Secret #1: FRUGALITY. Saving Time and Money.
What can you cut back on? Car payment (can you sell car and downsize), Rent/mortgage (can you downsize or move into 4plex that you own) that’s close to work, do you have cable bill you can eliminate, bar tab?
Suppose you now spend only $2,000/month and can save $1,500/month. This provides you with CA$H Reserves that allow you to take a better opportunity, job/business …i.e Lower paying job that offers commission, equity or other scalable financial rewards.
DESIRE for EARLY Financial Freedom, as a Long-term goal, not 40 year-career. It takes sacrifice, saving by spending less, to be able to Live life on your terms.
Make wise and sensible decisions with your money. Be disciplined, control your emotions/mood in the short-term. Be emotional about the long-term FFI.
“Is this EVENT/ITEM so important that I’m willing to delay my FF in order to pay for it?”
Before you pull out your wallet, determine how far back this transaction will set you on your journey toward FF. Become very uncomfortable with the delay.
CONSISTENTLY prioritize your EARLY FF, then you will choose lowest cost option to fulfill your desire.
WHY: Maybe you want to focus on raising a family, pursuing a hobby or just wanna have more security.
Get rich by doing it Yourself: Learn to solve day to day problems and fix things.
You may hire out if you detest that type of work and can hire it out for less than $25/hour.
Take a few hours to research and find a pro who is uniquely suited for your particular problem.
Study the basics and specific issues , then decide to hire if the PRO can do it better than you. i.e Fix your own toilet @ $75-150/hour saved tax free!
Learn about law, accounting, health, finance, home, auto services. Have HEART, and DOI. “I can easily do this myself.”
Good can be better than the Best. Cars you can pay all or mostly cash for can save you thousand$ over the term of a loan for an expensive car.
Instead of sending your children to the best schools, how about having more time to hang out with them? Average schools can still have excellence.
Live frugally and use the surplus cash to invest in real estate or a startup business.
Prepare lunch ahead of time and place in fridge so it’s ready next day.
Design and plan a Low Cost Lifestyle.
Wealth begins with and examination of EXPENSE$ and Though process when it comes to spending. Be Frugal my friend. Protect and preserve your hard earned money.
You can get by with acceptable goods and services. Guard your mind against marketing messages telling you deserve the best. You deserve FREEDOM and power over ur livelihood. Save to buy your Freedom.
Fix ur own sink or alternatively price around and get 50 bids to get it done for reasonable price. Does it make sense to pay $75/hour if you are making $15? If you save 50 here, 100 there…can add up.
Wanting FF so badly that the choice not to spend is easy. Take pride you live efficiently and don’t blow it all on toys, temporary pleasure, which should offend you cause delay your FF.
When you see the Jones’s, say “Foolish, foolish man.”
Be frugal and save up your first $25,000 (1 years worth of spending).
Ch. 2 Live Efficient Lifestyle
National Average for Consumer Spending Pie Chart (excluding taxes).
80% of spending: Housing/mortgage, Transportation/time/gas/maintenance/wear&tear, Food/Groceries not eating out, Insurance, Healthcare (focus on these Large Chunks 1st)
20%: Entertainment, Apparel and services, Cash contributions, Education, Misc (having a beer, coffee or shoe shopping in moderation is fine)
– Focus on the largest chunks of YOUR spending FIRST, which will allow you to enjoy the small day to day pleasures.
$50/week on small meals and treats with family and friends is okay. Unless you are spending thousand$ on unnecessary shopping, meals and entertainment.
Renting. Find an affordable apartment, house or mobile home to rent or buy. Reasonably close to work and have roommate(s) to help with costs.
How much could you save living in a cheap apartment w/a roommate, close to work, along with having some good clean fun? Like having friends over for a meal or go fishing, instead of living near a bar and going out clubbing.
If you are a family, you can have a roommate or not, and/or have a double income.
Commute. Bike more and drive less. Cost of driving are in money, time, health, anxiety and happiness.
Pay cash for your vehicle if possible, otherwise do the least loan amount. Economy cars are: Honda Civic, Nissan Sentra, Toyota Corolla. Use Kelly Blue Book and Edmunds to look up pricing, etc.
Maybe do a car wash and an undercoating once/year. The rest of the year hose car off.
Food. You do not have to miss lunch with your partners/peers i.e soup and salad. You can enjoy happy hour w/your friends.
Always have healthy food and snacks around home i.e Nuts, berries, fruits, meats, fish, healthy grains, legumes and veggies.
This will keep you away from the fast-food and vending machines and you will be healthy and focused.
Personal Insurance & Pensions. This is to protect you from the big stuff. Use high-deductible to save hundred/year.
Healthcare. Important to have insurance for Dentist and Primary care doctor. Again, go with the high-deductible w/low premiums. Exercise by biking, walking and swimming.
Entertainment. Some of your fondest memories and sometimes your connections and what you learn from a lunch can enrich your life in many ways.
- Cut out pay TV, watch free stuff instead.
- Avoid subscriptions, cancel right away after you sign up. You can always sign up later if it’s something you’ll use frequently.
Apparel. Like anything else purchase only Clothes that you Like, is reasonably priced and are going to actually wear. If you get a ton of Joy, 100 to 200 a month is fine.
Cash Contributions. I.e Child support, alimony, gifts or allowances to your children/dependents, and charity. Donations and any travel for events or volunteering are often tax deductible. Keep receipts. Often the people that are running in the charity can be powerful local connections that could financially propel you more than anything else you could do.
Education. Helps to increase earnings and build or buy assets. This book is about Personal Finance and progress toward Financial Freedom. Invest in books, seminars and mentors.
Miscellaneous. Keep your eye on the Financial Freedom long-term goal. Will this significantly enhance your health, wealth and happiness? Avoid vices and time waiters.
Conclusion. Save 50% of your income. If it don’t bring you happiness, don’t buy it. Handle your own problems, make choices that will save you THOUSAND$ and live with excitement.
Eliminate, minimize, no consumer debt and take up free or low cost hobbies.
Do not give up your favorite small luxuries and recreational spending. Do more biking. Prepare healthy foods in advance. Housing, transportation, children, personal insurance and pensions, healthcare and education. Spend less than $2,000 per month.
Chapter 3: What To Do With Your Money
- Emergency fund of 1k-2k
- Pay off all consumer debt & build strong credit
- Build up 1 year livelihood by building up cash reserve or equivalent.
Stop going out to eat, multiple gas trips… pay the car off or refi!
Hospital debt, wait several years and then negotiate down to a few thousand or even a few hundred dollars.
Research your debt if it is more than 3 or 4 years old. Consult a professional. Sometimes making payments can actually hurt your credit. Sometimes 7-10 year old debt don’t need to be paid off.
- Car loans
- Personal loans
- Low interest rate (probably less than 5 to 6%)
Improve your credit
- Use Credit Karma to check your score
- Look for potential errors & resolve them
- Set up automatic payments for your debts
- Make your payments on time
- Pay down highest interest debt first, while making minimum payments/getting current on other debts
- Do not bite off more debt than you can repay easily
Increasing Access to Credit
One wants to have Increased Credit Limit in case it is needed. It is not to buy frivolous luxuries. This is for the disciplined spender.
Credit scores are affected by credit utilization. If you have a few credit cards, you want to request a credit limit increase every 6 months. Ask if this will result in a hard inquiry on your credit report & decide whether it is a good trade.
3 Milestones (do step 1 before doing step 2 and then step 3)
- Have $1000 to $2000 in Emergency Funds immediately. Helps to avoid creating new bad debt.
- Pay off bad debts
- Have about $25k in business/investment capital. Home equity and anything you don’t plan to sell, does not count. This money will allow you to not need to cover living expenses for 1 full year.
Now you can house hack or build a business, while being able to cover the basics i.e food, phone, rent, internet and transportation.
Or you can go out clubbing with friends, buy movie tickets and fancy trips. You can fill your fridge with beer and buy lots of personal crap you don’t need.
Save $1,500 per month. In about 1-1.5 years you will have $10-25,000. You may store this money in a brokerage account i.e stocks, bonds, funds, etc. or if you’d rather play it safe, put in savings account at bank.
You now have ability to increase your income.
- Down payment for real estate
- Buy an asset
- Build an business or income stream
One could work at night and/or have a day job/business. This could be freelance work, waitress, bar tending, playing in band, DJ or karaoke. Spend a lot of time learning about business skills/investing. Save 20% or more of income and put 50% of that toward disadvantage debt of about 6+% interest. Credit score improving to about 700. Assets of $3,000 in stocks and $2,000 in savings. Goal is to live for free by buying a duplex close within 20 miles from work with FHA owner occupied financing using down payment from savings. Possibly having a roommate. Running drywall/painting business.
Live frugally, cut back on everything wasteful that doesn’t make you happy, earn extra income and invest the difference. Saving 10-25k in cash is your runway to WEALTH.
From 25k to 100k via housing and income.
Create a spreadsheet analyzing the cost of your housing expenses. House hacking, if you can pull it off can create massive wealth over 30 year period.
Financial Impact of Housing
#1. Buying a house smartly. Do your research and discuss about your wants with investors, r.e agents and neighbors. If you think you may rent it out at a later date, look to buy in neighborhoods where market rents will cover the mortgage. And be able to sell the property if they want, hopefully several years later as closing costs are expensive. Do not buy an expensive house that you cannot afford and strap yourself into slavery.
#2. Buying a live-in flip. Every 2 to 3 years buy a house that’s in a good neighborhood that is in need of repair and rehab it in their evenings and weekends unless you’re going to hire a contractor to do the work. It may take a year or so to fix it up, enjoy living there, then rent (yes rents go up when you fix-up) or sell it and move into another fixer-upper.
Looking for value add houses, one can create hundreds of thousands of dollars in improvements. After 5-10 transactions you could have 500k in after tax assets, and could sell off house(s) as a good way to retire.
Before buying, do your research and determine the ARV, this is what your home should be worth after repairing it. If you live there for two years plus, you should be able to not have to pay most Capital Gains Tax when you go to sell your beautifully remodeled house.
#3. Buy House Hack is especially great for 1st time home buyers who want to choose their own neighbors. Live in one of the units or bedrooms. Housing is most people’s largest expense. Find an affordable duplex, triplex or 4plex that needs work in a great neighborhood, move in and start improving it. In a few months, rent out the unit and start collecting rent to help w/mortgage.
Your renters are paying for your house and you are living essentially rent/mortgage free. After you rinse and repeat this process a few times, you may be living in sweet Expensive Home/Rental for free.
You could also roommate it up if you don’t mind sharing common rooms. Some may be clean people and others pigs, some maybe smokers. All this has to be factored in and rules in place and enforced. This isn’t everyone’s cup of tea, but it can be very profitable if done right. If you have a family with young children, the duplex or multi-fam maybe a better choice. Not to say you couldn’t have say 1 roommate, if you have enough room.
Once you start getting ahead by making some small sacrifices in the beginning i.e living in the 2nd best school district, you should then be able to upgrade further on down the line i.e best school district or take family vacations or spouse quits job to be with kids at home.
When your entire housing cost and then some is completely taken care of by house hacking and rentals, you are able to start enjoying some financial freedom baby!
You can evict or decide not to renew lease of a rowdy renter. Look for good or transitioning neighborhoods/emerging markets. The more fixing up you can do to save money, the better. Don’t be afraid of city inspectors, they are usually willing to work with you if you have any code violations. Just get your property up to their standards as efficiently and safely as possible. One of the big ones in my area is lead peeling paint as it is a safety concern for kids. New vinyl siding is an easy fix, along with perhaps some insulation.
Don’t do what most Americans do, buying the big mansion where 30% of ur income goes to the mortgage payment, significantly limiting your saving ability. Use your 1st or 2nd starter home or house hack to fund your long-term residence.
Questions to ask before buying a house hack (will come back to this later)
Buy your first rental and home as an income producing asset that you are not tied to if you decide to move, just get another renter lined up.
Chapter 6: How to Make More Money
Produce more time and you can make more money.
Work and commute (the largest chunk of the pie)!
- Start a business. This can take months/years to hone your skill/trade.
- invest in real estate/stock market (buy low, sell high), or
- work for a large company if you can get stock options/equity and/or perks like flexible hours and work location (do some of your work on the puter). One downfall is that rare is a company that would reward you for a million dollar idea. They should pay you more based upon performance that your experience level. Also you will probably hit a ceiling as this line of work, as has not unlimited earnings. One Upside is that if one makes $150,000/year and has proven track record, it may be difficult to beat w/a performance based business.
Unlike saving $10 by refusing to pay for a beer at the airport, income is increased by improving a major metric (sales, retention of customers, rental occupancy, membership enrollments, marketing, finance and accounting), or develop a highly paid skill.
Highly Paid Skills
- Contractor (general or sub), handyman, carpenter, flooring, tile, interior/exterior cleaner.
- Create websites, hosting and maintenance. Attend a software programming boot camp for a few thousand dollars.
- Sales professional or consultant i.e software, high-ticket items, coaching, memberships, marketing… anything sought after.
If you are unsure if this new skill/career/business you wanna start is really going to be what you want to stick with, then do it in the evenings and on weekends. You have to be a go-getter, hang your shingle, network & lead. If you want to be a leader, then get out there and lead.
Heck I once took Fridays off my job for a month before the boss noticed & when he gave me an ultimatum, by that time I was established enough and left to go out on my own in my Drywall business. It was a little scary because I had mouths to feed at home, but it worked out very well.
- Working on a house that you live in.
- Working overtime in your career/business
- Put your professional skills to work by freelancing at a high hourly rate w/your boss’s clients or your own customers. Think synergy, something that is related to your current skillset, i.e transition from being a R.E Broker to software engineer for a R.E Company, as this may give you an edge. Although it don’t ever hurt to learn a new skillset.
Side Hustle. Unless your young, full of stamina and have a passion for what you’re doing on the weekends and/or evenings, good luck to you. I used to DJ for weddings/parties on weekends. It is something I loved doing when i was younger after working 40-60 hour week, I’d pack up my drywall tools after finishing a job, go home, shower and show up just in time to set up to play for the dance. Your work day, your 9 to 5 is usually going to be your MAJOR play.
Pay v.s Passion? Depends on if your skill is marketable or not. If you haven’t found your ‘Calling’ yet, meditate, listen and dream or develop a skill that pays well. If you get good at it and are paid well, you will learn to love it. Or pursue a career that is in demand, has scalable income.
One should plan to place themselves in a position where they are not dependent on their job and be set up for financial freedom say within a decade or so.
Focus on reducing the big expenses: Housing and transportation. Major time components: Work/career and sleep.
1. Albert Einstein was said to sleep only 4 hours. What most people don’t know is we can all do this! Trick is to also take small naps throughout the day.
2. Some Millionaires serve up energy on a plate. If you go out to eat, order soup and a hedge of lettuce or something similar, instead of the heavy sleepy steak dinner, as digestion can take up a huge amount of our energy. So eat and drink less, will give you more energy and less time going to the bathroom. Also chewing food well or blend into a smoothy is better than scarfing it down.
3. Of course there are other suggestions to help prepare you for sleep like no exciting TV shows, alcohol, caffeine, food, drink, etc… so many hours before bedtime. However a boring TV show or book can help you pass out.
4. Create comfort to sleep better. Having the bedroom cool in the summer i.e put fan in window with the airflow going outside, which sucks the warm air out of the house, or turn on A.C. Have the lights turned down low or off. Eliminating or reducing any noise that may be present. Don’t bring your worries to bed, do something about it or write it down to get it done tomorrow. Never let the sun set on your anger, express it & get it out. Be a peaceful, happy sleeper. If you wanna save money on heat, look at insulation and more layers, electric blanket or body heat. Meditation/deep slow breathing can help.
Waking hours. Largest is work and commute.
Watching less TV or Video.
Be efficient by having systems for a clean and orderly house.
1. Have a hamper for each person. That way you don’t have to sort clothes & then have a set day/time to wash them.
2. When and who will do dishes? Every day or every meal time, or does everybody wash their own dish when they are done eating?
3. Who does what chores and when? What is the children’s reward? A treat, an allowance? And if they do not do chore asked of every time immediately, then they don’t get their daily/weekly reward. If you are potty training or brush teeth training, then stickers are a great way to keep score and motivate.
A frugal person who house hacks and earns $150,000/year will coast to financial freedom in record time. One who earns $50k will take much longer. Look for work that offers scalable income opportunities. This may mean a reduction in salary but you have prepared for this by stowing away $25k and are house hacking, which provides you passive income.
Choose a few niches, or a niche (the one you love more than anything else) that you think will provide you the best opportunity to become financially free at an early age.
Don’t be afraid to try something new, and don’t be lazy in educating yourself about your financial opportunities. Short term sacrifices i.e saving, can create long term gains. Manage and invest your money wisely.
Benefits are ZERO when compared to Scaling a business! Don’t lose sight of the BIG THANG$. However if you are hiring people, do offer them 401k, etc.. as it will make the WANT to stay with you, for as long as you need them.
Did you know 5 figures can be earned in 1 single sale in MANY industries? Which most peoples benefits for a whole year do not = 5 figures. They are trading tiny benefit value for most valuable, their time.
Action steps (pick and choose wats best4urself):
- Develop a new SKILL that’s worth 10’s of thousands, heck… hundreds of thousands of dollars/year. You could even call me up and ask for a job, Pro Paint & Drywall can make you a ton of money. In exchange i will pay you for learning the tricks of the trade. In 2 years you will be a seasoned PRO. If not me, hit up another business and ask for work. Many are hiring especially in this good economy we have tod.
- Get a job rewarding performance with unlimited upside potential.
- Start a new business.
- Start a Side hustle or freelance.
- Synergize income producing pursuits.
Be in a position where you are not afraid to pursue opportunity and your dreams, which having 25k and low monthly expense, provides little risk.
Depending on your chosen profession, you may have to start anew. This time choose one that offers large income, freelance work, etc.
Ch7 Scaling your career
1 hour/day of study will put you at the top of your field, which equates to about 1 book/week, 50 books/year, which will put you in the top 1%. The top 1%’ers make about $389k/year!
You could also network at events. If something intrigues you i.e marketing, trace back to the best marketer who is marketing to you and then hunt him down and learn from him. Work for him, he can be a mentor of sorts to you.
As fast as you can, find new ways to automate, delegate and eliminate tasks of your business and take on more responsibility. Grab any opportunity you can to work toward your goal.
When you have the clear, dedicated goal of investing and building a real estate business, LOA will bring to you people, places and events that will help you. It helps to know what you want to be, do and have.
Physically or virtually put yourself in front of people and opportunities. Conversations, events and joining organizations. Put yourself in front of very targeted (goal related) people. REIA and Bigger Pockets, not da bar.
Part 3: Moving from $100k to Financial Freedom
In part 1: Save and earn more. Remember the major expenses: housing, food, transportation and ______. Save up $25k.
In part 2: Purchase duplex and start ur business. For me that has been Drywall/Painting business.
Chapter 8: Financial Freedom