We discuss why you should stop thinking about money in terms of being rich and instead think about ways it can grant you freedom. USA USA!
Money isn’t about being rich. Money is about choice and the freedom that goes along with being able to make decisions when money is not the only deciding factor.
Subscribe to the Show:
What are You Working For?
You go to work five days (or more) a week for 40 hours (or more). Even if you love your job, it’s time away from the other things you love, your family, your friends, your hobbies. Most of us will spend decades of our lives working.
And for what? A house bigger than you really need or can afford full of stuff you never use and don’t even remember buying? To pay off credit cards that you charged that house full of stuff to? For the occasional vacation that you can’t really afford and your boss gives you a hard time about taking?
For the status that driving a BMW and wearing expensive clothing gives you? To impress people who don’t care and whom you don’t like? If any of this sounds like your life, you’ve imprisoned yourself. Maybe you realize it and maybe you don’t but you’re in debtor’s prison and you don’t have much freedom.
Take This Job
Have you ever had a job you hated so much that you were afraid to go to sleep at night because you know the next morning is coming fast and you’ll have to face it again? Or maybe you don’t hate your job but money is so tight that you have to go in no matter how sick you might be. Not everyone gets sick pay.
Ideally everyone would have a job that they love, doing what they want to do. That’s not realistic for everyone and I think most of us can be largely satisfied if our job is bearable; that the work has some meaning, we (mostly) get along with our collegues, the pay is enough to pay all of our bills and have some savings.
But that isn’t the reality for everyone. If you have a job that doesn’t provide any of that and is sucking the life out of you, you feel stuck. No one should spend a third of their day in completely misery. That feeling is the opposite of freedom.
What Money Can Buy
When people dream about having money, it’s often the things they would buy that they fantisize about. But material things are not the best part of having money, not even if you have a garage full of Lambos.
Money can buy choices and choices mean freedom. You hate your job? You can quit and take your time finding a better one. In an unhappy relationship? You don’t have to stay, you can take your money and leave. Hate the town you live in? Call the movers.
Money can buy convenience. You’re too tired to make dinner? Order out. You don’t have time to clean your house? Hire a cleaning service. You’ve been told to evacuate because of a hurricane? Woo! You’re not going to sit in a flooded house with no electricity for a week. You’re going to Destin to chill on the beach.(This one is specific to me because I live in New Orleans and it’s my plan but you get the point).
Money can buy time. You had a baby and you don’t want to go back to work? You’re a stay at home parent now. Your sister is having a destination wedding in Antigua? Excellent, pack your bags. Your mom had surgery and needs you to stay with her for a few weeks? Cancel your appointments, you’re going to be out of town.
All of these examples are examples of having control over your own life, not feeling trapped. When we feel like we’re trapped and we don’t have choices, we feel unhappy and anxious. So money can buy…
Money can buy happiness. We feel happy when we have control over our own lives. Money can also buy happiness if you know what to buy. Too many people think buying things brings happiness. And it does, but it’s very temporary and usually the happiness extends only to you.
If you want to spend money to get happy, spend it on experiences. It’s been proven that experiences makes us happier than material posessions. And it’s not hard to think of an example from your own life.
You bought a new TV, a big one with all the bells and whistles. Woo hoo! Said no one but you. No one cares about that and no one apart from you (and the people in your house) enjoy it and then it’s only fun for as long as the novelty lasts. So while you get a lot of use out of it (if you’re a heavy TV watcher), it’s not something you fondly remember or share with other people.
Now think about the last concert you went to. You were excited to go. You and the people you are going with talk about it every time you see each other. On the day of the concert, you went to dinner before, had a blast at the concert, and had some drinks after. You think about and talk about the concert for weeks, months, maybe years after.
The concert is not only an experience where as the TV is just a thing, the concert was a shared experience. It’s something you looked forward to, enjoyed with other people, and have happy memories of.
That is why experiences, rather than things, make us happy. And the even better thing about experiences versus things is that you can have all sorts of wonderful experiences for free. It doesn’t cost anything to take your kid to the park or to go hiking with a group of friends. It doesn’t cost anything to spend the evening making dinner with your partner.
Changing Your Money Mind Set
Many of our habits and thoughts about money are already ingrained by the age of just seven. That’s great if your parents had and demonstrated good financial habits but if they didn’t it can be hard to change your money mind set.
There are some money mistakes we just have to let go of like the ones we made because we were young and dumb. We took out $100,000 in student loans when we were 18 and got a degree in South American literature. We aren’t likely to make that kind of mistake again so we just have to move on.
There are some money mistakes that we made when we knew better. We knew we were doing something that would have bad consequences and we did it anyway. When we look back later, or sometimes immediately after we’ve done something like that, we feel guilty and ashamed. There is a lot of guilt and shame around money. But those feelings are only useful when we can learn from those mistakes.
If you went out and bought a bunch of stuff you didn’t need and charged it to a credit card because you didn’t have the cash to afford it, what precipitated that? Did you have a bad day at work, get into a fight with your partner? We all have behaviors we use to cope with stress, anxiety and unhappiness and some of them are destructive. We have to develop better ways to deal with uncomfortable feelings that don’t hurt us.
Are you very lazy about money? You often get hit with overdraft and late fees not because you don’t have the money to pay your bills but because you just can’t be bothered to do it on time. There is really no excuse for this now that we have so many ways to automate our finances available.
You can easily go on-line and see how much money is in your checking account before you charge something that costs more than your balance. If your checking account balance is low, you can easily transfer money from your savings account.
You can set up auto-pay so your bills are paid on time. If you don’t feel comfortable using auto pay, set up alerts on your phone for two days before a bill is due and set them for a time that you know you’ll be home so you can sit down and pay them immediately.
Some bills allow you to change your billing date. If this is an option, change the dates to the same day so can pay all or most of your bills at once. Just be sure you have enough money to cover so many bills at once.
Are you very cavalier about money? You don’t really think about it much and are happy if all your bills are paid and you have $20 in your pocket? You can get away with that attitude in your 20’s but if you don’t change your money mind set, it can catch up with you.
Everyone should be saving for retirement as early as possible. The earlier you start investing, the more time compounding interest has to work it’s magic. It’s almost never too late to start investing but the later you leave it, the more catching up you have to do. Once you throw a family into the mix, it’s harder to find money to save making catching up even more difficult.
If you don’t give money much thought, it’s time to get serious.
Okay, we’re all on the same page. We want to use our money to buy our freedom. So how do we achieve financial freedom? The first thing we have to do is to kill of high interest debt, usually credit card debt.
Debt is like driving with your foot on the brakeTweet This
The average interest rate on a credit card is 15% but there are some that approach 20% or even more. People paying interest rates that high have usually had late payments which trigger a higher rate of interest than the card had initially.
There is no way to be financially independent when you have that kind of debt dragging you down. Credit card debt is your priority and you need a plan to tackle it. There are two methods to efficiently pay it off, snowballing and stacking. Read the details and pros and cons of each and decide which method will work best for you.
Once you have that debt tackled, it’s up to you to decide how to handle low interest debt like student loans or a mortgage. If your student loan interest is higher than 4%, you can look into refinancing for a lower interest rate with Lendkey. Even an interest rate 1% lower than your current one can save you thousands of dollars over the life of a loan.
The same for your mortgage. You may be in a position to refinance. Refinancing for a lower interest rate is great and we advise it but we feel your money is more effective when you use it to invest rather than pay off low interest debt. The average rate of return over time in the stock market is 7% so you can invest and make money while still paying off those low interest loans.
Some people hate to have any debt so if that’s how you feel, paying off those low interest loans, while not our idea of the most efficient use of your money, it’s certainly not a bad thing.
Once you have the really burdensome debt out of the way, you can focus on building wealth. For most of us, the kind of wealth it takes to achieve financial independence isn’t going to come from our careers. Not everyone wants to be an engineer, a doctor, or a lawyer.
Some of us want to be teachers and nurses. And some of us aren’t really that interested in having a career at all. We want low stress, low responsibility jobs. Luckily, there is a way to build financial freedom that has nothing to do with your career, your job, or your time.
Passive income is what will give most of us the opportunity to achieve financial independence. Passive income is money that you don’t have to make through your efforts or with your time.
Companies like Betterment and Vanguard make investing in the stock market easy. You can own rental property without the hassle of becoming a hand’s on landlord with Roofstock. You can invest in real estate REIT’s through Fundrise.
You can lend money to borrowers with Lending Tree and rent out your home on Airbnb. Everyone should have more than one income stream. We could lose our regular job through no fault of our own so it’s best to have money coming in from other sources and one of those sources should be passive.
When most of us think of money being able to buy freedom, we think of never having to work again, being able to retire. But there are lots of positive things about working; doing work that makes a difference for others, challenging yourself by learning and doing new things, the social aspect of a job, having a sense of purpose and a place to go and some structure to your days, and of course, bringing in money. Working is not all bad.
So we need to redefine retirement. When you achieve financial independence, that simply means the end of mandatory work, not the end of any work (unless you choose to never work in any capacity again).
Retirement can mean not having to show up to a job you hate in order to keep a roof over your head. If things changed and your job was no longer enjoyable you could leave and take as much time as you needed to find a job that would make you happy.
Retirement can mean going changing fields to something you perhaps always wanted to do but knew would not pay enough to live the kind of life you wanted. You could go back to college to become a teacher or pursue a career in the arts and become an artist without the starving part.
You could start your own business or you could spend your time volunteering for a cause you care about. You could run for political office. You can do whatever you want without money having to factor into your decisions.
Smells Like Freedom
Money is a tool and like any tool, it can be used well or it can be used badly. Use your money to buy your freedom.
Betterment: Start investing to build the life you want.
Mint: Take control of your money.