayed invested were able to build meaningful wealth.


That’s it. That’s all you need to do to move towards complete financial independence. It takes a little bit of work in the beginning, but once you set it up, it will be on auto pilot. You can automate all your investments by setting up an auto transfer from your paycheck to your investment accounts and even automate buying your investments.

Final note

You may have emotional challenges about investing your hard-earned cash. I was very anxious when I started moving money from my bank to my brokerage account. All that I am asking from you is to trust the process, facts, numbers and science.

Good luck!

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