Financial Freedom Book Review
Financial Freedom: A Proven Path to All the Money You Will Ever Need is a very popular book with those seeking financial freedom.
The author, Grant Sabatier, outlines a seven-step process to achieve financial freedom by making more money in less time, so you have more time for the things you love. Money is unlimited, but time is limited.
These seven steps demystify the concept of your ‘number’ (the money you need to have to be financial free), provide pointers to getting more out of your job and developing a side hustle and outlines the decision-making framework while making spending decisions.
The book is extremely relevant and very detailed. Sections of the book, particularly around investments, are US-centric. Readers need to adapt the framework to investment avenues available in the country they live.
Personally I found the Seven Levels of Freedom articulated in the book useful to determine the progress towards the ultimate goal of financial freedom. I found this useful.
Must read if you are seeking financial freedom.
Financial Freedom Book Summary
Note: This summary is made up of my notes, thoughts and highlights of important passages while reading the book. I keep updating the summary when I revisit it, and occasionally may edit it to reduce summary length. Don’t be surprised if it has changed between visits. The author’s words are in normal font, while my interpretations are in italics.
FOREWORD
Enlightenment can come from a cold hard look at reality. In today’s vernacular, Grant got “woke.”
Every human will need to capture the emerging opportunities to get what they need.
Making a lot of money isn’t the point. Time is.
You maximize your income without sacrificing your integrity or your health in service of the promise of financial independence.
Most of the world’s work has nothing to do with money.
Exit wage slavery (being compelled to work by the need for money) and join the owners of wealth whose money works for them.
Mastering our relationship with earning, spending, saving, and investing liberates our time for the real work of becoming better human beings and making the world a better place.
CHAPTER 1: MONEY IS FREEDOM – How I Went from $2.26 to $1 Million in Five Years
While investment guides generally recommend you sock away 10 to 15 percent of your income (even though, as I’d later learn, that definitely isn’t enough), millennials under twenty-five are saving only 3.9 percent of their income for retirement,
Doing everything I was “supposed” to do wouldn’t guarantee anything.
I simply learned everything I could, questioned all the popular advice about money I came across, and maximized the value of my time through a combination of personal finance, entrepreneurship, and investing—three things absolutely anyone, even someone with $2.26 in the bank and a lack of marketable skills, can learn to do on their own.
The strategies I used require some effort and discipline, but they aren’t complicated.
Most of the “accepted wisdom” about money, work, and retirement is either incorrect, incomplete, or so old-school it’s obsolete.
One of the most damaging and popular myths about money is that it’s complicated.
The concepts in this book are actually pretty simple, and any math you’ll need you learned in elementary school.
I want to help you understand the mechanics behind money so you understand why and how the advice works, and how you can get results quickly.
Step 1: Figure out your number.
Your number is how much money you need to reach your financial freedom.
Step 2: Calculate where you are today.
Your net worth is the most important number in your financial life.
Step 3: Radically shift how you think about money.
Step 4: Stop budgeting and focus on what has the biggest impact on your savings.
Budgets actually reinforce a scarcity mindset
Step 5: Hack your nine-to-five.
Use it strategically to make more money today and as a launching pad to make a lot more money in the future.
Step 6: Start a profitable side hustle and diversify your income streams.
Most people don’t do it right. They spend their time side hustling for someone else instead of for themselves,
Or they spend their time trying to grow a side hustle that was doomed from the beginning.
Step 7: Invest as much money as early and often as you can.
When you invest money, your money makes money and you don’t need to trade much, if any, of your own time.
When you have enough money, you have more space and time to explore the world, to connect, to reflect, to grow, and to feel alive.
“Financial freedom,” of course, means different things to different people,
Some monks feel free without any money, choosing instead to live within a self-sustaining community.
Ultimately, the amount you need comes down to the life you want to live, where you want to live it, what you value, and what brings you joy. Joy is defined as a feeling of great pleasure and happiness caused by something exceptionally good, satisfying, or delightful—aka “The Good Life.”
Seven Levels of Financial Freedom
Clarity, when you figure out where you are and where you want to go
Self-sufficiency, when you earn enough money to cover your expenses on your own
Breathing room, when you escape living paycheck to paycheck
Stability, when you have six months of living expenses saved and bad debt, like credit card debt, repaid.
Flexibility, when you have at least two years of living expenses invested
Financial independence, when you can live off the income generated by your investments forever so work becomes optional
Abundant wealth, when you have more money than you’ll ever need
You have freedom through money.
Once I reached one of my goals, my next goal was almost always to double my money.
Set smaller goals along the way and push as quickly as you can to reach them. Celebrate each success
No matter how long it takes, just keep at it.
The biggest distance is between levels 5 and 6 (when you can live off your investments forever).
Once I reached financial independence and had enough to walk away from work forever—even though I have chosen not to—I completely stopped worrying about money. Over time my anxiety started to disappear, I’m more present, calm, and happier.
Financial freedom, financial independence, early retirement, whatever you call it—it feels big, open, limitless.
What does financial freedom mean to you? What would you do tomorrow if you didn’t need to work for money? Only you can answer these questions.
CHAPTER 2: TIME IS MORE VALUABLE THAN MONEY – Why You Can and Should “Retire” Early
The average person has approximately 25,000 days to live in their adult life.
The goal of this book is to help you retire as early as possible. When I say retire, I don’t mean that you will never work again, only that you’ll have enough money so that you never have to work again.
I don’t ever plan to retire in the traditional sense of the word, but you could say that I’m “retired” now because I have enough money.
Einstein is said to have called compounding “the eighth wonder of the world.”
The key to fast-tracking financial freedom is to speed up compounding by making and investing as much money as early and frequently as you can.
Inflation increases or decreases what you can buy with money.
If you are already saving more than 10 percent, first, congratulations! You are saving more than 99 percent of the United States population!
REWRITING RETIREMENT
The classic American work ethic: get a job, pay your dues, save wisely, and if you play your cards right, you can retire sometime in your golden years.
48 percent of Americans over fifty-five haven’t even thought about what they want to do when/if they retire.
No one ever told me I couldn’t “retire” in my twenties or thirties; the idea was simply so unusual that it never came up.
In her deeply moving book The Top Five Regrets of the Dying, nurse Bronnie Ware says the top two regrets of those facing the end of their lives are “I wish I’d had the courage to live a life true to myself, not the life others expected of me,” and “I wish I hadn’t worked so hard.”
Figuring out ways to earn more money rather than simply focusing on ways to save it.
Once you learn the basic concepts of earning, saving, and investing, executing the strategy is relatively simple and you will start seeing results immediately.
The hardest part of fast-tracking financial freedom is learning to look at the world differently.
TIME VERSUS MONEY
Personal finance advice is so limiting is because it is based on the false assumption that money is limited.
Money is limited only if you don’t try to make more of it.
Money is inherently infinite. It’s a human invention.
There is enough money in the world for everyone to have all the money they need.
When we believe that money is scarce, we end up sacrificing a great deal of time in order to make and save it.
In one of my favorite books, Your Money or Your Life, author Vicki Robin asks us to ponder a simple but transcendent question: What are the hours of your life worth? What are you willing to trade them for? How much money are you willing to trade for your time?
Humans need to work to be happy.
If you gradually save a small percentage of your income over the course of forty-plus years, you’re wasting time that your money could use to grow.
Every $1 invested today is worth hours, if not days, of your freedom in the future. The more you save today, the more time you buy in the future.
The key to fast-tracking financial freedom is to make and invest as much money as early and frequently as you can.
RECAP
Money is unlimited. Time is not. Don’t waste time.
The traditional approach to retirement has three major problems: It doesn’t work for most people. You end up spending the most valuable years of your life working for money. It’s not designed to help you retire as quickly as possible.
Compounding exponentially increases the value of your money over time, and the earlier and more you invest, the faster your money will grow.
The key to fast-tracking financial freedom is making and investing as much money as early and frequently as you can.
Inflation causes prices to go up every year for most staples like housing, transportation, and food, but there are ways to minimize the impact of inflation so you will need less money and can let your investments keep growing.
Don’t defer your dreams into the future. The top two regrets of those facing the end of their lives are “I wish I’d had the courage to live a life true to myself, not the life others expected of me,” and “I wish I hadn’t worked so hard.”
The vast majority of personal finance advice out there is focused on helping you maximize whatever limited money you already have. It’s focused on frugality, scarcity, cutting back, and spending less, and doesn’t acknowledge that money is limited only if you don’t try to make more.
The relationship between money and time is not strictly linear: if you want to make more money, you don’t necessarily need to sacrifice more time to do so.
CHAPTER 3: WHAT IS YOUR NUMBER? – (It’s Probably Less Than You Think)
Only when you know your destination can you figure out the best route to get there.
My number is the point at which I would reach level 6 of financial freedom (financial independence), or my FI number.
Take a few minutes to write down what a great day looks like for you. Why is it so great? Why does it bring you joy?
Then think hard about how much money you need to live this life.
The more money I’ve made in my own life, the less money I spend and the less money I feel like I need to do what I love. It’s a feeling I never expected.
Just having the ability to buy something was enough.
Many of the richest and most successful people I know are the most frugal.
Frugality is not about not spending, it’s about not wasting—your money, your time, and your resources. It’s about buying and using only what you need.
Needs are different than wants.
If you really want something, wait thirty, sixty, or even ninety days before buying it, and you might not even want it anymore.
Impulse is an enemy of financial freedom.
The less money you need, the sooner you can reach financial independence. You need a lot of money to retire, but you probably need less than you think.
The younger you are, the less money you need to have saved before you can “retire” as long as you follow a few simple rules.
You can “retire” with less money at thirty than you’ll need at sixty and not have to work for that extra thirty years!
The longer you need your money to last, your money has more time to grow—in this case, an additional thirty years of compounding.
So if you save $1 million by thirty and can live off 3 or 4 percent, then you can live off that money for thirty years and your balance will have grown to $3 to $4 million, or even more.
You can “retire” from the job you don’t like and work on one you do, even if it pays a lot less money.
No matter how old you are when you reach financial independence, you’ll be so pumped up you’ll eventually want to dive into other projects that excite you, in which you’ll end up making money.
You should save at least 25 times your expected annual expenses … This calculation became standard advice thanks to a popular academic paper known as the Trinity study.
The study showed there was at least a 98 percent success rate of the money lasting thirty years if you withdrew 4 percent the first year, then 4 percent plus inflation (6–7 percent) each subsequent year, and you kept the portfolio invested in either 100 percent stocks or 75 percent stocks and 25 percent bonds.
Other studies since the Trinity study have shown that even in the worst down markets, a 3 to 4 percent (plus inflation adjustments) investment withdrawal rate has an extremely high rate of success over a period of fifty-plus years.
The longer and more your money grows, the likelier it is you can actually increase your expenses and withdrawals and still never run out of money.
You can save more than 25 times your expected annual expenses.
You should defer taking your investment gains as long as possible.
As you get closer to retiring, you should start increasing your six-month emergency fund to cover a full year of living expenses.
When you do start taking out investing gains, live on as little of the money as possible, even when the market is way up.
Last, try to preserve your investment principal (the money that you originally contributed), because your principal is the largest balance driving your investment growth.
HOW MUCH MONEY DO YOU ACTUALLY NEED?
They assume each dollar you have saved will be worth much less in terms of purchasing power in the future (which it undoubtedly will because of inflation), but prices don’t go up for everything and you can actively find ways to live outside of inflation.
They assume the amount you have when you retire is all you’ll have to live on for the rest of your life. In other words, once you start living on your investments, you will be drawing from a fixed amount that won’t continue to grow
One word of caution: Stock market gains are not predictable or guaranteed, so you should consider market conditions when you start to withdraw.
CALCULATE YOUR NUMBER
Finance industry often sells a level of precision with investing and retirement planning that’s really just guessing.
How much you need to reach the next level of financial freedom, since levels 2 through 5 are based on your current expenses.
Self-sufficiency, when you earn enough money to cover your expenses on your own = 1 times your monthly expenses.
Breathing room, when you escape living paycheck to paycheck = 3 to 5 times your monthly expenses.
Stability, when you have six months of living expenses saved and your debts repaid = 6 times your monthly expenses.
Flexibility, when you have two years of living expenses invested = 24 times your monthly expenses.
Withdrawal rate percentage × your number = annual expenses
THE IMPACT OF A SINGLE RECURRING EXPENSE ON YOUR NUMBER
Simple equation: your monthly expenses × 12 months × 25x annual expense multiplier = the impact of that recurring expense on your number.
ADJUSTING YOUR NUMBER FOR ONETIME FUTURE EXPENSES
Using a really simple calculation (and one of the most valuable in personal finance) known as the present value formula, which measures the time value of money, you can measure how much you need to invest today to get the $80,000 over the next fifteen years.
THE LIFESTYLE FACTOR
Take a hard look at your current spending and evaluate whether you need to spend that much to live the life you want.
Cut back to the essentials, those things that regularly give you joy, meaning, purpose, and fulfillment.
Money matters only if it helps you live a life that you love.
We get caught up in what others are spending their money on.
Or we spend money because today it makes us feel powerful.
We also tend to spend more money as we make more money, a trend known as lifestyle inflation.
Pay yourself first through investing.
We are taught from a young age to buy anything we need or anything we want because “I work hard and I deserve it.”
When we get hungry, we buy or order food, instead of trying to grow our own.
When you do need something, searching for free alternatives, asking your friends or family for help, or bartering can save you money.
If you’re making $30 per hour after taxes and want to buy a $60,000 car, you’re going to be trading 2,000 of the premium hours of your life for that vehicle. If you work forty hours a week, that’s fifty weeks—an entire year.
That $60,000 vintage car is actually costing you $486,989 in the future. So you are actually trading 2,000 hours of your life AND over $400,000 in growth potential.
Double your money with the Rule of 72.
Experiences—travel, going out with friends, hanging out with your family in the park, getting lost in a music festival, camping, meeting new people, etc.—might bring more joy to your life than possessions would. These experiences might still require some money, but it will likely be a lot less.
Spend money on what you really value and save on what you don’t.
You might even be able to “retire” already
Life’s too short to not enjoy it.
The big thing was finding a spending level that made me happy. I found this out by buying as little as possible and then started adding back in the things that were really important to me.
If you make money mistakes, don’t let them derail you. Just recommit to the path.
LOCATION, LOCATION, LOCATION
Housing is by far the biggest expense. Where you live will have the most profound impact on how much money you need.
Geographic arbitrage to describe their process of figuring out where to live based on inflation rates in different countries.
THE POWER OF RECURRING INCOME TO REDUCE YOUR NUMBER
If I’m earning income, then I haven’t really retired.
You’re retired once you no longer have to work for money and can do whatever you want.
If you’re able to generate any additional income (through rental income, an online business, or a business that someone else runs), then you’ll need less money saved and your number will be lower.
Any amount of reliable consistent monthly income will have an impact over time and reduce the amount of money you need to reach financial independence.
Benefit of side income is that it provides a hedge against your investment performance and can give you more security
It was crazy for me to see these numbers and how saving about $2 more a day could help me retire one year faster (years 35 to 34) or that saving $10 more per day could help me retire two years faster (from 25 to 23).
Step 5: Optimize your nine-to-five.
Other studies since the Trinity study have shown that even in the worst down markets, a 3 to 4 percent (plus inflation adjustments) investment withdrawal rate has an extremely high rate of success over a period of fifty-plus years. For a detailed analysis of your success rate of retiring at age thirty-five with $1,000,000 and having your money last sixty years, see the appendix.
RECAP
Planning for retirement is not an exact science, and how much money you need will change as you change.
How much money you need ultimately depends on the type of lifestyle you want to live.
The younger you are, the less money you need to have saved before you can retire, given that you have a much longer compounding period for your investments.
To maximize the odds of your money lasting for the rest of your life, you need to adhere to a set of specific guidelines, including:
Use your current expenses to estimate your number.
That $60,000 vintage car is actually costing you $486,989 in the future.
Rule of 72: Divide 72 by your expected compounding rate (7 percent) to determine how many years it would take for your money to double.
Consistent recurring income reduces the amount of money you will need and can rapidly accelerate financial freedom.
Break your number down into smaller, more attainable daily, weekly, monthly, and annual savings goals.
CHAPTER 4: WHERE ARE YOU NOW? – Getting Clarity on Your Finances
Your net worth is the most important personal finance number for you to track on a regular basis.
If you ignore your money, you are wasting precious time that you could be using to start building wealth, because you can’t map out a strategy until you know the facts. Every day you procrastinate, you are wasting time.
As you see your investments grow $10 a day, $100 a day, or even $1,000 a day, tracking your net worth actually gets addictive.
CALCULATING YOUR NUMBER WITHIN YOUR NET WORTH
Your number and your net worth are different.
Your number is the amount of money that you need to have invested so that you can live off the income from your investments for the rest of your life.
Your net worth includes (or will include) your investments, but it also includes other assets that might not generate income for you.
To calculate how close you are to your number, take your income-generating investments from your net worth and subtract them from your number.
WHAT ABOUT DEBT?
You should start by paying down the debt with the highest interest rate first—no matter how large the balance is.
Pay down all your debt before you start saving money, but this is often a terrible idea because while you’re waiting to pay down your debt, you are missing out on any returns
Most early retirees pay off their mortgage in full before retiring to simply eliminate their monthly mortgage payment
Compounding works both ways, so always make the decision that benefits you most based on the numbers.
Rule number one of growing your wealth: Never leave money on the table.
CHECK YOUR EMOTIONS AT THE DOOR!
There is probably nothing that people get more emotional about than money.
The biggest mistakes you can make is letting your emotions get in the way of making a good decision.
A loss is realized only when you sell your investments.
Stay focused on the bigger picture. Play the long game.
Investing isn’t gambling and there are ways to minimize the risks,
DAILY HABITS = RICHES
Most people don’t pay attention to their money, so they either end up doing nothing or making a bad decision.
Many people don’t track.
It’s so easy to spend money before you’ve earned it or if you don’t have it.
Banks make billions of dollars a year on interest payments from users who don’t pay their balance off each month.
Developing a series of habits you do every day to monitor your money and strategize how to grow it.
All it takes is five minutes a day.
The most effective way to build better habits is to take it one day at a time.
You the key to wealth is automation, but automation is not enough. Automation is the status quo.
It’s easy to automate, to coast in life. But coasting won’t get you to the next level. Pushing harder is how you get to financial freedom.
Happiness is in the journey, the challenge, the growth.
I spend a couple of minutes thinking about additional ways I can make money. Can I find a new client this week? Can I sell a new project to an old client? Does anyone I know need some extra help?
As you spend more time with your money, your relationship with it will strengthen. Instead of worrying about money all the time, you’ll start to feel at peace with it.
RECAP
Net worth is the most important number in personal finance and is your financial scorecard.
Your net worth is not the same as your number.
Calculate how close you are to your number by subtracting your income-generating investments in your net worth from your number.
Pay down debt in a way that will allow you to save (and invest) as much money as possible
If your company offers a 401(k) match, always invest enough to get the match because it’s free money.
People get too emotional about money.
Daily habits equal riches.
Automation is the status quo.
Spend five minutes a day with your money.
CHAPTER 5: NEXT-LEVEL MONEY – How to Build Wealth Quickly
While there are many ways to build wealth, they all rely on the same three basic variables (I like to call them levers):
Income: How much money you are making.
Savings: How much money you are saving/investing.
Expenses: How much money you are spending.
The problem with most personal financial advice is that it focuses primarily on two of these three variables: how to reduce expenses to increase your savings. But you can only cut back so much.
The amount of money you can save is limited by how much money you are making.
While both are essential, to fast-track financial freedom, increasing your income is more powerful than cutting back on your expenses because you can only cut back so much and it gives you the opportunity to invest more money more often, accelerating the rate of compounding and the growth of your money.
Unless you’re earning quite a bit of money already, it will be difficult to reach financial independence quickly by savings alone.
The higher your “savings rate,” the faster you can retire.
Saving over 50 percent of your income might sound crazy right now, it’s actually possible for most people if you are willing to make both saving and making more money priorities.
“It’s not about deprivation, it’s about optimization.”
Every 1 percent more you save will decrease the amount of time you’ll need to work to reach financial independence.
THE ENTERPRISE MINDSET
The rich look at money not as a limited resource that they need to maximize (the way most people do), but as a fungible tool that can be used for any purpose.
Focus on making as much money as possible per minute and hour of their time.
In many cases the right money decision is simply the mathematically correct one.
There are four general types of ways to make money:
- Full-time employment—working for someone else
- Side hustling—making money on the side
- Entrepreneurship—scaling your side hustle and/or
- Making it your full-time job Investing—growing your money in the market
Multiple income streams give you options, flexibility, and more control.
OPTIMIZE YOUR FULL-TIME JOB
Trading your time for money, you can make only so much money because you have a limited amount of time.
There’s risk in any investment and your full-time job is an investment of your time.
Even if you make a high salary, it’s still worth diversifying your income streams so you can walk away from your nine-to-five if you ever determine it’s not worth it.
SIDE HUSTLING TO DIVERSIFY YOUR INCOME STREAMS
Be an entrepreneur simply by selling something people will buy.
Side hustling—what I define as any way you make money outside of your full-time job—is a relatively simple way to become an entrepreneur
Start a side hustle with very little time and money, so the learning opportunities are high, but the financial risk is low.
Even $1 will accelerate the rate of compounding.
Make a list of all the skills you have or things you are good at and a list of the things you love to do. Which ones overlap? Evaluate those opportunities first.
In order to maximize your side-hustle earning potential, find a side hustle: Where you actually work for yourself That pays you well for your time That you enjoy doing That teaches you new skills (skills are future currency) That has growth potential (you can grow it into a larger business if you want) That has passive income potential (where you can hire others to do the work or set up recurring revenue streams)
More money is more money. Remember, money is infinite.
The most profitable side hustles are those that meet the most market demand but have relatively little competition.
HIRE PEOPLE TO DO THE WORK AND MAKE A LOT MORE MONEY WITH PASSIVE INCOME STREAMS
The two best ways to make the most money over the long term are to hire other people to do the work for you and to focus on building passive income streams.
When you build a business, the value you are creating is not 100 percent dependent on your own time; it can be much greater, because your employees are creating value as well.
A business multiplies and compounds your power to make money by the number of employees you have.
If you can find a business or investment that generates consistent reliable passive income (like rental income or stock dividends), then you can even make enough money to offset or cover your monthly expenses.
We all have great ideas, but business success comes down to execution—you’ve got to actually be able to make it happen. I see far too many entrepreneurs quit their full-time jobs to pursue an idea when they don’t yet have a strong proof of concept and customers.
INVEST AS MUCH MONEY AS EARLY AS POSSIBLE
Investing income is the ultimate passive income, and this is the main strategy the wealthy use to both get rich and stay rich.
While you can invest in anything, I’ve found stock, bond, and real estate investing to be the most manageable and dependable investments.
Enterprise mindset is so powerful. By diversifying your income streams, consistently looking for new ways to make more money, and investing as much money as possible,
RECAP
Building wealth relies on the same three basic levers.
Most personal finance books focus too much on cutting back,
Savings rate:
Your savings rate is directly correlated with the amount of time it will take you to hit your number.
Enterprise mindset:
To make as much money as possible, you want to combine and maximize as many moneymaking strategies as possible.
Find a side hustle:
Investing is the ultimate passive income, and this is the main strategy the wealthy use to both get rich and stay rich.
CHAPTER 6: IS IT WORTH IT? – 11 Ways to Think About Money Before You Buy Anything
Saving money is making money.
CALCULATE AND REGULARLY MONITOR YOUR REAL HOURLY RATE
The higher your real hourly rate, the more money you are making for your time.
Your nine-to-five job takes a lot more of your time and your life than you realize.
QUESTION 1: HOW HAPPY WILL THIS PURCHASE MAKE ME?
QUESTION 2: HOW MUCH MONEY DO I HAVE TO MAKE TO AFFORD THIS?
QUESTION 3: HOW MANY HOURS OF MY LIFE AM I TRADING TO AFFORD THIS?
QUESTION 4: CAN I AFFORD IT?
QUESTION 5: HOW DO PRICES COMPARE IN TERMS OF PERCENTAGES?
When you focus on the percentage difference between two prices, it’s easier to make a value judgment on whether it’s worth paying more for one product over another.
QUESTION 6: CAN I GET IT FOR LESS OR TRADE FOR IT?
QUESTION 7: HOW MUCH AM I SPENDING ON CONVENIENCE?
Start calculating your own convenience cost for items you consume regularly.
QUESTION 8: HOW MUCH WOULD THIS COST ME EACH YEAR OR FOR THE REST OF MY LIFE?
QUESTION 9: WHAT IS THE PER-USE COST OF THIS ITEM?
This works especially well when evaluating large purchases like cars, boats, and specialty clothing items that you might wear only a few times (for instance, a tuxedo or a super-fancy dress).
QUESTION 10: HOW MUCH WILL THIS MONEY BE WORTH IN THE FUTURE?
When you buy anything today, you are sacrificing the opportunity to save and grow that money.
You are losing out when you buy something not just because you spent the money, but because you missed the opportunity for it to grow.
“Is this money worth more to me today or in the future?”
QUESTION 11: HOW MUCH TIME (FREEDOM) IS THIS BUYING ME IN THE FUTURE?
Thanks to compounding, the younger you are, the less money you need to buy a day, a week, or a year of freedom.
If that cup of $3 coffee makes you happy and you realize that you are trading 16 minutes of your life for it but determine that’s a trade-off worth making, then by all means, drink up.
RECAP
Calculate your real hourly rate,
Ask yourself these eleven questions before buying anything:
How happy will this purchase make me?
How much money do I have to make to afford this?
How many hours of my life am I trading to afford this?
Can I afford it?
How do prices compare in terms of percentages?
Can I get it for less or trade for it?
How much am I spending on convenience?
How much would this cost me each year or for the rest of my life?
What is the per-use cost of this item?
How much will this money be worth in the future?
How much time (freedom) is this buying me in the future?
CHAPTER 7: THE ONLY BUDGET YOU’LL EVER NEED – How to Live for Free and Increase Your Savings Rate at Least 25%
I don’t like budgets is because they reinforce the idea of scarcity.
Budgeting is a lot like dieting: the more guilt you feel, the less likely you are to stick with it.
You’re not going to save the most money by cutting back on your small expenses. You save the most money by controlling your biggest expenses—namely housing, transportation, and food—and you can do that without the aid of a formal budget.
We often spend so much time and energy worrying about how to save a few bucks here and there when we could save so much more with relatively little effort by considering a few key purchases.
You can move to a smaller apartment, a less desirable neighborhood, or an older building, or get a roommate, which has the added benefit of helping you save money on some of your other expenses.
The three easiest ways to live rent-free are by house-sitting, house-hacking, and bartering.
Tons of people are looking for someone to look after their house and their pets while they travel. And in exchange for being an awesome house sitter, you get to live for free.
House-hacking requires a little more effort than house-sitting, as well as some money to get started, but if you do it right, you can save and even make a lot of money. All it comes down to is buying a piece (or multiple pieces) of real estate and renting any rooms or units you don’t live in to other people.
The easiest way to start house-hacking is to buy a two- or three-bedroom apartment or house and rent the additional rooms out to your friends or other tenants;
Adam, a Millennial Money reader, bought an entire eight-unit apartment building in Chicago at the age of twenty-four and was not only able to cover the mortgage by renting to other people but also made an additional $2,500 a month in income.
Bartering is as simple as it sounds. Become a nanny or summer groundskeeper or pet sitter in exchange for free rent.
The easiest way to save on transportation costs if you have to buy a car is to always buy used and to always buy the cheapest car you can.
The least expensive forms of transportation are walking, followed by biking.
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You don’t need to budget.
You can likely save at least 20 percent or more per month by cutting back on your three biggest expenses—housing, transportation, and food.
The cost of housing accounts for about 33 percent of the average American’s budget. Save on your housing by moving to a cheaper home or renting out your extra rooms or entire home. Other options are living for free by house-sitting or buying a home and house-hacking. House-hacking is when you buy a two- or three-bedroom home and rent out the additional rooms to offset, completely cover, or even make money on your mortgage. You can also house-hack by buying multiple units in the same building and renting them out to cover the cost of your own.
Save on transportation by walking and biking whenever possible. If you don’t really need a car, then don’t buy one. If you do have to have one, always buy used. Get out and explore the world. It’s never been easier to travel for less. While travel-hacking takes some work, with a little effort you can travel for a lot less. The more you travel-hack, the better you’ll get.
Save money on food by growing your own, cooking at home, buying in bulk, bartering with your neighbors, and hunting promos.
CHAPTER 8: OPTIMIZE YOUR 9-TO-5 – Use Your Full-Time Job as a Launching Pad to Freedom
Optimizing your full-time job is essential if you want to make more money and hit your number in as few years as possible.
Your short-term career strategy should be focused on increasing your market value (what someone is willing to pay you) and maximizing your salary and benefits, including any opportunities to work remotely or create your own schedule (which can give you more control over your time).
Your longer-term career strategy should be built on taking advantage of the access you have to information and other people by networking, building skills, and learning as much as you can, so you can increase your value and learn everything you can about how your company (and others) make money so you can apply it to your future full-time jobs, side hustles, and business ventures.
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Your full-time job is an incredible income opportunity and you should use it as a launching pad by maximizing your benefits and salary opportunities while building other income streams.
Maximize your benefits.
- Meet with your HR team to determine what benefits you have and how to maximize them. Almost all benefits are worth participating in.
- Look into HSA, FSA, 401(k), continued learning, various forms of insurance, and remote-work opportunities.
- If you are unhappy with a benefit, try negotiating for a better one.
- Not maximizing your benefits is like leaving money on the table.
Maximize your salary.
- Your company is trying to make as much money for your time as they can, so use this to your advantage when negotiating for a raise.
- Research and print out information on your current market value, value to your company, and any competing offers of employment you’ve received.
- The net impact of even a single raise will be huge over your career. Figure out if you should ask for a raise by analyzing the current market demand for your skills and experience. You can do this simply by looking at salary comparison websites like Glassdoor, contacting recruiters, and reading industry salary reports. Then, if possible, try to calculate your value to your company and what it would cost to replace you (it’s probably a lot!). Also make a list of everything you did above and beyond your job description. Determine how much to ask for and the right time to ask.
- You are more likely to get a bigger raise if you ask in terms of percentages instead of dollars.
- If you are getting paid significantly under your market value, then realistically you could get a raise of 20-plus percent to the market level by making the case using the data you found online and from recruiters.
- Pick the right time and ask.
- Two good times are during your annual performance review and if your responsibilities have changed significantly.
- Research shows that the best time to ask for a raise is Friday morning. The reason is because your boss, like you, is relatively relaxed and excited about the weekend. Research also shows that people tend to be more generous in the morning before noon.
- Keep researching your value and your future market value—i.e., the amount of money you will get paid if you stay on your current career trajectory. Look up the salaries of the roles you will move into over the next three to five years.
- If you don’t like what you find, pivot as soon as you can. Skills + Network = Money.
- Skills are the currency of the future.
The more valuable and diverse your skill sets are and will be, the more money you will make. Keep building your skills and your network and they will pay huge dividends over time.
CHAPTER 9: MORE MONEY IN LESS TIME – How to Start a Profitable Side Hustle
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You need to diversify your income streams by developing one or more side hustles—moneymaking ventures outside of your full-time job.
Side hustling is great because you can make money—sometimes a lot of money—doing pretty much anything.
It also typically requires very little investment to get started, and it’s easy to test multiple ideas.
Side hustling to invest will fast track your investment growth. Every side-hustle dollar you invest reduces the amount of time it will take to hit your number. No job should be too small. Every extra $1 invested helps and speeds up the process.
There are two ways you can make money side hustling: you can work for someone else or you can work for yourself.
If you are side hustling for someone else, the money you can make will always be limited by the number of hours you have in the day.
Working for yourself allows you to make a lot of money doing something that you love and gives you more control over your money and your time and the opportunity to grow your business if you want to.
You need to evaluate how much time you are realistically willing to commit to it, because how much time you have will determine the types of side hustles you can launch and how much money you can make. The most lucrative side hustles are ones that generate passive income—that is, money you can earn without actively having to do anything. Passive income completely disrupts the traditional idea that you need to trade your time for money. You can build a passive income business with or without employees. You can build a passive income business that generates enough or more than enough money to cover your monthly expenses. This gives you more flexibility and potentially the opportunity to reach financial independence very quickly.
The Side-Hustle Evaluation Framework
Analyze your passions and skills. Think about what you love doing and look at your skills. Can you get paid for any of them? Could you launch a course teaching other people how to do something? Could you sell it locally?
Evaluate the moneymaking potential of your side hustles. Figure out what to charge, get your first sale, and get paid as much as possible.
There are six things that dictate how much you can charge:
- The skill required to perform the task or your relative skill level as compared to your competitors
- Demand. How much your competitors are charging
- Added value (e.g., any additional services or bonuses you offer)
- Perceived value (based on your reputation or how valuable your offering is to the customer)
- How much someone is able to pay (generally, people/companies with more money can pay more)
- Focus on building a lifestyle business—knowing when and how to scale.
CHAPTER 10: THE SEVEN-STEP FAST-TRACK INVESTMENT STRATEGY – Accelerate Your Moneymaking Money!
This strategy is built on five key concepts you can directly influence:
- Minimizing risk
- Minimizing fees
- Minimizing taxes on your contributions
- Maximizing returns
- Minimizing taxes on your withdrawals
Never invest in anything you don’t understand.
RECAP
Investing is the ultimate form of passive income and the accelerator of financial freedom. It’s how you make money on your money without having to exchange any of your time.
This strategy is built on five key concepts you can directly influence: Minimizing risk Minimizing fees Minimizing taxes on your contributions Maximizing…
The core of your investment portfolio should be made up of stocks (shares of actual companies), bonds (money that you are loaning someone), and real estate (properties). These are the easiest, most…
If you do need help investing, you can hire a fee-only financial advisor for a few hours to help you set up your accounts. You should work only with advisors who charge on an hourly or project…
Step 1: Separate your short-term and long-term investing goals. You should be investing differently depending on whether you need the money in the short term (within the next five years) or the long term (after five years). Most of your money should be invested for the long term so you can live off it for the rest of your life. Short-term…
Step 2: Figure out how much you have to invest. As you already know, the higher your savings rate, the more money you can invest and the faster you’ll hit your number. Sit down and think about how much money you can invest each day, month, quarter, and year. Set a foundation—a…
Step 3: Determine your target asset allocation. Next you need to determine your target asset allocation, which is the percentage of each asset (e.g., stocks, bonds, and cash) you have in your investment accounts. Your target asset allocation determines the level of risk/reward of your investment portfolio and is one of the most important investment decisions you will need to make. The best way to pick your target asset allocation is based on how long it will be before you need to use the money. If you are ten or more years away from walking away, I recommend you invest 100 percent in stocks for now. After you determine your target asset allocation, you should maintain it across all of…
Step 4: Evaluate your current fees (and try to keep them as low as possible!). Investment fees can have an enormous impact on how quickly your money grows, how much money you’ll have within a given time frame, and…
Step 5: Pick the right investments. When you buy stock, you are buying a share of ownership in a real company. Individual stocks can swing wildly in value over both short and long periods of time, which can either make or lose you a lot of money in a relatively short period of time. Research shows that, on average, 90 percent of active investing yields a disappointing performance compared to the stock market as a whole over a fifteen-year period. To keep your investments as efficient and effective as possible, you should invest in a simple fund that owns a broad selection of the U.S. stock market (known as a total stock market fund) or a fund that owns a small piece of the biggest 500 companies in the United States (what are known as the S&P 500). If you don’t have access to either of these funds, then you can invest in funds to mirror the holdings of those types of funds. You can ignore all of the other options—things like gold and REITs (real estate…
Step 6: Max out your tax-advantaged accounts. Taxes can take a massive chunk out of the future earnings of your investments, so it’s important to minimize their impact as much as possible. The key to getting the maximum tax benefits is to strategize (1) when you put money into your investments and (2) when you take the money out of the investment. You can invest in three types of investment accounts: Tax-free contributions: tax-advantaged accounts in which you don’t pay taxes when you invest the money, but you do pay taxes when you withdraw money. Tax-free withdrawals: tax-advantaged accounts in which you pay taxes before you…
Step 7: Invest in taxable accounts. After you’ve maxed out your tax-advantaged accounts, if you still have money left over to invest, you should open a taxable (aka brokerage) account. Every time you sell anything in your taxable accounts, you will be responsible for paying taxes on the investment gains that year. If you sell your investments in a taxable account after holding them for less than a year, you will get taxed at your current income tax rate. If you hold them for longer than a…
Automation is not enough. Here’s how a hybrid automated and manual investing approach works: (1) keep increasing the percentage you are automatically contributing into your investment accounts as high as you can; and (2) manually invest all additional…
CHAPTER 11: REAL ESTATE INVESTING – How to Turn $10,000 into Millions Using…
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Investing in real estate is more than an exceptional way to diversify your investment portfolio and risk. In many ways real estate is a better investment than stocks because it appreciates more quickly and therefore so will your money.
When you invest in stocks, your portfolio grows only in proportion to the money you invested and any compounded gains. With real estate, your investment grows as the property increases in value, and since you don’t have to put up all of the money up front, you can make your money grow much quicker.
In order to buy your first property, you need to (1) save enough for a down payment on a mortgage and then (2) qualify for a mortgage. A mortgage is when a bank or lender lends you money to buy a home.
One popular piece of advice is that your monthly mortgage payment, plus taxes and any assessments, shouldn’t be more than 40 percent of your monthly take-home pay. While I am an aggressive investor, 40 percent in my opinion is too high a percentage. I think it should be 30 percent or less to be safe.
There are three primary ways to invest in real estate:
- you can buy and sell (aka flip) properties;
- you can buy, sell, and trade up into a nicer home; or
- you can buy and hold for the long term.
If you happen to really like investing in real estate, one of the fastest ways to scale your own real estate business is by taking on what are known as joint venture partners.
Here are nine tips to help find an amazing investment property:
- Develop real estate investing criteria to follow.
- Set a budget and get preapproved for a mortgage or loan.
- Look for properties that generate immediate positive cash flow and have high rent and appreciation potential.
- Find an amazing Realtor who does the hard work for you.
- Hunt when everyone else isn’t.
- Look for foreclosures or short sales.
- Test-drive the neighborhood.
- Find an experienced home inspector.
- Be prepared to walk away from a deal.
CHAPTER 12: MORE THAN ENOUGH – How to Live Off Your Investments for the Rest of Your Life
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Once you are ready to retire, you’ll need to develop the right investment withdrawal strategy to ensure your money will last as long as possible.
It’s never too early to start planning your investment withdrawal strategy so you can minimize any early withdrawal penalties (for withdrawing money before you are 59½ from your tax-advantaged accounts) and the impact of taxes from your taxable accounts.
Live off your side or passive income as long as you can.
Make the most of your tax deductions.
Withdraw money from your taxable accounts first.
Tax-advantaged withdrawal strategy: Here’s the order in which you should start withdrawing from your tax-advantaged accounts: (1) 457(b); (2) Traditional 401(k) or 403(b); (3) Traditional IRA; (4) HSA; (5) Roth IRA; (6) Roth 401(k).
Roth Conversion Ladder: Because of a specific bit of magic hidden within the U.S. tax code, you can withdraw funds that have been converted from a 401(k) to a Traditional IRA to a Roth IRA any time five calendar years after the conversion event with no 10 percent early withdrawal penalty. Note that you will need to pay tax on the conversion from the Traditional IRA to the Roth IRA.
If you do plan to really retire early, you’ll want to have ways to fill your time and enough interests to keep you busy. Ideally you should be retiring to something, like a passion project, a deep mission, worldwide travel, or something you’ve always wanted to do.
Freedom is immense and uncertain.
And life is infinitely rich when you open up to it.
CHAPTER 13: THE FUTURE-OPTIMIZATION FRAMEWORK – Daily, Weekly, Monthly, Quarterly, and Annual Habits
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While you’ve learned the strategies to make early retirement possible, they are worthless unless you put them into practice.
Just get started. Remember, this book is about maximizing both your money and your time, so you need to start implementing the strategies you’ve learned as soon as possible. Don’t waste time.
This is your starting point. You’ll look back on this in one year and be amazed at how far you’ve come.
Focus intensely and learn to say no. Just as it’s never been easier to make money, it’s also never been easier to waste time. We surf the web mindlessly for hours or binge-watch TV shows for entire weekends at a time. People are good at wasting time. But remember, your time is the most valuable resource you have. Make the most of it.
Execute consistently: The strategies in this book are not going to help get you rich overnight, but they will help you get rich over time if you stick with them. This is why consistent execution is important.
Know when to ask for help: No matter how much you know about something, there’s always going to be someone out there who knows more.
Chill as hard as you hustle. While it’s totally worth putting in an extra twenty hours a week for a few years to buy an extra twenty to thirty years in the future, be mindful about how you are using your own time. Taking a break might be just what you need. Breathing is the best medicine.
Life > Money.
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