Eight Short Rules to Achieve Financial Freedom (Without Selling Your Soul)
Rule #7 – Linear versus exponential wealth
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Financial freedom is a powerful feeling.
It gives you a level of freedom and peace that’s hard to describe. When I reached it at 34, it changed my life. There are a few rules that got me there at such a young age (not to brag). Let me share these rules with you.
Rule #1 – Understand store of value and purchasing power
The way money works is a mirage.
The two concepts you must understand to ever be wealthy is…
One: Purchasing power
We earn an income in a government-issued currency. I earn in USD.
What a lot of people don’t understand is the value of your money is largely determined by how much of that currency is in existence. If you have $1000 and then the government creates $1 trillion more of that currency, your money is worth less.
You might think that can never happen. Yet it happens every day.
Central banks and governments can literally create more money out of thin air. When they do your purchasing power is reduced.
This is a concept 99% of people don’t understand. You can see it, for example, happen in real-time in the U.S. by googling M1 and M2 money supply.
If your income doesn’t keep up with the devaluation of your money, you end up poorer and financial freedom is impossible.
Two: Store of value (currency)
Our energy and time is invested in our work.
That work creates an income that’s paid in government currency. Once you have that currency you can choose how to store your wealth.
Some store their wealth in a savings account and earn peanuts.
Some store their wealth in real estate, Rolex watches, or artwork.
Some store their wealth in stocks, bonds, or even crypto.
The point is most stores of value are horrible when you factor in inflation, currency devaluation, and your purchasing power.
Someone might say they made 7% this year on their stock portfolio. The problem is they are measuring that gain in a government-issued currency. They also don’t factor in taxes or inflation. If they did they would learn what Wall Street knows…
Most stores of value go down in value over time.
What’s the solution? You need to understand what the real return is of an asset or store of value, not what you’re told it is. Plus you need to do this…
Rule #2 – Taking calculated financial risks is crucial
Most people who do invest their money never take any risks.
They keep their cash in bonds, index funds, and real estate. Because they take no risk it takes 40+ years to get wealthy. And even then most of them never reach financial freedom. The solution I found is to dial in a bit of high risk.
This doesn’t mean you invest your life savings into something risky like Bitcoin.
It means you consider investing 1%-5% of all your cash in riskier investments that traditionally produce bigger returns.
I originally put about 5% of my net worth into cryptocurrency. Yes, it’s risky, but if the investment went to zero it wouldn’t matter to me.
That one decision increased my yearly financial gains from 4%-5% all the way to above 25%. When you see these opportunities you can’t unsee them. A tiny risk can be responsible for a huge amount of your investment growth.
Taking no risks is the biggest risk of all to your financial freedom.
Rule #3 – Use money to make more money
When I make money I use it to make more money. I’m not joking. Today I had a deposit to my bank account of $12,000.
$8000 immediately went into financial assets that pay me cash. Some people use their paychecks to buy the next cool thing.
The mindset of financial freedom (aka F U money) is to use money to own more assets that make you free. That’s the ultimate definition of coolness because you’re a slave to no one and don’t need to roll up to back-to-back Zoom calls all day.
Rule #4 – Cutting costs won’t make you rich
Too many people focus on cutting costs. They waste time looking for deals and asking for discounts. None of these things will make you wealthy.
I don’t know a single 7-figure creator online who got to where they are by eating beans and rice to save money and asking every person they encounter for a discount or freebies. All of them just chose to make more money.
They focus on ways to make more money and increase income.
When you make that subtle change the price of everything isn’t as important. In fact, you enjoy paying good people/businesses high prices because you value them. And you tip like a newly minted lottery winner whenever you eat out.
This is the way to live. This is freedom. This is the new definition of wealth.
Rule #5 – Start conversations with strangers
This one might seem odd.
Financial freedom happens when you make more money than your bills. To increase your income you’ll need new opportunities - which isn’t always obvious. Those opportunities come from humans.
Once this makes sense then the solution is to meet more high-value humans. I’ll give you an example. One of my neighbors has this massive warehouse in his backyard. He makes delicious desserts 24/7.
It may not sound like a good business but he’s one of the richest guys I know. He has more fancy cars than I’ve ever seen.
We met because one day I walked past his house. He was walking to his car and I said “Wow, there’s a lot of cars parked in your street.” That sparked a conversation. He went on a rant to tell me why there were so many cars.
Then he invited me to take a look at his warehouse. He took me through all his prized possessions and shared his life story.
Now we’re friends. He calls me to talk sh*t. And I’m trying to get him to manufacture a line of vegan deserts. You can see where this is heading –
If you do this enough times eventually you’re drowning in opportunities. And when you have a problem you have an expert to go to. If I need to know anything about food manufacturing, I have someone I can call.
The one caveat is you want to start these conversations in the right place. I wouldn’t, for example, go to the Tenderloin in San Francisco and do this. The only opportunities there are to deal drugs.
Random conversations equal more financial opportunities.
Rule #6 – If you reduce this major expense, everything gets easier
Saving money is generally a waste of time. There’s one exception: where you live.
If you move to where the living costs are lower and get out of the big cities, you won’t need to earn as much money.
When I went to visit friends in San Francisco at a cafe it cost me $18 USD for a green smoothie. It’s no wonder none of these friends have any free cash or freedom.
They got the job at some big tech company but they also have to pay a huge price for the bragging rights. It ain’t worth it. Get your housing costs down and financial freedom will happen sooner.
Rule #7 – Linear versus exponential wealth
The standard boring job pays a fixed amount of money for the number of fixed hours worked (often those hours can increase whenever for no extra money, too).
Your wealth under this model increases *linearly* over time. To reach financial freedom you’ll need your wealth to grow exponentially over time instead.
Wealth that grows exponentially comes from passive income, side hustles, side businesses, full-time entrepreneurship, V.C./angel-type investments, Web3, and the 7 biggest U.S. tech stocks (on the Nasdaq).
If exponential wealth options make no sense, like they did to me back in 2011, it’s time to start learning how this world works. And…
Avoid a linear income at all costs.
Rule #8 – Early retirement isn’t your goal
This last rule is also out of place.
To reach financial freedom you have to understand why you want to do it. Many people screw this up. They think they want financial freedom so they can retire early and never work again.
That’s not the goal. Financial freedom gives you the option but not the obligation to work – and there’s a big difference. When you reach financial freedom what you’ll realize is you don’t want to quit work forever. No.
You want to do work you choose that brings you joy and fulfillment and isn’t solely about how much it pays.
When I quit my job 2.5 years ago, I thought work was done with.
Within a few weeks I was right back to working again, except this time around it was done out of obsession and joy. That’s the power of financial freedom and that’s the worthy goal you should aim for so you have the right motivation.
There’s only so long you can lounge on the beach with bottomless cocktails before you get bored and wonder what everyone else is doing at 10 AM on a Monday.
(This article is for informational purposes only, it should not be considered financial, tax or legal advice. Consult a financial professional before making any major financial decisions.)
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I went through this and I'm like wow this feels like reading one of MJ demaco books
Making money from your money is both art and science, and almost impossible for most people to master. I don’t advise using financial advisors (waste of money), but you should learn as much as you can. You might want to investigate the Bogle method for starters. Its basics are easy for new investors.