I was never the sharpest knife in the drawer. Or the smartest kid in class. In fact, I suffered from a learning disability all throughout school because I didn?t pick things up as quickly as my classmates.
I had to work harder. Longer. For me, getting an A in a class was an achievement, I envied my classmates for what seemed like a magical ability to just ?get it,??almost instantly.
I was never able to do that. Why am I telling you this? To show you that you don?t need to be a genius or the best in your class to figure out money. While money will come easier for some of us than for others, the concepts behind building wealth aren?t complicated, and the money principles I used to achieve my goals are straightforward.
I?retired at 35?from full-time work. Each and every day, I get to choose exactly what I do with my time. Like hiking and house projects. Blogging or just taking a nap in the afternoon, the freedom to control my time is a freedom unlike any other.
Building enough wealth to retire takes time, but the concepts are not difficult. Let?s take a look at the three money principles I used to retire young, and how you can take more control over your finances and make your money work for you.
You won?t need to be a gifted student or a highly-paid professional to start putting these money principles into action right away. They are accessible to anyone.
First, let?s get one thing straight: Not everyone will be able to retire at 35.?That?s just not realistic. But, I do firmly believe that?achieving financial freedom is within the grasp of a lot of us. More than we probably realise. It may not be easy. It might take sacrifice. But, it?s there. It?s reachable. All you need to do is reach for it.
Money principle No. 1: Make financial freedom your goal
The first principle has nothing to do with money. Money is the means in which to achieve financial freedom, but there is something much more fundamental that needs to be addressed first.
Financial freedom isn?t something that just materializes. It?s like getting into shape. Most of us won?t lose weight or gain strength by refusing to change our habits and prioritize fitness and diet. It won?t happen. Life doesn?t work that way.?Financial freedom ? as with getting into shape, takes drive and dedication, and the first step is to make it our primary goal. We need to want it.
Let me say that again:?We need to want it.
Once we set our minds to achieving a goal, human beings tend to implicitly begin to make decisions in support of that goal. We might go out to eat less and cut back on monthly subscriptions (like cable television). We might even keep our cellphones longer than just a year before upgrading them.?We?ll ask our employer or bank to automatically save a portion of our paycheck into a retirement account for us.?In other words, it won?t be a mental struggle to save instead of spend when financial freedom is our No. 1 priority. And we won?t miss the money because we know where it?s going: It?s building up into something powerful. Something that will enable us to achieve the freedom and liberty to design our own lives.
Money principle No. 2: Invest in appreciating assets
While it?s true that nobody ever got rich by?spending money, let?s take this one step further.?Nobody ever got rich just by saving it, either.
Saving money is better than spending it, but wealth is built by investing our money into appreciating assets.
? Stock market
? Real estate (property or homes)
? Relics or historic objects
The idea behind this is simple: we buy an asset (for example, a share of stock or a?piece of property) for a certain price. Over time, the asset appreciates (or?increases) in value. And boom, now we have something that?s worth more than what we paid for it.
But, here?s the magic: Through the power of?compound interest, our assets don?t just build linearly. Instead, appreciating assets build exponentially. Compound interest means your assets build upon themselves.
If you invest $1,000 and it appreciates 10% (or $100) in a year, then your new base starting point in year two is $1,100. Another 10% gain is $110, not just $100.?Add a couple of zeros to those numbers and we begin talking about quite a bit of money. Enough money on which to retire.
It?s almost like magic, except it?s not. It?s real, and it?s how I built up enough wealth to retire in my mid-30s.
I started investing when I was young. In high school, actually. My dad made me do it. I?owe a lot of my success to my dad. His inspiration and teaching had a huge impact on my life, and it?s something that I?ll never forget.
But we?all don?t have to start investing?in high school?to retire early.?Regardless of age, if you haven?t started investing in appreciating assets, start. Start by talking with your human resources department at work to find out about your options, or speak with a trusted financial adviser.
When it comes to investing: late is better than never.
Money principle No. 3: Expert-level knowledge of cash flow
I have not met very many early retirees or people who are financially free who don?t have a precise understanding of exactly where their money is going. Virtually every dollar.?This is called cash flow.
Each month, money comes in and money goes out. For most of us, money comes in through our paychecks. It might also come from odd jobs we do for extra cash or by finding a crisp $20 on the street.
Money also goes out. Our rent or mortgage, food, restaurant spending, cable television and our cellphone bill, and anything else we buy or spend money on during the month. That?s money out.
Together, a detailed understanding of your cash flow (money in vs. money out) means you know exactly what you?re spending money on and, ideally, how much money you have to spend.?This is one of the most basic money principles of all.
? Look at your bills?instead of throwing them aside; make sure you understand every line item on your bill
? Discretionary spending?(?fun? spending) should come after paying your bills and funding your retirement accounts
? Monthly subscriptions?are notoriously forgotten; be sure that you are aware of all of your subscriptions that cost money
? Small expenses add up fast; morning coffees, lunches out, grabbing a bag of beef jerky, all add up
Remember, my advice isn?t to cut out all discretionary expenses tomorrow. Instead, my advice is to know exactly where your money is going. Only then can you make smart decisions about where to cut spending.
How many money principles do you use? This is a judgement-free zone. I?m not here to criticize your money choices, and you shouldn?t beat yourself up if you?ve made mistakes with your money (I have too, believe me).
By using these money principles, my wife and I set ourselves up to achieve financial independence and retire early at the ages of 34 and 35, respectively. Financial freedom is a feeling unlike any other.?Are you ready to take that first step? If so, start with the very first principle and make the decision to prioritize the goal.?Make it permanent.
Then, make everything else automatic.