Scott Trench
Three Stages of Wealth Creation This book offers a simple, three-step approach to gaining early financial freedom. (Location 97)
Clearly, the individual seeking early financial freedom must do three things to achieve their goal: They must accumulate real assets that produce income and increase in value. They must constantly seek to invest their capital efficiently. They must design a lifestyle that costs as little as practical, such that passively generated income can pay for it. (Location 164)
Conclusion Saving 15 percent of your income will not make you rich. It will not produce a life changing financial result in less than a few years. You will still spend the best years of your life working in similar fashion to your current profession at that rate. You need to save 50 percent of your income. Or more. (Location 656)
You aren’t frugal if you get the less expensive option at the restaurant. Or if you buy a new economy car instead of a mid-sized SUV. You are just slightly less ridiculous than average. Congrats—you might retire at fifty-five, instead of sixty-five. You are only making real progress when you don’t buy the car at all. When you bike to work. When you take on no consumer debt. (Location 661)
Do not sacrifice your favorite small luxuries and recreational spending in pursuit of early financial freedom, unless your spending in these categories is obviously out of control. Instead, do big things right. (Location 666)
Bike or walk as a primary means of transportation, and drive as a last resort with a cheap economy vehicle. Eat a smart and healthy diet, comprised of reasonably priced food purchased from grocery stores. Take on high-deductible insurance policies. Remember, it is the fixed expenses (housing, transportation, personal insurance and pensions, healthcare, and education)—not the variable ones—that hold you back from early financial freedom. Make the right choice with large fixed expenses, and you’ve eliminated your biggest hurdle. Don’t settle for saving a few extra dollars a day. Design your life so it’s impossible to spend more than a few thousand per month—when you save 50 percent or more of your income each month, you begin making real progress toward financial freedom. (Location 667)
There are three initial steps that should be completed, in order, for the seeker of early financial freedom to build up that one-year stockpile. These three steps are (1) to build up an emergency fund of $1000 to $2000; (2) to pay off all “bad debts” (we define this term below) and build strong credit; and then (3) to build up one year of financial runway in the form of cash or equivalents (Location 688)
There are three simple steps to follow when building out the first year of financial runway: Build $1000 to $2000 in emergency funds immediately. Start paying off bad debts and get back to zero. Build up about $25,000 in working capital. (Location 787)
The person with a year of financial runway on modest salary gives himself the option to do one or several of these things: Place a down payment on a first property Pursue a new career opportunity without fear of running out of cash Acquire a meaningful asset Attempt to build a business or income stream full-time for up to twelve months (Location 832)
The other great news is that this money doesn’t have to be stored in your bank account. The money can actually be stored in things like after-tax brokerage accounts. You can purchase stocks, bonds, funds, and other publicly-traded securities as you approach and surpass the first $10,000 to $25,000 in accessible wealth. These types of investments often generate returns far in excess of the paltry interest paid by savings accounts. Some folks believe that keeping their working capital account in stocks is too risky, and that’s a completely valid argument. It is up to you to decide. (Location 841)
In this part of the book, you will learn how to transform your housing from a monthly liability into an asset. And, you will learn what you need to do to double or even triple your income. You will learn how to put yourself in a position where generating $75,000 per year in wealth is achievable. (Location 893)
Case #1: Joe Rents Half of the Duplex as a Tenant (Location 925)
Case #2: Joe Converts a Duplex into a Single-family Residence (Location 933)
Case #3: Joe “Hacks” His Housing (Location 952)
Joe’s Conclusions In just the first year, Joe’s model tells him that living as a house hacker will result in building about $21,500 more wealth than the renter and about $16,800 more wealth than the homeowner. That’s a huge amount of money, considering he earns a $50,000-per-year salary! Assuming he averages five hours a month managing his tenants next door (likely a very conservative estimate, most landlords will tell you they spend far less than this per month), that comes out to around $300 per hour for any efforts that a house hacker would have to put in over what a renter/homeowner would. Joe is unable to think of any other job that will pay him that kind of wage per hour, even if he is a legendary financial and spreadsheet whiz. In an effort to visualize the wealth-building impact this decision will have on him over a longer period of time, Joe projected out and graphed the long-term impact of his three choices on his net worth build up and his annual cash outlay for this property. Joe came up with the following graphs: (Location 967)
Conclusion House hacking is an extremely important wealth-building step for the median wage earner with near typical spending patterns. The reason you save so aggressively in part I is to put yourself in position to easily take advantage of the tactic of house hacking. It’s an incredibly powerful way to eradicate one of the largest expenses in your life and replace wealth destruction with wealth creation. But it’s far easier to pull off for the guy with excellent credit, excess cash to pay for unexpected problems, and a strong savings rate to get through the occasional month without tenant or roommate assistance. Don’t skip straight to this part. Build your financial foundation one step at a time. (Location 1020)
Remember too that just because you’re buying a “reasonable” property that’s not in the ludicrously expensive part of town, doesn’t mean the property is reasonable for you. If the most you can possibly qualify for is $300,000, then you’re guilty of buying in this manner if you buy a $300,000 property. It’s the same financial and decision-making effect as the guy stretching himself to the max buying a $750,000 home. (Location 1084)
This way of purchasing is one of the most foolish financial decisions you can make if you are pursuing early financial freedom. (Location 1087)
The problem is this way of buying only works out favorably if the buyer experiences rapid appreciation or if the buyer earns significantly more income shortly after the purchase. (Location 1091)
In short, stretching yourself to your financial limits to buy a primary residence is a foolish, easily preventable mistake that will cost you dearly in your ability to make future decisions. If you knowingly choose to forgo most future opportunity beyond maintaining the status quo, the desirability of that piece of real estate had better be incredible. You should understand that by purchasing that property, you are willingly sacrificing pretty much every other area of life that money can impact over the next five to ten years. Don’t buy the most expensive piece of real estate in the most expensive area with your first home purchase if you aspire to early financial freedom. Don’t lock yourself into a mortgage and physical location that limits your freedom for the foreseeable future. You never know what might happen in a few years, and retaining the option to move without dire financial consequences can put you at a huge advantage. Instead, buy a home that affords you the luxury of future choice. (Location 1094)
Way #2: Buying a Reasonable Home This type of purchase is one in which folks buy a home that is well within their means. Reasons like, “I felt like it was time to buy,” or “I’m tired of paying rent” often accompany these purchase decisions. While it’s more conservative than purchasing the most expensive piece of real estate possible, this type of purchase can also have long-lasting financial consequences that leave the buyer at the mercy of the market and needlessly delay early financial freedom. (Location 1101)
Many conservative folks who don’t run the numbers or who don’t have a long-term outlook on their financial positions buy property in this manner. These people are in much better position to handle life decisions than in folks that buy a luxury home as in Way #1 above. But while they will not expose themselves to as much pressure as folks who stretch to their financial limits, they aren’t getting ahead either. They still shell out a large amount of cash with the down payment, take on a mortgage, and have to maintain their property. However, people who buy more reasonably are protected in down or steady markets. They have more exit options, and aren’t so stretched that they lose all flexibility in other parts of their lives. For those seeking early financial freedom, buying property that’s reasonably affordable is a better bet than buying expensive property. The owner will come out a little bit ahead of renting an equivalent unit assuming they stay there a long period of time. However, “affordable” is relative. Someone who makes $250,000 per year might find a $750,000 to be quite within the comforts of their budget, while someone who makes $50,000 per year might be stretched with a $350,000 purchase. It is up to you to determine if you can easily afford the payments on a property, and have plenty of cash on hand to handle problems as they come up. (Location 1116)
Way #3: Buying a Home the Smart Way (Location 1126)
These folks are looking for a property that will give them three excellent options: the ability to live in it happily, the ability to rent it out and cover the mortgage, and the ability to sell it at a gain a few years down the line. These folks aren’t buying the most expensive real estate they can possibly afford hoping prices will go up, and aren’t just hoping for a reasonable, conservative deal. They are in it to make a financial decision that benefits them both today and possibly in the future. The person buying solidly in this category will know their market, understand the math behind renting versus buying, intend to live in the property for several years, and have contingency plans for selling the property or renting it out in the event their life plans change down the line. This is a reasonably smart way to go about buying property. If you are buying property with this kind of thought-process in mind, it’s likely that your home won’t cause you undue financial stress, and that you’ll be able to move on with your career and life on your terms. (Location 1143)
They believe that their home is an “asset.” A home is not an asset, unless it generates income or is expected to produce reliable appreciation. (Location 1157)
The point of earning more money is to enable you to keep more money, so that it can be invested according to an appropriately-tailored plan, in a manner which is reasonably likely to produce usable net worth and spendable passive income to fund early financial freedom. Do not concern yourself with immediate income opportunity in the form of the highest base salary. Instead, ask yourself which jobs, opportunities, and careers offer the potential for income in the next three to five years. (Location 1351)
If they are not spending their time improving their financial positions, then they had better be enjoying it or serving others. Otherwise, they are wasting time. (Location 1361)
Changes Necessary to Increase One’s Income There are three simple things that median wage earners can do in order to sell their time and their talents for more income: Develop highly sought-after skills. Take control one’s future income. Find synergies between one’s work and lifestyle and investments. (Location 1468)
The problem for Ellie, and the problem for almost everyone in a corporate, salaried role is they aren’t in control of their income. There is a limit to their potential, and there is someone else making judgment about their performance. (Location 1515)
Yes, even if you save the company $1M through your new initiative, your boss will laugh you out of a job if you ask her for 10 percent of those savings. (Location 1530)
So, how do you go about getting performance-based pay? The benefit to performance-based pay is that earnings can theoretically be unlimited. There are many downsides, however. One downside is that those who do (Location 1531)
This is the major point here. This is the whole argument of this section, this chapter, and this book, really. If you want to have a shot at earning way more money or at achieving financial freedom early in life, you will likely have to give up a regular salary in a traditional career to attain it. (Location 1540)
Obviously, folks earning well over $150,000 per year, might find it very difficult to replicate that level of income even with performance-based pay. This argument doesn’t apply to them. (Location 1545)
Ellie, the financial analyst discussed earlier, would be foolish to try to build an ecommerce site selling modern art in her spare time. Starting a website has almost no overlap with corporate finance. If Ellie were a software engineer or web marketer, then a website business synergizes with her profession. Options that are good for Ellie include part-time bookkeeping gigs and part-time financial consulting for small businesses. They include work that directly uses her professional skillset and that give her the chance to gain more experience while earning large amounts of money per hour. (Location 1579)
The worst thing you can do is try to have two totally separate jobs at the same time. This is a recipe for disaster for quickly giving up on your dreams. Instead, choose something synergistic with your ability to earn more. Side Hustles (Location 1591)
Many people don’t like their jobs. When asked why they stay, they say things like, “I’m waiting for my promotion in March,” or “In two more years I’ll be fully-vested!” These folks are literally working a job they despise, for years in exchange for petty amounts of unrealized benefits or promises. Their benefits are often less than five figures in total value. (Location 1731)
Don’t be enslaved by benefits. Understand they pale in comparison to the ability to scale objectively against a metric, the ability to scale with the company’s production, and the ability to work or not work on your terms. (Location 1736)
The last chapter should have made things abundantly clear: You cannot become wealthy quickly while working a full-time job and pursuing no outside income opportunities. Furthermore, while it’s possible to earn significant income through a side business or by moonlighting, it’s highly unlikely. A more effective plan is to make the changes necessary so you can pursue a scalable career that you’re passionate about with the best part of your day, and to make that change as soon as possible. (Location 1762)
Five Tactics To Help You Earn More Money Put yourself in a high achieving environment. Read and self-educate forever. Focus on continual improvement. Instantly make trivial decisions. Put yourself in position to get lucky. Tactic #1: Put Yourself (Location 1778)
Potential is stifled when ambitious young stars go into a company where there is an entrenched hierarchy, and a set path for advancement. All one has to do is to remain on good terms with the boss, show up on time, put in a little “butt time” at their desk late into the evenings every now and then to show off with a few well-timed bursts of extra effort, and they will be promoted on a set schedule and advance through the ranks. While these might be fine people, former achievers with high intelligence, this kind of environment sucks out the soul. It kills ambition and destroys the hustle that’s capable of helping folks have a truly great, rapidly advancing career. (Location 1782)
Instead, put yourself in an environment where you are constantly surrounded by achievers who are performing at a far higher level than your peers at other companies. You need to find people who are truly great in your industry. My mentors are Josh Dorkin (Founder and CEO of my employer, BiggerPockets) and Brandon Turner (podcast cohost and a self-made real estate multimillionaire before age thirty). These guys are high achievers. I knew that before I joined them because I listened to their podcast, heard their story, and saw that they were building businesses and reputations in the industry that I wanted to be in. When the opportunity to work with them presented itself, I took full advantage, and have reaped the rewards in terms of accelerated learning, income opportunities, and chances to build my reputation. (Location 1787)
Personal success authority Brian Tracy says the following: “One hour per day of study will put you at the top of your field within three years. Within five years you’ll be a national authority. In seven years, you can be one of the best people in the world at what you do.” A book a week roughly translates into about an hour of study a day. This is what it takes to attain an income in the top 1 percent of all Americans. (Location 1820)
In other words, reading and taking to heart one book per week, fifty books per year, will make you one of the best-educated, smartest, most-capable, and highest-paid professionals in your field. (Location 1824)
Tactic #3: Focus on Continual Improvement (Location 1832)
Tactic #5: Put Yourself in Position to Get Lucky (Location 1873)
you can improve your chances of getting lucky. You can do this in three ways: Learn to recognize luck. Put yourself in position to get lucky. Give others the chance to make you lucky. (Location 1879)
Many smart people believe that telling the world what you’re doing, spilling your secrets, sharing numbers, and telling others about your best practices is a bad plan. They believe this because they think it encourages competition and allows others to copy, mimic, and take away their patented systems. Sure, it’s possible some of the folks Jason talks to might compete with him for properties he would want to buy. That’s perhaps even likely, as he meets more and more people in his industry. However, the opportunities and perspectives he develops will likely far outweigh the occasional times where folks take advantage of him. (Location 1936)
If you are serious about your career and increasing your income potential, you will need to push yourself. Surround yourself with a high achieving environment—both physically and with people that push you and bring out the best in you. Study hard through self-education on carefully selected topics, and take the materials to heart. Apply your education continuously and eagerly seek out opportunities to learn new skills and take advantage of new opportunities. (Location 1951)
In part I, we described how to accumulate your first $25,000 by living frugally, and explained how this helps springboard you toward opportunities to reduce or eliminate your housing expenses and increase your income potential. In part II, we used that first $25,000 and its year of financial runway to purchase housing and transition into work that offers greater potential on the income front. (Location 1962)
Now it’s time to use that accumulated wealth to create passive income. It’s time to learn how to invest in such a way that you are never again dependent on wage income to pay for your lifestyle, so that you are Set for Life. (Location 1969)
The reason that the energy and excitement from a material possession such as a car, home, or TV wears off quickly is due to a concept called hedonic (happiness) adaptation. Human beings tend to quickly become accustomed to changes—good or bad—and within a few weeks fall back to a level of happiness unchanged from prior to the change. (Location 2016)
Income inequality doesn’t really make much of a difference at the end of the day. Slightly better items and luxuries don’t change the day-to-day freedoms and passions that individuals pursue. Life isn’t 100 times better for someone earning $5M per year, versus someone earning $50,000 per year. Think about two different people: The guy who earns less than $25,000 per year but works twenty hours per week and surfs all day at a beach in Mexico, and the $1M-per-year executive who works seventy hour weeks. Who is happier? (Location 2028)
This part of the book will teach you about the incredible power of long-term wealth creation and principles of investing and value creation. It’s about making your wealth work for you. (Location 2063)
The early possession of wealth-building knowledge is an unfair advantage and the only way to level the playing field is to educate folks, early in their lives, on how to be successful given the current framework. (Location 2069)
What Is Financial Freedom? Financial freedom is a state in which one has enough income from return on assets that they no longer need wage paying work to permanently sustain their lifestyle. There are an infinite number of ways to achieve financial freedom, but the principle always remains the same. The financial freedom equation is as follows: Assets x Return > Lifestyle (Location 2093)
Level #3: Cash Flow Positive Level of Freedom: High (Location 2162)
Over time, however, these folks will be starting businesses, acquiring property, making connections, or will otherwise be presented with opportunities that cash flow neutral folks are never exposed to. (Location 2168)
demand. If it doesn’t produce income, doesn’t reduce your living expenses, or isn’t increasing in value faster than inflation, it’s not a real asset. (Location 2211)
Real assets for those interested in satisfying the financial independence equation include things like: Rental properties Stocks Bonds Publicly-traded securities Income-generating businesses Other assets that generate income and are expected to maintain or increase their value (Location 2213)
Examples of these false assets include: Cars, boats, trucks, SUVs, RVs, or other luxury vehicles Homes College/graduate degrees Retirement accounts Computers Furniture Art and other collectables (Location 2218)
Instead of buying a new car with a hefty loan, buy a reliable used economy car, like a five to ten-year-old Toyota Corolla, Honda Civic, Nissan Sentra, or other similarly low cost, highly reliable vehicle. (Location 2239)
It should already be quite clear that a primary residence occupied solely by one’s family isn’t an asset. It is a liability with negative cash flow. All else being equal, homeownership is usually superior to renting, but a huge amount of money in the form of mortgage payments, taxes, insurance, and monthly upkeep is spent each month. Furthermore, the equity built in a primary residence is rarely usable in the short term, without incurring more debt (in the form of a home equity loan or line of credit) that needs to be paid off when the home is sold. (Location 2246)
Bonus “False Asset:”: The Cash-flow Negative Spouse You’ll know this one when you see it. This is the husband who is too lazy to get a job and hits up the bar every night, or the stay-at-home mom who spends thousands on designer clothes and jewelry and expects a fancy dinner out at a nice restaurant every week. It is imperative that both partners contribute to the family’s bottom line either by contributing income or enforcing a budget and financial discipline. A lack of alignment can result in devastating consequences that not only leave couples in dire financial straits, it can potentially ruin the relationship. This is probably the most important “asset” to avoid in gaining early financial freedom. If your spouse is as committed to helping the family achieve its long-term goals as you are, then avoiding the other “assets” on this list becomes much more achievable. (Location 2279)
The two false assets that tend to be the most confusing to folks who are trying to achieve early financial freedom are also the areas where the middle-class American tends to accumulate all or most of its wealth. These two things are: Home equity Retirement accounts (Location 2292)
If the plan is to create a life of financial freedom twenty, thirty, or even forty years before the age of retirement, then home equity and retirement savings aren’t really going to help. Therefore, making choices that result in building wealth primarily in two places where said wealth is relatively inaccessible is a pretty lousy strategy. (Location 2298)
Every paycheck, millions of Americans contribute a small amount to a 401(k) or retirement account. Every month, millions of Americans pay a small amount toward a large mortgage. This happens like clockwork. Do not manage wealth this way. Instead, intentionally build wealth in a readily accessible form, and accumulate assets that are likely to produce excellent results that provide benefits immediately. (Location 2329)
How to Acquire Assets Thinking in terms of acquiring real assets requires a fundamental shift in perspective. Stop thinking that the financial goal is to max out retirement contributions, make a mortgage payment, and put away a small amount for savings each month. Stop hoping that compound interest will result in wealth in the long run. Instead, put away a huge chunk toward savings and easily-accessible, investable wealth every month by completing parts I and II of this book, and then, if there is money left over, pay for things like retirement contributions. (Location 2332)
Put yourself in a position where you are routinely capable of purchasing intelligent, sensible assets that make sense in getting you where you want to go. (Location 2346)
appreciation. Do not save money for the sake of saving money. Save money to invest it, and generate cash flow and appreciation. (Location 2349)
It is far more efficient to build wealth by seeking other ways to earn additional cash, until your portfolio reaches significant scale. Think of earning investment returns as you would go about accepting wages. Don’t put in the work to achieve an extra 1 percent return on $1000 invested ($10) when you could simply go earn money far more efficiently. On the other hand, portfolios with a certain scale (often $100,000 or more) can often produce annual returns of $10,000, $20,000, or much more by creative and successful investors. All of a sudden, this becomes an effort that’s actually rewarding. (Location 2373)
Regardless of how you acquire rental properties, they are an excellent wealth building tool for folks looking to generate stronger overall returns than the stock market, at the cost of a short learning curve and likely a significant amount of time selecting and managing them. Here are five reasons why real estate investing is an excellent investment approach for those seeking early financial freedom: (Location 3038)
The excess cash flow can then be used to fund early financial freedom, or saved to be reinvested in the purchase of additional rental properties or other income producing assets. (Location 3045)
In this analysis, the model looks at a $62,500 property purchased with $12,500 down and a $50,000 loan (leveraged at 4:1). But, the math works with everything from this tiny purchase to real estate valued at millions or hundreds of millions of dollars. Let’s look at two graphs produced by this model: (Location 3076)
Here are the ways he makes money, after taxes, each month: Salary: $2000 Commissions: $1500 Real estate rental income: $500 Real estate appreciation: $1000 Real estate principal reduction: $500 Stock appreciation: $1000 Stock Dividends: $250 In this case, Adam is building wealth at a rate of about $6750 per month or $81,000 per year, in spite of the fact that he only earns $42,000 per year at his job. That’s excellent, and higher than the average American, but it’s a point you can reach in just a few years by following the process outlined in this book. (Location 3324)
Early financial freedom is your goal. Write it down. Run the calculations. (Location 3344)
Furthermore, don’t make personal sacrifices over small amounts of money. If it saves $5 to shop at a supermarket that’s thirty minutes away, and you have a grocery store next door, save yourself the hour and buy groceries next door. The difference between the two decisions is immaterial and you needlessly inconvenience yourself for a trivial amount of money. Similarly, trying to clip coupons to save a few bucks on a trip to the supermarket is silly. Buying pots, pans, Tupperware, and trying out a few recipes that will help you consistently make and enjoy your own breakfasts, lunches, and dinners regularly will save you hundreds, if not thousands, of dollars per year. That’s a pursuit you should put some time, energy, and analysis into. Understand what’s impactful. It is ridiculous not to spend large amounts of time assessing the various consequences of decisions regarding major parts of your financial picture. Yet it’s equally ridiculous to spend tons of time on the trivial parts. (Location 3416)
Conclusion Financial modeling, data analysis, accounting, forecasting—so much of the business world is built upon these concepts. Nowadays we have infinitely more ability to accumulate and analyze data, and businesses are taking advantage of it. (Location 3431)
Many people understand what they need to do to become wealthy. It’s straightforward: save; earn; aggressively invest the difference. Repeat and scale until early financial freedom is achieved. All it takes is consistency, intelligent effort, and time. However, progress can be drastically slowed and financially freedom needlessly delayed due to small mistakes and bad habits that compound over time. (Location 3451)
Cut These Ten Habits Out of Your Life Habit #1: TV/Netflix Netflix and 99.9 percent of television programming have absolutely nothing to offer in terms of steering you toward the things you really want in life. They are a distraction, a waste of time, and worst of all, an opportunity cost. You could be doing something better with almost every second. (Location 3467)
“Sacrificing” your luxury residence (at least in the short-term) for a downgrade closer to work might just be the single most powerful thing you can do in the pursuit of your dreams, both in freeing up your time and your money. Luxury living has no place in the day-to-day life of the ambitious early retiree. (Location 3496)
Eating out regularly has the following drawbacks: It’s expensive. It’s time-consuming. It’s unhealthy. (Location 3504)
Habit #5: Social Media Facebook, LinkedIn, Twitter, Instagram, Pinterest, and other major social media channels are now part of everyday business vernacular. (Location 3510)
They are designed to keep your attention for as long as possible and to suck you back in as frequently as possible. That’s their job. That’s how they make money—huge money. And they are very, very good at it. If you are serious about success and achieving some big goals, then social media isn’t something you spend all day on. Social media is something you use efficiently, effectively, and succinctly to share, access, and collaborate on those issues that are relevant to your goals. If you want to see how your friends are doing and keep up with their lives, check in once a week with the feeds of just those you care about. Aimlessly trolling social media has no place in the day-to-day life of the ambitious early retiree. (Location 3514)
Habit #8: Shopping There are some items in your life that can make a serious difference in your productivity, and there are some items that will last much longer than others. For example, it’s quite reasonable to spend a large amount of time selecting a new mattress, investment property, computer, or insurance policy, as that might significantly improve the quality of your life, your ability to produce effectively on a day to day basis, your peace of mind, and your financial position. However, do not spend a large amount of time comparing options between things that are extraordinarily similar. This is a disturbing habit that combines a seeming lack of purpose with a needless waste of money. Know what you need, get in, get out, and then do something that works toward your goals or that you truly enjoy! (Location 3543)
Habit #10: The “I Want to Try to Do Everything” Mentality (Location 3562)
Being a “jack of all trades, yet a master of none” has no place in the day-to-day life of the ambitious early retiree. (Location 3577)
the process in this book isn’t a one-size-fits-all approach. But, for almost every reader not in New York, San Francisco, or Los Angeles, there is one decision that’s particularly relevant to this goal: housing. Virtually every other part of the country offers median earners the ability to buy property. (Location 3612)
Instead, work diligently and consistently until your assets are generating passive income in excess of your lifestyle costs. Work hard. Spend as little as possible. Invest the difference aggressively. (Location 3624)
Cash is king. While it’s not necessary to let large amounts of cash sit around in a bank account at low interest rates, it’s wise to ensure it’s easily accessible. One way to do this is to keep a large amount of money—perhaps twice the amount that might make sense for a reasonable emergency fund—invested in index funds that can be sold any business day. However accomplished, access to cash is critical, as it will help you handle emergencies with ease, take risks that others could only dream of, and take advantage of investment opportunities unavailable to peers without access to cash. (Location 3626)
Track progress. Track expenses. Track income. Track net worth—both “real” and “false” assets. Track time. Understand resource allocation, and ruthlessly eliminate inefficiencies, particularly when it comes to low impact tasks. What gets measured gets managed. No one pursuing early financial freedom is above this. Everyone needs to track their spending, and everyone has the ability to take advantage of easy wins or cut out needless mistakes. Make sure you too are taking control and managing your finances, not letting them manage you. (Location 3630)
Lastly, eliminate distractions and wasted time, and associate with people and organizations that are synergistic with the goal of financial freedom. Learn from everyone—the wealthy, the poor, and the middle class. Make time for early financial freedom and read relentlessly. The pursuit of early financial freedom doesn’t have to consume your leisure time, but it should be woven into your life—where you live, where you work, how you transport yourself, and yes, what you discuss with friends, family, and coworkers. Early financial freedom is a way of life, just as much as it’s the satisfaction of a financial equation and it’s within your grasp. (Location 3634)
The 401(k) is an effective way to shield their currently high income from taxes. However, also note that Dave and Virginia expect to receive less income or lower taxed income after they stop working. If that happens, then they will be able to avoid paying taxes on their highly taxed high incomes today, and instead pay fewer taxes when they withdraw that money in the future. (Location 3685)
The Roth IRA is a far superior alternative to the 401(k) for those aspiring to early financial freedom but currently earn a median income or lower. It is most effective for those who believe they will manage their wealth well and become increasingly wealthy after reaching early financial freedom. This is very likely if one has intentions to learn a new skill, work part-time to stay busy, or to start businesses after leaving wage paying work. This is likely a better option for those who really want to hustle toward early financial freedom. (Location 3704)