Defense Wins Championships

…and a high power offense can help get you across the goal line more quickly. The same holds true in the race to achieving FIRE (financial independence; retiring early). But what does this mean on your journey to crossing the FIRE finish line?

A strong defense is paramount to financial independence. I am not talking about having the best linebacker on your fantasy football team or signing Josh Norman during the off season.

Every month, money comes in (income) and money goes out (expenses). Controlling the outflows of cash is the defensive battle towards achieving financial freedom. Preventing unnecessary dollars from escaping is the epitome of a strong DEFENSE.

How do you play strong defense? This is achieved by budgeting, cutting out or reducing unnecessary expenses, living below your means, frugality and avoiding life-style inflation. Preventing money from flowing out allows an individual to accumulate cash which can then be invested. Over time, an individual can accumulate enough to live off of passive income generated by their investments; thus achieving financial independence.

A weak defense full of holes allows money to flow out very easily. This is prevalent in the United States since the country is built on consumerism and a “keeping up with the Jones” mentality. Most Americans have a weak defense, which causes them to burn through their cash, or worse, take on debt because they live and spend beyond their means.

Income is the offensive part of the game that can come in many forms. Salaries, interest, dividends, part-time jobs, hobbies and rental income are just a few of the many ways to generate income/offense. Increasing offensive production allows an individual to save more assuming they do not give in to the pressures of life-style inflation.

Some individuals are fortunate enough to earn a high income from their day job. However, for those of us not blessed with a six-figure salary, there are still ways to improve the offense. Individuals can earn a ‘side hustle’ by working part-time, renting out an extra room in a house, producing income through a hobby, blogging, dog-walking or cutting grass.

Now that you have the basic idea of offense and defense, how does your team stack up? Do you need to improve your defense and clog up holes that are allowing money to flow out? Are you ok with your current rate of savings/accumulating? And your offense, do you need to generate more income, or are you at a comfortable level to where you can save a large portion of what you take home?