Financial Freedom

Here are some core concepts from the book Financial Freedom: A Proven Path to All the Money You Will Ever Need by Grant Sabatier.

There are 7 Levels of Financial Freedom

Clarity
- when you figure out where you are and where you want to go
Self-sufficiency
- when you earn enough money to cover your expenses on your own
Breathing room
- when you escape living paycheck to paycheck
Stability
- when you have 6 months of living expenses saved and bad debt repaid
Flexibility
- when you have at least 2 years of living expenses invested
Financial independence
- when you can live off the income generated by your investments forever so work becomes optional
Abundant wealth
- when you have more money than you'll ever need

The 7 Steps to Financial Freedom

What does financial freedom mean to you?
Check in with your money for 30 min
What tradeoffs are you willing to make?
Pick your budgeting style
Optimize your full time job
Evaluate your side hustle
Separate short and long term investing strategies and stay the course

Find your number

This is the number needed to invest to live forever on 4%

Financial Independence Number:

FI = (Ex 25) - (Inc 12 * 25)
- Ex = Current Annual Expenses
- Inc = Monthly Recurring Income (from rentals, side hustles, etc.)

How it works:

Index funds will return 7% per year on average in the long run (conservatively)
If you had $1.25 million today, you could invest this into index funds.
You could take 4% to live on ($50,000)
You leave the additional 3% in the pot to grow your pot and compound with inflation (next year the pot is now $1,287,500)
This means the actual AMOUNT that your 4% to live on will increase over time too (next year you could take $51,500)

Net Worth

It doesn’t matter how much money you make if you spend it all. What’s important is working to increase your net worth over time.

Net Worth = Assets - Liabilities

Building Wealth

Depends on these variables:

Income: How much money you are making.
Savings: How much money you are saving/investing.
Expenses: How much money you are spending.

Investing

Core investment strategy (these 3 asset classes)

Property (real estate)
Stocks
Bonds

Property

Find an amazing investment property:

Develop real estate investing criteria to follow.
Set a budget and get preapproved for a mortgage or loan.
Look for properties that generate immediate positive cash flow and have high rent and appreciation potential.
Find an amazing Realtor who does the hard work for you.
Hunt when everyone else isn’t.
Look for foreclosures or short sales.
Test-drive the neighborhood.
Find an experienced home inspector.
Be prepared to walk away from a deal.

Budgeting

3 Approaches to Budgeting:

Save on your largest 3 expense categories
Focus on optimizing categories 1 at a time
Track all expenses with envelope style and analyze frequently

Saving Money

Think about Future Value:

Cost*(1.07)^t
- $2 coffee in 30 years -> 2*(1.07)^30 = $15.22

Purchases

Ask yourself these eleven questions before buying anything:

How happy will this purchase make me?
How much money do I have to make to afford this?
How many hours of my life am I trading to afford this?
Can I afford it?
How do prices compare in terms of percentages?
Can I get it for less or trade for it?
How much am I spending on convenience?
How much would this cost me each year or for the rest of my life?
What is the per-use cost of this item?
How much will this money be worth in the future?
How much time (freedom) is this buying me in the future?

Living off your investments

Live off your side or passive income as long as you can.
Make the most of your tax deductions.
Withdraw money from your taxable accounts first.
Tax-advantaged withdrawal strategy:
- Here’s the order in which you should start withdrawing from your tax-advantaged accounts:
  1. 457(b)
  2. Traditional 401(k) or 403(b)
  3. Traditional IRA
  4. HSA
  5. Roth IRA
  6. Roth 401(k)
Roth Conversion Ladder: Because of a specific bit of magic hidden within the U.S. tax code, you can withdraw funds that have been converted from a 401(k) to a Traditional IRA to a Roth IRA any time five calendar years after the conversion event with no 10 percent early withdrawal penalty. Note that you will need to pay tax on the conversion from the Traditional IRA to the Roth IRA.

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