The Personal Finance Podcast - The Complete Beginners Guide to Financial Independence (and Quitting Your Job Early!)

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Starting point is 00:00:56 Find your advisor at IG Private Wealth.com. On this episode of the Personal Finance Podcast, we're going to give you the complete guide to financial independence and quitting your job early. What's up, everybody, and welcome to the Personal Finance Podcast. I'm your host, Andrew Founder of Mastermoney.com. And today on the Personal Finance Podcast, we are going to be giving you the complete guide to financial independence for beginners. If you guys have any questions, make sure you hit us up on Instagram or TikTok at

Starting point is 00:01:45 Master Money Co and follow us on Spotify, Apple Podcasts, or whatever podcast player you love listening to this podcast to. And if you want to help out the show, leave a five star rating and review on Apple Podcasts or Spotify. Now today, I am so incredibly excited to go through this process of giving you the step-by-step guide to financial independence for beginners. And if you don't know what financial independence is, it is a way for you to allocate your dollars the things that bring you value so that you don't have to work anymore. And we want you to be able to have the freedom in life to not have to work anymore and be able to have wealth in place so that you can have this generational wealth that we always,

Starting point is 00:02:29 always talk about here on this podcast. And what that means is if you're a person who is absolutely sick and tired of staying in a cubicle, if you're sick and tired of working in that corner office day in, day out, you go to work at 7 in the morning every single day, you feel like you don't come home until five or six at night. And you are tired of this grind. You are tired of living on this hamster wheel. Financial independence is the way out of this.

Starting point is 00:02:52 It is incredibly powerful what you can do with your time. And what this means is that you are allocating your dollars towards your freedom. So today, I'm going to give you those step-by-step guide. I'm going to walk you through these steps on how to get to this point because that is our goal with this podcast is as many people as possible. We want to teach them how to become financially independent and how to build wealth. Because it absolutely changed my life. and it's changed so many listeners' lives to this podcast as well,

Starting point is 00:03:16 and we want you to learn how to do this as well. Most people don't know that you can actually do this, that you can save up enough money, that you can build wealth, live off your investments, so that you don't have to work that nine to five, so that you don't have to be in the rat race anymore. So that is what this podcast's goal is to teach you about that, and this is the complete beginner's guide.

Starting point is 00:03:36 So I want you to think through this. Am I the type of person who does not want to be at my job day in and day out? do I want to work for 40 years like traditional retirement folks do or do I want to retire early? Do I want to get to the point where I can retire in 10, 15, 20, 25 years where I don't have to stay at this job forever. And there are so many options that you have and money and wealth unlock those options for you. That is what we want to show you here today as well. So if that's something you're into, let's get into it. So when it comes to financial independence, the first thing that I want you to do is,

Starting point is 00:04:12 I want you to think through and craft your dream life. I'm not talking about a dream life where you're living every single day on a yacht. I'm talking about crafting your dream life on exactly what your perfect day is. What is your perfect day that you would love to live day in and day out? I want you to think about this process for a little bit. Now, a great exercise to do this is if you have a partner to go through this as well with them because you want to start to have money conversations. If you're brand new to building wealth, if you're brand new to financial independence and you are working with a partner, you want to make sure that you start to have these financial conversations as early as possible. Now, if you're not used to having financial

Starting point is 00:04:49 conversations, this may be something that could be uncomfortable. But as you start to have these little micro-money conversations, it's really going to be very helpful for you in the long run. And doing this by talking about what your dream life is, what your goals in life are, are some of the best ways to open up about other things and money. So when it comes to crafting this dream life, there's a bunch of questions that you want to ask yourself, where do you want to live is a big one. So where do you want to live? Do you want to live where you are now? What type of house do you want to have? What type of family do you want to have? If you have your family in place already, what do you want to do going forward? And crafting this dream life

Starting point is 00:05:25 starts off with that question. The second question is how much longer do you really want to be working? A lot of people are going to say, well, I don't even want to work another day in my life, but I have to pay the bills. Obviously, most of us do. But how much longer, how fast do you want to get to retirement? We're going to show you how fast you can get there based on your savings rate. But in addition, how long does it take me to get to retirement at that point? Then ask yourself, well, when I do have all this time and all this freedom, what do I want to do with my time? Maybe with some of that extra time, you want to spend maybe working part time because you don't want to stop working completely. You want to have something to do day in and day out.

Starting point is 00:05:57 So what do you want to do along those lines as well? And crafting and thinking about what brings you joy and what brings you happiness is how you can do this. So the real big question is asking yourself, this. What in life brings me joy? What in life brings me happiness? And do you want to do more of that? If that's the case, then that's absolutely fantastic because that is what money is there to do. It's to bring you joy, bring you happiness, bring fulfillment. A lot of people don't realize this. But putting your dollars towards your freedom is what's going to allow you to do that. And that's what crafting out everything in life wants. People don't understand.

Starting point is 00:06:33 Financial independence is actually the pursuit of what you want in life. It has really nothing to do with money. It has more to do with crafting your behavior so that you make the right money decisions over that time frame. Now, there are a bunch of different ways that you can become financially independent. You can become Fat Fire, for example. So Fat Fire is you want to save a very large sum of money so that you can live lavishly throughout life. So usually $10 million or more is what people with Fat Fire do. Then there's Lean Fire. And Lean Fire can be any which number where you can live on the amount that makes you happy. So Lean Fire is something where people will get maybe $750,000,000, maybe a million dollars and they'll live off 30 40,000 dollars per year.

Starting point is 00:07:13 Then there's barista fire and this is a very cool one that I absolutely love. Barista fire is a form where you can get three quarters of the way to your goal and then once you hit that goal, three quarters of the way to your goal, then you can work a part-time job in something that you love so that you can hit that goal so much faster. A great example we talk about all the time is if you love golfing, for example, you can become a golf instructor or if you love fishing, you can host a fishing charter part or if you love yoga, you can become a yoga instructor. There's so many little cool jobs that you can surround around your hobby so that when you do

Starting point is 00:07:45 work two days a week, for example, it's just supplementing your income and it's surrounded by the things that you love. And then lastly, there's Coast Fire. And Coast Fire is another fantastic one. Andy Hill is coming on this podcast and that episode will be airing in a couple of weeks. And we talk more deeply about Coast Fire. We have another episode about Coast Fire as well. And we also talk about a bunch of different forms of financial independence that we are

Starting point is 00:08:07 not listing here. So there are a bunch of different ways that you can become financially independent. If you haven't heard our episode or we talk through all of those, check that episode out because that's going to really, really help you when you go through this process to figure out what you want. So that is developing your why. Sit down, think through what you want out of life, think through how you want to live your life in retirement,

Starting point is 00:08:28 and then we're going to give you the nitty, gritty next. So the first thing you want to look at when you want to tactically become financial independent is you want to look at your savings. rate. Now, most people don't understand how important their savings rate is. Now, the way we define it here at the Personal Finance Podcast is you're going to figure out what percentage of your net income you are saving every single month. Why is this so important? Because at the beginning, especially, your savings rate is the catalyst to getting yourself to financial independence. And the big example of this is saving up your first $100,000. When you save up your first $100,000, $75% of it,

Starting point is 00:09:07 typically will go towards your savings rate, and only 25% of it will be the growth of your investment. And your savings rate, the higher your savings rate is, the faster you can get to that financial independence point. So it's really incredibly important for you to learn all about savings rate. Now, traditional personal finance advice is going to tell you 10% of your income or 15% of your income is going to be enough. But there was a little blog post a long time ago posted by Mr. Money Mustash called The Simple Math Behind. early retirement. And he took this savings rate concept and went deeper into how long it would actually take you to retirement. And so if you saved a traditional 10% of your income, it would take

Starting point is 00:09:48 you over 50 years before you can retire. So traditional personal finance advice that's telling you to save 10% of your income, you're going to be working for your entire life. So people in the financial independence community, they save a much higher percentage of your income. Now, we hear at the personal finance podcast talk about saving 20% of your income and then increasing it from there. The starting point is 20% of your income. But people who want to become financially independent quicker, you can increase that amount over time. So say, for example, you save 50% of your income. Well, that time frame is going to be so much shorter that you can be able to retire. We've done an episode talking about our savings rate and we go through all the savings

Starting point is 00:10:24 rate and how fast you can retire. We'll link it up in the show notes below. But understanding this that, hey, you save 50% of your income. The likelihood of you retiring much sooner is that much higher. It's usually like 17 and a half years at 50% of your income. Now, that may sound like a lot to you, and that's because it is. But you're willing to live like this for a short amount of time, so for the rest of your life, you can have that financial freedom. Now, we're going to talk about how you can actually increase that number so you can get to that point faster as well.

Starting point is 00:10:50 There's a bunch of things that you can do. But understanding that your savings rate is a massive part of this equation. Your savings rate is a huge part of this equation. So you can take your income and say, how much am I earning every single month net? How much is actually hitting my bank account? every single month and then how much am I putting towards investments or my emergency funds or my long-term savings goals this is how you can kind of figure out what your savings rate is so say for example that you make $10,000 a month for easy math and you save $2,000 per month and your savings

Starting point is 00:11:22 rate is 20% every single month if you save $3,000 a month it's 30%. If you save $5,000 a month it's 50%. It's easy math that you can work through so go through your bank statements see how much you made every single month last year. An easy way to do this is download the app personal capital. We have that linked up down below. And you can figure out how much you're making every single month and then figure out what your actual savings rate is. How much you're saving every single month because you want this number to go up.

Starting point is 00:11:47 Now, an easy way to do this, not everybody can start off with a really high savings rate. And savings rate are seasonal. Maybe you're in a season where you're making more money and you can save more money. Maybe you're in a season where you're making less money and it is very difficult to save more money if there's a job loss or if you're just struggling financially. then what you want to do is set your baseline savings rate and then increase that by 1% every single month. This reduces the pain points of a high savings rate all ripping off the Band-Aid immediately. I don't really think in personal finance in most situations that you should rip up the Band-Aid immediately for a lot of things.

Starting point is 00:12:21 So increasing that savings rate, looking through how you can save more money is incredibly important. Now, how do you increase that savings rate? You want to look at the Big Three first. Let's say you want to cut back on a couple of areas. well, the big three are the massive areas that you can cut back and make the biggest difference. This is housing, this is food, and this is transportation. If you can reduce in those three areas, more than likely, you can spend a lot more in areas that you care about if you don't care about those three areas.

Starting point is 00:12:46 So that's one massive thing. And in addition, we have an episode called the $1 million decisions that you should be making. And that is showing you all the massive decisions in personal finance that have a million dollar impact when it comes to the opportunity cost of those as well. So that episode, I would definitely recommend checking out if you want to increase that savings rate. And so growing this savings rate allows you to save more money over time. But there's another side of the equation as well that we'll talk through in a second. Now, when you're trying to figure out, hey, how much money should I truly be saving to have the optimal savings rate for my goals? Well, this is where the 4% rule comes into play.

Starting point is 00:13:26 Now, if you've never heard of the 4% rule, what that means is, is that you can draw down 4% of your portfolio, your money that's invested, and we'll talk about investments in a little bit here, you can draw down 4% of your portfolio without running out of money in retirement. Now, this is based on a study called the Trinity Study, and the Trinity Study had a bunch of little caveats in there,

Starting point is 00:13:47 like you're not going to draw down Social Security. There's a bunch of other extra things in there as well. But understanding this, you can draw down 4% of your portfolio to preserve your wealth. Some people think that's a little aggressive. Some people think that's not aggressive. enough. 4% is right smack in the middle. If you retire at the age of 25, maybe you should be drawn down 3.5% to be safe. If you retire at the age of 60, maybe you can draw down 4.5% and you'll

Starting point is 00:14:10 be fine. But the 4% rule is right smack in the middle. It's an easy number for you to understand because every million dollars, you can draw down $40,000 per year and preserve that in wealth. So let's say, for example, you want to live off $80,000 per year in retirement. You're going need $2 million invested to be able to do that. And so you can think through this, well, how much should I save up? So here's an easy way to do it. It's called the 25x rule. And the way that you look at this is you can look through how much money you spend every single year. So as you go through this process of seeing how much do I make every single year, what is my savings rate, how much do you also spend every single year? How much do you want to spend in retirement? So let's say right now you

Starting point is 00:14:48 spend $40,000 per year, which is extremely low in the country right now. And let's say, for example, you actually want to spend $80,000 a year. You don't like your lifestyle. You want to double it up. There's a lot more things that you want to do. You want to travel more. You want to eat more at restaurants. You want to do all these fun things. So let's say, for example, you want to double that up. So if you want to spend $80,000 a year, you're going to multiply $80,000 by $25, and the number you're going to get is $2 million. If you want to spend $100,000 a year, you multiply $100,000 by $2.5,000. million dollars if you want to spend 120,000 a year, then you need three million dollars and so on and so forth. So you can take your personal number because personal finance is obviously very

Starting point is 00:15:28 personal. It's location dependent as well. And you can take your number and figure out exactly what you need out of this point. So this is how you can set your first big goal. Your first big goal is how much money do I need in retirement so I have the goal in place so that I can go after that. I can go after that goal. I have the thing I need to chase. I have my why in place. I know how much money I need and I can go after this goal so that I can achieve financial independence as fast as possible. Because there's no rule that you have to work until you're the age of 60. There is no rule in the world like that. And most people have that ingrained in their brain, but you have the opportunity to achieve

Starting point is 00:16:02 financial independence. It is up to you. You can make the choice today. And you can be the first person in your family to do it as well. And that is one of those powerful things that you can do just by having a financial education. So that's how the 4% rule works. And the way that the 4% rule works is you got to make sure that money's invested. This isn't just having your money in cash or stuffed under a mattress like a drug dealer.

Starting point is 00:16:21 This is having those dollars in vested. So that is really, really powerful as well. Now, let's get into how to grow your income so you can get there faster. So the next one is growth of income. So we're going to talk about growth of income because what we're bringing together here is something called the gap. Now, if you've never heard of what the gap is, we talk about on this podcast all the time. It's the difference between your expenses and how much money. you make and the more you can grow the gap between your expenses and how much money you make,

Starting point is 00:16:52 the faster you can become financially independent. It's like fueling the fire. It's like throwing gasoline on a fire and the more gasoline you throw on a fire, the larger that fire gets. Well, that's the same thing when you grow the gap where you have extra income that you can put towards income producing activities. So that's investments, that's things like that. But what you want to do, and this is the biggest impact that you're going to see is you can only cut back so much when it comes to cutting back your expenses. There's only a certain point where you can cut back to. And most people aren't willing to go way beyond a certain point where you have to do drastic things to go way beyond a certain point. Instead of driving a car, for example, you got to start

Starting point is 00:17:30 riding around a bike downtown if you really want to save that massive amount of money. Well, instead, if you're not interested in doing that, you can increase your income. Now, we have a bunch of episodes on increasing your income. One of our favorite ones that we just did recently was the step-by-step framework to getting your first $100,000 a year. If you don't make $100,000, thousand dollars per year yet we have a framework talking through some of that as well but as we want to grow our income there's a bunch of ways to do it the first way to do it is at your job the day job that you work every single day so you want to learn how to negotiate your salary or negotiate a raise now we have an e-book linked up down below in the show notes that will teach you exactly how to do this or you can go to

Starting point is 00:18:08 mastermoney dot co slash resources our resources page is finally updated with all of our resources there so You can go to mastermoney.co slash resources, learn how to negotiate your salary and go through that process as well. So that is one that we are absolutely so incredibly excited for you to check out and go through that process. But here's a quick way to do it. As you meet with your boss, six months before yearly review so that there's no surprises, you have a conversation and tell them, hey, I want to go above and beyond. I want to earn more money. How can I do that? And then going through the systems and taking the steps that are in that ebook are the best way to do that.

Starting point is 00:18:42 So make sure you check out that ebook. The first place you want to do it, though, is at your job. And learning how to negotiate your salary at your job is one of the most powerful things that you can do there. But a number of studies done that people who learn how to negotiate their salary make well over a million dollars more than people who do not learn how to negotiate their salary and just get the standard raise that their boss gives them. So you want to make sure that you are doing that increasing the amount of money that you're making at your job every single day first. Focus on the skills that you have. Focus on yourself so that you can make more money. Number two, that's the big one, is giving yourself self.

Starting point is 00:19:13 education. This is one of the most powerful investments that you can invest in yourself. So learning how to do things so that you can earn more money. Developing your skills so that you can earn more money. Now this can be something where it will lead to a side hustle, which will lead to a business for a lot of people. This can be something where you're learning how to get special accreditations within your day job so that you can get those promotions. This could be where you're learning new skills where you can help other people. Maybe you're learning how to edit video so that you can start a video editing business. Maybe you're learning how to copyright. There's so many. different things that you could be doing, but learning and investing in yourself is so incredibly powerful. You could do this through podcasts. Like listening to this podcast right now, you're investing in

Starting point is 00:19:53 yourself. This is a free way to invest in yourself. You can do this through courses. You can do this through things like coaching. You can do this through all these different sorts of things. Books are my favorite way in the cheapest way by far to learn as well. So if you're really early on doing this, there are a bunch of fantastic ways to learn about financial independence. as one of the best financial independence books out there is called The Simple Path to Wealth. And they actually walks through all these steps that we're talking through here and also talks through a bunch of other concepts as well. Another one is your money or your life. If you want to learn about financial independence retiring early, that's another fantastic one as well. And there's

Starting point is 00:20:27 some other great ones like playing with fire is another great one that you can check out as well if you're interested in financial independence like what we're talking about here. So that's the first way is at your job. Then the second way is investing in yourself. The third way is through side hustles. Now, side hustles are one that we absolutely love here at the personal finance podcast because that is one of the ways that I got to my first $100,000 by the age of 25 is really investing my time to side hustles. And then a lot of those side hustles helped me develop skills that now I can use to make more money over time. So really working on figuring out what a side hustle you want to do is a really cool way

Starting point is 00:21:03 to actually make more money as well. Now, if side hustles aren't your thing, if your day job is really draining you and you make enough money or there's enough opportunity at your J job, then it's definitely worth it. to just keep pursuing that. And I'll give you an example of this. My wife and I, the only side hustle she ever had was with a Christmas tree stand that she and I did together.

Starting point is 00:21:21 But outside of that, she's never really had a side hustle and she really focused on her career and she really made leaps and bounds in her career and made a lot more money because she focused all of her time in her career. So not everybody needs a side hustle, but there are ways that you can leverage your time with side hustles.

Starting point is 00:21:35 And I love the internet. The internet is a fantastic way that you can leverage your time with side hustles. It's one of the best ways that you can do that as well. And we have a couple of different YouTube videos that came out. And we have podcast episodes talking about side hustles as well. We'll link up down below because I think those are going to be really helpful for you as you go through this process.

Starting point is 00:21:55 So these are some of the ways that you can increase your income and think through some other ways as well. If you guys have some ways that you love to increase your income that we didn't talk about here, shoot them over me on Instagram at Master Money Co. And we can talk about some of those as well if you guys have any questions. Now, another thing that we need to be doing with financial independence is protecting our wealth, and we're going to get into that next. I remember when I needed to hire someone fast, but finding the right person quickly felt impossible. And if you've ever been there, you know how stressful this can be.

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Starting point is 00:25:21 Conditions apply. So one of the core principles at mastermoney.com and here at the personal finance podcast is we talk about protecting your wealth. And we think this is incredibly important over time because I've had situations in life where my wealth has been interrupted and it really, really can cause your wealth building ability to slow down if you do not protect your wealth. So here is exactly how you can protect your wealth. The first thing you can do is develop a cash buffer. So if you have no wealth protection plan whatsoever,

Starting point is 00:25:47 what a cash buffer is is saving up a few thousand dollars so that you can take care of any emergencies in place. Now this is not your emergency fund. We'll talk about that in a second, but this is a mini emergency fund essentially is how you can think of it when you're first starting out. And this cash buffer is something that's going to save your butt so many different times. So how much do you need? Within a cash buffer, we think about this as having enough to cover at least your deductible. So you can look at your home insurance deductible, you can look at your car insurance deductible and your medical insurance deductible. And whichever one has the highest deductible, you just save to that amount. So say you have a car

Starting point is 00:26:19 insurance deductible that's two grand, you have a medical insurance deductible that's three grand and you have a home insurance deductible that's $1,500, for example. So then you're going to just save up to that $3,000 mark with your cash buffer. Now, that may sound like a lot to some people. That may not sound like a lot to some people. What this is going to do is at least cover you if anything happens as you start your wealth. building journey. The next thing you're going to do is build up that emergency fund. So your emergency fund is like three to six months expenses starting off and then we want to grow this over time. We'll talk about that later. But as your emergency fund gets into place,

Starting point is 00:26:49 you're going to have three to six months expenses of your monthly net expenses that you have within your household saved up into a high yield savings account. This money does not get invested. This stays safe in something like a high yield savings account. Which high yield savings account do I love. There's two that I love right now, one of which is CIT Bank. They have really high rates right now, so I have them linked up down the show notes below so that you can check them out. It's really cool that you can see some of the high rates on there if you click through to CIT Bank. The second one is Ally Bank. The reason why I love Ally Bank is their high yield savings account have what are called savings buckets. And inside of these savings buckets, what you can do is actually

Starting point is 00:27:28 budget your savings account inside of your actual savings account. So it has different categories that you can budget inside of the savings account. So for example, I have a bunch of different savings goals. So say, for example, you want to save up for a new car, maybe you want to save up for a wedding, say you want to save up to buy your first rent the property, and you want to save for your emergency fund. You can have different categories all in one account and save within that account. So Ally Bank is great as well.

Starting point is 00:27:50 Love that option with the savings bucket. They do an amazing job with that. So those are the two places that I would recommend right now that I look at for my emergency fund as in a high yield savings account. Now there's advanced strategies as well. If you have those two things, you are going to. be in really good shape. We talk about some advanced strategies as well, like having access to a he lock. So if you don't know what a heloc is, it's a home equity line of credit. And we don't want to

Starting point is 00:28:12 use this for anything outside of income producing activities. We're just having a safety net. So if you open a helock, what you can do is actually utilize that hel lock to protect you if anything major happens financially. If anything crazy happens, it's a home equity line of credit against your house that you can have open. You don't have to use it, but you just have it in place just in case. and then having access to a securities-based credit is another great option as well to have backup for that. And then I like to, as time goes on,

Starting point is 00:28:41 as I approach retirement, I like to have a larger emergency fund than most people. I don't stop at six months. I start to add a little bit more month over month because I just like to have more cash. You know why? Cash is a safety. Cash is a safety net.

Starting point is 00:28:54 And people will say, well, you can earn X amount more dollars if you put that in the market. And yeah, I put the majority of my cash in the market. The majority of the money that I make, I invest those dollars into things like the stock market or real estate. But at the same time, I like to increase that emergency fund over time and watch it grow. Why? Because once I hit retirement age, I want to have three years of cash in place.

Starting point is 00:29:16 That's just my personal goal. I want to have a few years of cash in place so that if the market has a downturn, I can just utilize some of that cash instead of pulling from my portfolio when the market has a downturn. Or if something happens, you have three years runway where you can take care of some certain things and take care of business as well. Now, you may not need that much. You may only want one year. You may only want the six-month emergency fund. It doesn't matter.

Starting point is 00:29:36 It's a very personal thing, but I like to have more cash on hand for that as well. Then, if you have dependents, people who depend on you, life insurance is a fantastic option. I use PolicyGenius for my life insurance. It's really, really cheap. It's term life insurance. I think I pay $30 a month at Policy Genius right now. And so it's an awesome option for you to get life insurance, especially if you have kids or

Starting point is 00:29:57 you have a spouse or people who depend on you. That's going to help protect your wealth as well so that you know they're taking care of. if anything happens to you. You do not want universal life insurance. You do not want cash value life insurance. Term life insurance is the cheapest if you're going for the cheapest option to cover you over time. We'll do an episode on that as well. I know a lot of you are asking for us to do an episode on life insurance.

Starting point is 00:30:16 We will do one on that as well. And then if you've ever worry about your identity being stolen or identity protection is a fantastic one as well. And then Delete Me is a service that we've used in the past. They partnered with us in the past. Delete me as a service that I absolutely love where it just helps you protect yourself online and eliminate your name, your phone number, all those things. So scammers can't get a hold of you online. That's another awesome option to protect your wealth as well. Now, let's talk about debt. Debt is a big one when it comes to financial independence. And if you have debt, we're not debt extremist,

Starting point is 00:30:46 like how Dave Ramsey would be. And I respect Dave Ramsey for a lot of things that he's done. I think Dave Ramsey has changed a lot of people's life. But at the same time, him and I are going to differ on debt and we're going to differ on investments. Those are the two things we're going to differ on. If you have really high interest debt, or any debt that is related to consumption, meaning you have credit card debt or you have debt that you got a loan on furniture, for example. Those are the types of debt we want you to get rid of when it comes to financial independence. And you want to be getting close to debt-free, if not debt-free, when you get close to

Starting point is 00:31:17 financial independence. But getting rid of that debt is extremely powerful because you can actually take those extra dollars that were going towards your debt and put them towards wealth-building activities. Now, the time that we are not against debt, this is the big piece we are not against debt, is one with your mortgage. If your mortgage is a situation where, you know, a lot of people don't want to front $400,500,000 in cash toward their mortgage, which a house is not that great of an asset anyway.

Starting point is 00:31:41 So really, in my opinion, it's not worth it to front so much cash towards your mortgage when you could be putting those dollars towards other things. Now, if you want to have a paid off house, that feels better to you, then that's a fantastic option. There's a lot of reasons to have a paid off house. That's not what I'm saying here. What I'm saying here is if you can't afford to pay for a house in cash and you're in the market to buy a house, then don't pay for it in cash.

Starting point is 00:32:01 And you can also rent still. Buying a house is not a great wealth building activity. Buying a house historically has had like a 3 to 4% rate of return. So understanding this early on and understanding that it's not really the best investment out there is going to be really, really powerful for you. In addition to debt, you know, paying off those high interest credit card loans. If anything is above a 6% to 7% interest rate, we want you to pay those off as fast as possible. That's called high interest debt.

Starting point is 00:32:25 Now, if you have low interest debt, say for example, for me, for example, I have a mortgage right now. I keep my mortgage on my house. Why? Because my interest rate is 2.7%. And so I have a 2.7% interest rate on my mortgage. So I'd rather take those extra dollars and put them towards wealth-biting activities, towards my investments, towards my emergency fund, those types of things. So if you're in that situation where you have low interest debt, I don't think you need to pay off your debt as fast as you possibly can. That's where Dave Ramsey and I differ. He wants your house paid off as in all your debt being gone immediately. I don't think so. In addition, I differ if you're going to invest in rental properties. I love.

Starting point is 00:32:58 the fact that you can utilize leverage when it comes to rental properties. So if that's something you're interested in, if you're interested in investing in rental properties, that's another fantastic option as well. Now, let me say this up front. Rental properties are not for everyone. They are not passive. It's not a passive thing that you can do. Even if you have a property manager in place, it is not a passive thing that you can do. But we'll talk about real estate here in a second, why it's amazing for wealth building. But at the same time, it's not for everyone. So don't just listen to real estate and think it's for you. If it doesn't fit your personality, it may not be exactly for you.

Starting point is 00:33:27 So eliminating debt is a big one. Now, if you have a lot of debt, we have a free debt course. If you go to mastermoney.com slash courses, we have a free debt course, and it's called Get Out of Debt Fast. And it is absolutely free. We're not going to charge people who are in debt to learn how to get out of debt because we want you to be financially free. And so you can check that out.

Starting point is 00:33:46 It is live now. We'll link it up down below as well. But having that debt course in place is really, really cool because it gives you a plan to put into place where you can pay off your debt as fast as possible. And I think you'd be surprised at some of the stuff that we have in there. We talk about the debt snowball versus the debt avalanche. We talk through all different things within that course as well. And it'll give you an option to put together a debt plan for your life.

Starting point is 00:34:10 So those are some of the things that you can think through and see exactly where they are. Now, underneath a limiting debt is also increasing your credit score. You want to have a good credit score. It's going to save you six figures over your lifetime if you have a good credit score because it's going to reduce the amount of interest that you pay on loans. And it's also going to help you with a bunch of other situations as well. but you've been listening to all this stuff. You say, hey, I've got all this stuff in place. How do I invest my money?

Starting point is 00:34:31 Well, next, we're going to talk about investing your dollars. All right. So the next question is, well, where do we invest our dollars? So investing our dollars is one of the most powerful thing that you can do. And every extra dollar that you have should be going towards investments once you have that fully funded emergency fund and everything else in place. So having this in place is going to be what you absolutely need to do. Now, investing is a whole entire.

Starting point is 00:34:56 deep subject. We have an entire course called Index Fund Pro that teaches you exactly how to invest in our philosophies on investing. So if you're interested in that, you can check that out linked up down below. But we're going to talk through investing here today as well in our philosophies on investing. So the first thing to understand is that a lot of people within the financial independence community, they invest two ways. One way they invest is with the stock market. In the stock market, we like to invest in things like index funds and ETFs. Why? Index funds and ETFs are historically proven. They have been around for a very long time. They return a steady rate of return over the long run to investors.

Starting point is 00:35:32 This is really important to understand because that steady rate of return is huge for people who have never invested before. And it's huge for people to understand that over time, even professional money managers try to beat the performance of index funds and ETFs. And the majority of them cannot do it every single year. So this is one of the most powerful things that you can look at. So what is an index fund? An index fund is something where you buy an index, meaning you are by,

Starting point is 00:35:56 buying a basket of stocks. And typically within that index, we can take the S&P 500, for example. This is the 500, it's actually a little over 500 companies, the 500 largest companies within the U.S. stock market. So this is companies like Apple, Google, Facebook, Tesla, Amazon, all the massive companies, Netflix, Johnson & Johnson, Procter and Gamble. You can think of all these massive companies all within one basket. And you're buying all of them at the same time. And the cool thing about this is when you buy an index fund like this, say, for example, one of those companies isn't doing so hot and it starts to tank. Well, if it starts a tank, it's not part of the 500 largest companies anymore. The S&P 500 is going to drop it and bring in another strong company

Starting point is 00:36:37 into play. So that's the power of having index funds and ETFs. Now we have an index fund an ETF cheat sheet that you can check out. We'll link it up down below as well. That is at mastermoney.com slash resources as well so you can check out the index fund and ETF cheat sheet. And we also have index fund pro like we talked about earlier. which is our course on investing in index funds and ETFs. Now, the big thing to understand, though, is once you understand what you want to invest in, what accounts do I put this stuff in?

Starting point is 00:37:03 How do I actually figure out where to put this money? So what you want to put this in is something like a brokerage account. So we, here in the financial independence community, we love to talk about having things like retirement accounts. So you can think of this as like the Roth IRA, the Roth 401K, your 401K, your IRA. There's a bunch of different things out there. Now, you may have heard of these terms,

Starting point is 00:37:24 firms and they may sound like crazy talk to you. So here is what these are. And I'm going to give you some of these orders on these as well. I love Roth accounts personally. So I love the Roth IRA and I love the Roth 401k. Now the Roth 401k is probably one of my favorite accounts out right now because you can get so much more money into the Roth 401k. And a lot of employers, I read recently that 80% of employers are actually opening the Roth 401k to a lot of their employee. So this is a really powerful thing that you can do. So the first thing you really want to do is get that employer. employer match with whatever 401k that you have. So an employer match is when your employer will actually match the amount of money

Starting point is 00:38:01 that you put into this account up to a certain percentage. So say, for example, your employer says, I will match it up to 3%. So you put 3% of your earnings in, and then they will put 3% in. You do this first always, and you always do this. Why? Because it's 100% return on your money. This is free money. And I love free money.

Starting point is 00:38:20 Do you love free money? Because that is the absolute thought process you should take. Like always take advantage of your employer's match no matter what. That's the first thing you want to do. So if your employer has a 401k, talk to your HR department and say, hey, how do I take advantage of my employer's match if you've never done it? Then what you want to do is you want to invest and figure out which retirement accounts you want to have.

Starting point is 00:38:40 If you're a really, really, really high earner, maybe a 401k is your best option. If you are an earner where you don't make as much, maybe a Roth 401k or the Roth IRA IRA is your best option. But thinking through these options and saying, hey, I want to get some of these dollars in these retirement accounts so that I, can grow them over time. Now, we have episodes on each of these accounts where you can deep dive into how they work. But a quick example, if it says Roth in it, what that means is that you're putting money in that you've already been taxed, money that comes in your paycheck. Your paycheck has

Starting point is 00:39:06 already been taxed. The money grows tax-free inside of this account, and you can pull the money out tax-free, meaning you're not paying taxes on capital gains inside of a Roth IRA. This is powerful for a number of reasons. One of the biggest ones is we don't know what tax rates are going to be in the future. In addition, if you think your tax rate is going to be much higher in the future, this is another great reason to put your money in a Roth IRA or a Roth 401K. Then we have the IRA, which works the same as a 401K. So the traditional 401k or a traditional IRA means that your money goes in before it's taxed, then your money grows, and then when you pull the money out, you pay taxes on that money. So you're going to be paying future value of taxes. We don't know what taxes

Starting point is 00:39:43 will be in the future, but you'll be paying whatever your tax rate is in the future, you're going be paying that amount. So this is the difference between the two. I love Roth's first, and then I go to my traditionals, but it depends on your personal situation as well. We have something called the stairway to wealth, which walks you through some of these steps. The stairway to wealth, you can go to mastermoney.com slash resources and find the stairway to wealth there, and that is a great spot for you to check out exactly how this works. The second way to invest, and a lot of people within the financial independence community will invest this way as well is with real estate. Now, real estate has made many, many, many millionaires.

Starting point is 00:40:20 In fact, real estate and 401Ks are probably the two ways that have made the most amount of millionaires. In fact, the Ramsey Solutions did a study on 401K owners and said Ramsey Solutions did a study and they studied 10,000 millionaires and 90% of them became millionaires inside of their 401K. So that tells you how powerful that 401k is. But we also know that the majority of millionaires in this country became millionaires investing in real estate. Now, there's a number of different ways that you can invest in real estate. We did an episode talking about 17 different ways that you can invest in real estate,

Starting point is 00:40:53 but some of the different ways that you can do it is with single family homes, investing in single family homes. You can invest in multifamily homes like apartments or small multifamily homes. You can invest in mobile home parks. You can invest passively in things like REITs or things like fund rise. There's so many different ways that you can invest your dollars into real estate, but a lot of people in the financial independence community like rental properties. Why? Because you can pick your number that you need to retire with. You can pick your cash flow number and say, how much do I need to cash flow with to be financially independent? So say, for example, you need $8,000 a month to be financially independent. And you find a bunch of different rental properties that are going to cash flow $500 a month, for example. This is just for easy math. Well, you'll need 16 properties to become financially independent. I like to do both. What do I mean by that? I like to invest in real estate and I like to invest in the market. Doing both is a really, really powerful thing where you can have the best of both worlds and still. be able to get to that point as well. What about crypto? What about all these other things? Gold,

Starting point is 00:41:50 all these other things? Well, those don't have intrinsic value. So if you want to invest in those things, 10% or less of your portfolio, 5% is ideal, but 10% or less of your portfolio so that you can utilize these dollars for historically proven assets is the way that we do it here at Master Money in the Personal Finance podcast. So that's how you invest your dollars. Getting as many dollars as you can into these accounts is incredibly powerful. Why? Because compound interest is going to start to work for you. And when compound interest starts working for you, then your money is working for you every single day. This is making money while you sleep. You hear people say that all the time, but how do you actually do that? This is how you do it. You put your dollars into assets that are going to grow

Starting point is 00:42:28 over time and understanding that you don't want your cash idle, unless it's for an emergency fund or a short-term savings goal, you want to be funneling cash into these investments so that they can grow faster for you over time. Because the faster that money grows, the sooner you can become financially independent, the sooner you don't have to work at that day job you hate anymore. And now you can become financially free. And this is what we are trying to teach you here at the personal finance podcast. If you guys have any questions about this, make sure you hit us up on Instagram or TikTok at Master Money Co. And if you're interested in learning how to invest, make sure you check out Index Fund Pro. Linked up down the show notes below, you can learn exactly step by step on how to invest

Starting point is 00:43:05 inside of Index Fund Pro as well. And if you guys are getting value out of this or you know someone who would get value out of this, share this episode with a friend or leave a five-star rating and review on Apple Podcasts, Spotify, or whatever podcast player that you listen to as well. Thank you guys so much for listening to this podcast episode. I truly appreciate each and every one of you. You guys are the best and I will see you on the next episode. Rosen lasagna, medium power, 15 minutes. Sounds like Ojo time.

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The Personal Finance Podcast - The Complete Beginners Guide to Financial Independence (and Quitting Your Job Early!)

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