The purpose of money varies depending on who you ask. For some, the thought of having more money means being able to buy all of the material possessions you’ve always wanted. Have some spare cash lying around? I guess you can now afford to buy that new gaming system you’ve always wanted. But, maybe your desire for money stems from wanting to show off to those who doubted your worth in the past. Have an ex-love interest that left you for someone else? While I am in no position to judge anyone’s motivation for making more money, I can tell you honestly that my desire to become financially free can be summed up in one word: Freedom.
While I was always the well-behaved kid in class who studied hard and kept to myself, I struggled with being told what to do. This sense of rebellion probably comes from my spoiled nature growing up as an only child but as they say you can’t pick your parents and I didn’t choose the only child life. This way of life, having overprotective parents who wanted to coddle their only child, resulted in being told what to do and how to live my life on a daily basis.
Fast forward to university where I had professors telling me what to read and in the workplace where I had bosses dictating when I arrived to work and sadly even when I could leave. Needless to say, I had relinquished all control over my life, as most of us do, and as I got older this began to sting a little bit more that it used to. But, the important thing was that I was getting paid to follow someone else’s rules right?
Well, as I began to see my income and wealth rise during the first 5 years of my career, I soon came to realize that making more money just means seeing a slightly larger number on your paycheck and that I wouldn’t be happy until I had, as Dan Lok would call it, “FU Money”. Having FU Money is when you can get yourself out of any situation simply because you have an amount of money you could live off of for the rest of your life. For instance, if your boss is harassing you or is abusing their seniority then rather than grin and bare (which most people must do given their financial situations) you can say “F*ck You” and quit on the spot as you have more than enough money to keep you afloat. In fact, when you’re in this financial position, you are likely working just to stay busy rather than needing the paycheck to get by.
Therefore, as I came to realize that it’s not a fancy watch or a fast car that excites me but instead is the concept of having total monetary freedom, I decided to derive a game plan to achieve the lofty target of possessing FU money and becoming financially free. While I am not financially free as I write this article, there is no doubt that if I can stick to the following 5 steps then amassing the wealth I desire will be inevitable.
Step #1: Embrace Frugality
Growing up in a middle class household, the value at being frugal was something that was ingrained in my mind from a very early age. The concepts of “a dollar saved is $2 earned” and “every penny counts” are the basis for my financial upbringing. Now embracing frugality is quite easy when you are relegated to living a financially modest lifestyle. For the greater part of my adolescence and into my early 20s, not having much money of my own meant that I definitely had to learn to live frugally if I wanted to stretch every dollar that I did possess.
However something funny happens when you start to make more money. This funny something is often referred to as “lifestyle inflation” or “lifestyle creep” and this can affect people in different ways. For instance, when I was a couple years into my consulting career, me and the cohort that I had started my career with began to earn sizeable raises and promotions. Needless to say each one of us handled this scenario differently. Some of my colleagues decided to overhaul their wardrobe with their newly earned cash while others upgraded their ride. Now, at the time I was able to side-step the temptation to inflate my own lifestyle however as my income has increased in my later 20s, I am starting to understand how easy it can be to open up your wallet a little bit wider when you start to see more money rolling in.
I think everyone has an upper limit of how much money they can make before they feel inclined to spend more money as a symbol of their efforts. For instance, since starting my career, my total income has tripled and every time I see myself hitting new financial milestones it becomes harder and harder to not buy myself something that can act as a symbol of all the hours of hard work I've invested into my career, my education and my business. However, when this temptation arises, I think back to my parents and how following the principle of frugality that they bestowed upon me has led me in the right direction financially during the first 28 years of my life. While I have never been rolling in dough I also have never been in debt because my frugal lifestyle has allowed me to continue to live within my means.
In fact, my admiration for frugality really blossomed when I learned it's true definition. The definition of being frugal that immersed me even deeper into the world of financial minimalism is the following, “being frugal is spending money only up until the point where an extra dollar spent will yield you no extra amount of happiness.” When I contemplate spending more money I always run this definition through my mind and ask myself if buying more things will really increase my happiness. Now I won't lie that seeing my friends and family members have a lot nicer material possessions does tempt me to spend more money but at the end of the day I always revert back to the thought that spending money on these goods will only yield me momentary happiness and achieving financial freedom down the road will offer me much more happiness than these material items ever could.
In fact even after tripling my income in the last five years I joked to my friends that the biggest lifestyle inflation that I've experienced is switching to a slightly more expensive ground coffee to make in the morning. Therefore, for me step one on my path to financial freedom is to continue to spend as little as I can without affecting my day-to-day happiness and I think that this is critical to my long term success because even after I am financially free it will still be a mode of life that I will want to maintain.
Step #2: Optimize My Income
I believe that everyone reaches a point in their wealth accumulation journey where they realize that you can only reduce your expenses by so much. Expenses like housing, food and utilities will always be line items on your monthly budget. Once this realization takes place, the only other way to get ahead financially is to maximize the other side of your personal income statement.
In fact, when I began to earn an appreciable amount of extra income through my online businesses, complementing the money I was making at my 9 to 5, it was startling how fast I was able to save. I say this not to brag but instead to drive home the point that earning more income will do wonders for your ability to save and invest. Therefore Step 2 in my financial freedom journey is to optimize my income which I'm presently doing in two different ways.
The first strategy that I'm using to optimize my income is to cultivate high income skills that I can offer as a freelancer. While I do currently earn income from a couple online businesses there is no doubt that there is a ton of upside from having a skill that you can rely upon when your other income streams aren’t bringing in as much as they usually do. Not to mention, cultivating these high income skills also forces you to stretch outside your comfort zone and learn something new and quite frankly challenging yourself and seeing yourself grow is worth just as much as the financial benefits you’ll gain. Some skills that me and my fellow online freelancers have used to garner extra income include video animation, copywriting, translation, voice over services and web design. While offering freelance services still works within the income generation model of trading time for money, which is something I typically want to avoid, when you choose a high income skill that you enjoy doing, it feels more like fun than work.
The other aspect at play when it comes to optimizing my income is to build out passive income streams. You see, you can become financially free in two different ways. You can either amass enough money to draw from year after year to cover your living expenses for the remainder of your life or you can set up low maintenance income systems that will pay you enough money every month to cover your living expenses. Both approaches allow you to unlock time freedom and do whatever you please in the 24 hours we all have in the day.
My initial financial freedom plan was to save up enough money to cover my living expenses and then draw upon this sum of money while reaping the benefits of the 4% rule. However, I've now come to realize that achieving financial freedom can be had in a shorter timeframe if I can create at least a few reliable streams of income that will pay me month after month. While I am going to hold off on sharing the passive income sources that I currently rely upon, I will instead share a method that anyone could use to start earning passive income which can support their own path to financial freedom.
One way to do this would be to build a blog in a highly profitable niche. If your only resource currently is sweat equity then of course you could take on the tasks of designing the website, creating content and marketing your final product. Alternatively, if you have capital to work with then this method of making passive income will become a lot more hands off for you. All the tasks I have previously mentioned can easily be outsourced to qualified freelancers who can effectively set up and run the blog for you while you collect the profits month after month. Now, this is just one example of how you can make passive income that can support your path to financial freedom but what I want you to take from this point is that by setting up these types of systems you can expedite your path to having FU money by lowering the total amount of money you must save to effectively retire.
Step #3: Wipe My Bank Account To Zero
Who would have thought that after implementing a frugal lifestyle and optimizing my income my next step would be to wipe my bank account to zero? Well, that is the third step I’m implement on a yearly basis in order to reach financial freedom. Now I know I've positioned this third step as sounding like I blow all of my money on material goods however this would be probably the worst thing for me to do as someone who wants to achieve financial freedom. The truth is that every year I wipe my bank account to zero by deploying all the money in my checking and savings accounts by placing it in profitable investments. In fact, I learned this strategy from the investing mogul himself Grant Cardone.
Grant has gone on the record to say that he ensures to end every year with $0.00 in the bank which ultimately means that no dollar is safe from being put to work. When you think about it this is actually a genius strategy. You see the alternative to deploying all of your money into profitable assets is to leave your money sitting idle in your bank account and as many of us know, checking and savings accounts don't offer as much interest as they used to which means that the money that resides in these accounts is being eating away at by inflation every single day. That's why instead of letting my money wither away, I am instead putting it into assets that will pay me over time.
Unfortunately, I should have started implementing this strategy much sooner than I did and if it werent’ for a call from a representative from my bank I may still have been making this back-breaking financial mistake. You see, a few years ago, I had roughly $30,000 in my checking account and the representative called me up and asked me, “why are you doing nothing with your money?”. Now I perceived his call as being some pitch for me to buy overpriced investment services but at the core his concern was valid. My $30,000 was making less than 1% when it could have been invested in something like an index fund where I could have made significantly more as a return. Well as the saying goes better late than ever and after the wake up call from my bank and hearing Grant go over his own money management strategy, I decided to do the same. For the last few years, besides the money I have set aside as an emergency fund, I would invest every last penny which was typically directed into my retirement or unregistered investment accounts.
You see, building wealth is hard, especially when you're not a high income earner. Therefore, you should not make your financial pursuits any more difficult than they have to be which is what you’re doing if you don’t make your money work for you.
Step #4: Find My Money Partner
When people refer to their significant other, they often call them their better half. When it comes to achieving financial freedom, if your partner is not as good, if not better than you are, when it comes to the management of money, then achieving this lofty goal may become harder than you initially anticipated. You see, there are two types of people when it comes to money and relationships. There are those who maintain a short term vision when it comes to money and its uses and then there are those who plan for the long-term. More simply put, there are savers and then there are spenders.
In my own experience, when you pair up a spender and a saver in a romantic relationship, issues will arise. For example, if one partner is trying to save for a down payment on a home and the other partner’s primary focus is to outspend their neighbours then the saver will have little chance at meeting his or her financial goal. Unfortunately, I know this to be true because I've personally been in this situation before and have come to realize firsthand that money plays a big part in the success of any relationship.
However the good news is that when you find a money partner that is aligned with your own financial ambitions, they can act as a catalyst in your financial freedom pursuit. For instance, if both you and your partner are savers then your ability to save for the future will be double what it would be if you were trying to achieve this financial target on your own. In the same way that you can get a lot more done in a business if you were to hire employees, by having someone contribute towards these money goals, you can cut down the amount of years it will take to reach the next stage of your financial life.
Step #5: Be Patient and Remain Focused
The final step that I'm taking to become financially free is being patient and remaining focused. Now this may sound like the easiest of the five steps however I've been known to have my attention split in many directions in the past. For instance, when I was first trying to make money online I bounced the back and forth between numerous “make money online” models like Amazon FBA, dropshipping, blogging and YouTube. It was only after I read the book “The One Thing” by Gary Keller that I realized that if I wanted to achieve any progress in the online space that I needed to focus all my attention on one sole business model. Needless to say this advice has served me well.
Now you're probably wondering what this has to do with earning, saving and investing enough money to be able to become financially free. Well, when it comes to your money there are a plethora of different ways that you can deploy it. For instance, if all of a sudden I became a car enthusiast and wanted to have the nicest car in my neighborhood then buying a fancy car would start to pull me away from my main goal of becoming financially free. Alternatively, if I start investing in commercial real estate while I am already succeeding to a greater degree in my investment portfolio then again this lack of focus could slow me down in my primary financial pursuit.
Now I'm not discrediting the value of diversification but I believe that every time you consider pivoting in your wealth accumulation strategy you should calculate the cost of the gains you're forgoing by continuing on your current path. In the example I just gave, if I am earning 10% in my investment portfolio and decide to pursue peer to peer lending where I would only see returns of 5% then that 5% difference is what I would be giving up. Over time, this decision would lead to a longer path to financial freedom and that is something I would rather avoid. Therefore, this is all to say that the saying, “patience is a virtue” is something that I intend on embodying in my pursuit of ultimate financial freedom!