Let’s get down to the nitty gritty. I’ve been throwing a lot of feel good, ra-ra stuff at you, which is all fine and good. But you need tangible information. Something you can grab onto and put to use.
I’ve researched this topic far and wide. I mean years and years of reading every book and listening to every lecture. I’ve heard all of Dave Ramsey’s material and I’ve practically memorized Rich Dad Poor Dad. I’ve invested in stocks and mastered options strategies, coming up with my own reliable methods. I’ve written my own book and structured my own plans.
Above all, there is one thing that has proven to be the most powerful habit in creating financial freedom, and it is simple.
Setting aside a set percentage of every paycheck. Immediately. No matter what.
Where do you put it? In a savings account, or an investment account. Somewhere that you won’t spend it. This is your financial freedom fortress. Your stronghold. The castle.
How much do you set aside? I would start with 5% and set goals to increase this amount as you shuffle your monthly costs and get things in order in response to tucking away that money up front. As you increase the savings amount, don’t be afraid to be aggressive. Reaching 30-50% is not unheard of.
Apart from any budgeting (or non-budgeting) you do, or paying off of debt, or managing expenses, and all the other noise; your financial freedom account is the calm amongst the storm. Every deposit into this account is an investment in freedom and it should be protected at all costs. Its account balance is the measure of progress I use.
I do not use net worth as a measure of progress, even though it is an interesting metric. Why? Because it can fluctuate drastically. House values drop and suddenly your net worth just shaved off 50K—this should never take away from your sense of progress. Never.
You might be thinking a retirement account fits the bill for your financial freedom account. While they are important and similar in power, I do not consider a retirement account to be the same thing. This is because money in a 401K or an IRA is not easily available cash. When a financial freedom account grows large enough, it can be used to invest and generate passive income. Not to mention, part of financial freedom is knowing that if something really terrible happened in your life, you could access your money without any problem.
And that’s my primary hangup with most personal finance books. They focus entirely on traditional retirement. To me, that is not freedom, that is having no financial independence for most of your life . . . . not until you are at an age where you are much more limited in your experiences.
Again, you will find that I am not against staying in a job or career. On the contrary, I am in favor of being able to do your job better because you want to, not because you have to in order to survive.