You don’t need to earn a lot of money to achieve financial freedom quickly. You just need to follow two simple rules:
Live within your means (and)
Invest the rest.
I’ve never paid myself more than $60,000 a year, I don’t live frugally, I spend $700 / month on food, entertainment and other stuff plus I donate $100 monthly. Yet I still manage to invest nearly $18,000 each and every year.
Isn’t it about time you make a spreadsheet, face your own truth and make some changes in your life? Take a look at mine and see how you compare, look for places you can improve and make decisions about what expenses truly bring you sustained happiness and which ones are holding you back from achieving your potential.
Last night I met with a colleague of mine who said she didn’t have any money to invest in her retirement. As it turns out, within five minutes I found several instances where she was believing her own lies. The biggest one? Her car costs as much as her mortgage… that’s nuts!
One of the most important lessons in investing is to learn about the power of compounding. In many cases, investing early and regularly can make all of the difference in the world.
Let’s take look at a chart that shows the impact of investing $100,000 by age 30 vs. investing $200,000 by age 45 (assuming 8% average return each year). As you can see, even though the second individual invested an additional $100,000, they will have nearly $600,000 less at the age of 65… that’s a breathtaking difference!
Investing $100,000 at 30 years old vs. investing $200,000 at 45 years old
But what if you haven’t had the luxury of starting to invest early? What do you do then?
A few months ago I was asked a very interesting question by one of my financial freedom students. She asked “If you could only give me one single piece of advice, what would it be?”
I sat there quietly pondering my response for what was likely several minutes as she looked on waiting. In my mind I was considering the path that I’ve taken towards financial freedom. I took time to contemplate the challenges, consider the obstacles and reflect upon the successes along the way.
Alas I broke the silence with my response, “Invest now“.
“That’s it?” she blurted out, “that’s the best advice you can give me?”
Over the last few years I’ve been blessed with the opportunity to mentor dozens of small business owners. Helping entrepreneurs to monetize their passions is extremely exciting. I learn a lot about various industries while helping entrepreneurs leverage their strengths and recognize their weaknesses.
One of the most troubling weaknesses that I’ve been helping entrepreneurs with is their lack of personal financial awareness. Most entrepreneurs have very little savings and no idea how to get started. This creates a significant risk for the majority of our small businesses, which more than 77% of all businesses fail due to lack of financial responsibility and awareness*.
Why should I start now?
Every business owner I’ve ever met has numerous tales of seemingly insurmountable challenges. These challenges typically share a common theme, one of a financial nature. This is one of the most difficult challenges to deal with – it causes stress, challenges…
At last it’s Springtime! Warmer weather, the trees are budding, the grass is coming back to life. It’s wonderful! This week I’ve gotten to enjoy outdoor exercise every day. Last night as I biked surrounding neighborhoods I noticed a number of luxury homes for sale so I snapped a few photos.
Just for fun I thought it would be an entertaining exercise to determine the cost of living in one of these houses. After researching I found most similar houses in this neighbourhood ranged in price from $950,000 to $1,299,999($1,577,397 to $2,158,542 after mortgage financing at 4.5% average interest rate over 25 years). For the most part these houses featured 5 bedrooms and 4 bathrooms and include a living room, family room, dining room and eat-in kitchen.
Let’s forget the financials for a moment and the fact that there are single family homes a few streets over for $315,000 to $399,000 ($523,032 to $662,508 after mortgage financing at 4.5% average interest rate over 25 years). These houses have 4 bedrooms and 2 bathrooms and include a living room and dining room.
Why are we so motivated to buy bigger all of the time? More importantly does it actually increase our daily happiness? Does the happiness justify spending an extra $1 million to $1.5 million (which is really $1.5 million to $2.25 million in salary earned before income tax is deducted)?
While I’ve written many blogs in the past about first-world slavery (Are You a Slave to Consumerism?, Start Working for Yourself without Quitting Your Job!), I find myself inclined to write another blog on yet the very same topic yet framed in a different manner. The reason I’m inclined to do so is that first-world slavery is a tough disease to battle because it’s fed by some very resilient bacteria known as misinformation and denial.
Now before you take offense and storm off, take a moment to bear with me and read this through. Believe me, if this blog gets through to you, I guarantee it will transform your life in ways you couldn’t have imagined. I may have just added another decade or two to your happy retirement!
Take a moment and write this down: “I want a bigger house because…” Now, take a couple of minutes and write down all of the reasons that you want to buy a bigger house (or possibly even renovate your current one). Once you’re done that, take a couple more minutes and write them onto two separate sheets – want and need. I’ve done this exercise a number of times during my financial freedom workshops and in most cases, if you are being honest with yourself, the items will all end up on the want sheet (bigger yard, more rooms, balcony, higher end finish), in very few scenarios items may end up on the need sheet (new baby arriving, moving for work, etc.). Be careful and be honest with yourself – the only individual who will pay the long-term consequence for any stretching of the truth in this scenario is you.
Let’s translate this into a figure that will scorch an image into your mind that will hopefully transform your perception of the importance of saving and power investing. Let’s talk in terms of something that keeps us away from doing what we want, when we want to. Yes, that’s right… work!
Today I’d like you to start thinking differently about your purchases. In an attempt to accomplish this feat, I’ve decided to take one very simple scenario that typically occurs in most people’s lives and showcase how dramatically this can impact you in the future.
The scenario we’re going to explore today is the simple purchase of a vehicle. Bob and Jennifer are both 30 years of age and they’ve both decided to purchase a vehicle. Bob desires a slightly more luxurious vehicle and purchases a new one every four years, while Jennifer is happy with a more modest vehicle and holding it for a few years longer. If this trend continues until they are both 60 years old, what will the end result be if Jennifer simply puts her savings into a simple index fund investment and receives an average annual return of 7%?
Wouldn’t you love to work for yourself? Are you afraid to quit your job? Surprisingly, you don’t have to! You don’t even have to work any additional hours! What am I talking about then? It’s simple. Start saving today!
Alright… at this point I’ve lost a solid percentage of my readers, individuals who simply aren’t willing to sacrifice their own “perceived happiness” just to save. But hold up one minute there… what exactly is a sacrifice?
When I used to have to wait to purchase something I thought of it as a sacrifice as well, but as time has went on and wisdom has slowly creeped into my head I now realized that I had a threatening disease known as first-world slavery and that making the actual purchase is the sacrifice. What?! Am I completely nuts? No, in fact I’m not!
Recover from these words, regain your composure and then continue reading my blog please. It’s okay… you can do it.