Chapter 1: Financial freedom in 10 minutes

Note: this chapter is part of a book on financial freedom. You can view the whole book here.

Why financial freedom is simple, but most people still get it wrong

Many people believe financial freedom is complicated.

This is false.

After reading this book, you’ll have everything you need to reach financial freedom. And while there are many finer points to obsess over, you’ll see great results simply by taking action.

So the path to financial freedom is simple. But is it easy?

Yes. I would argue that reaching financial freedom is one of the easiest ways to dramatically change your life.

Here’s why: Unlike, say, exercise or eating healthy—both of which require daily commitments—finding financial freedom is ‘set-and-forget.’ You set up auto-pay for your bills; you set up auto-invest, you forget… and… voilà, you’re rich.

Of course, you need the right advice to succeed. That’s what this book is for. It’s not perfect—the path is different for everyone—but it will get you where you want to go. You just need to act on the advice.

Following through, however, is where you may get hung up. So read through this course and act on the suggestions. I suggest that for every hour you spend reading about financial freedom, spend two implementing the suggestions.

Before you know it, you’ll be rich.

Must you follow this advice to the letter? No. Everyone’s financial journey is different.

What you must do, however, is take action. It’s simple—so do it. Otherwise, you’ll never reach your goal.

I urge you to read the entire book. It reveals hidden opportunities—and potential landmines—that cannot fit in this summary. As you read through, refer to this section for a high-level summary of the key points.

How to become financially independent—a high-level summary

  • Figure out what you want in life. Incorporate this throughout your life at every chance, rather than pushing it off for some future “retirement date.”
  • Live below your means. Strive to always save more than 50% of your take-home pay—and preferably more.
    • By saving 50%, you earn one day of freedom for each day you work.
    • Save 66%, and you earn two days of freedom for each day worked.
    • Save 75% and you earn three days of freedom for each day worked.
    • Save 80% and you earn four days of freedom for each day worked.
    • Save 90% and you earn nine days of freedom for each day worked.
    • As you can see, even a small increase in savings over 50% has a massive impact on your freedom. Get this in your head early—and stick with it for life.
  • Become self-employed as quickly as possible.
    • This gives you more freedom, plus the ability to write off business expenses and increase frequent flyer miles for travel.
    • This also reminds you that YOU are in charge of your life. You’re also ultimately responsible for it, so you can make life-changing decisions quicker.
    • You can also work more or less as you see fit. This is huge.
  • Work remotely so you can take advantage of living elsewhere.
  • For US citizens: As you start to earn more, spend a year or more outside the US to take advantage of the Foreign Earned Income Exclusion.
  • If you live in a high-tax state like California or New York, move to a state without income tax.
    • Currently these states are Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. (New Hampshire and Tennessee don’t tax earned income, though they do charge tax on dividends and income from investments.)
  • Run your own business. You can either build your own business or buy an existing one. (We prefer to buy existing businesses because they’re proven to be profitable.)
  • Remove yourself from your business income as much as possible.
  • At some point, reinvest the surplus into long-term investments. The simplest option is purchase a few index funds from Vanguard.
    • Once your investments are greater than 25x times your annual spending, you are considered financially independent. (You can actually get by on less than this; 25x is the most conservative number you should use.)
  • Don’t obsess over building your investments. Enjoy the ride.
  • Once you’re financially free, make sure you do something fulfilling with your newfound freedom.

Note: this chapter is part of a book on financial freedom. You can view the whole book here.