“Money is my biggest source of stress.”
As a financial professional who has spent much of my life writing about and advising people on their money habits, this is the sentiment I hear most often. While most people deeply desire a stable financial future, very few have defined what that future looks like and how they can achieve it. The result? Money Stress dominates their life.
I spent this spring traveling the United States, speaking with entrepreneurs, millennials, parents, and small business owners from New York to San Francisco. In every city, I heard countless stories from talented people who are creating innovative solutions for the future while admitting they haven’t devoted the same attention to forging a solid financial future of their own.
Why we need a Money MindShift
Their stories are all too common. According to a U.S. Federal Reserve Board survey, more than one-third of Americans report they are just getting by financially or struggling to do so, and 20 percent of Americans are spending more than they earn. This means many Americans are not saving for retirement and lack a Security Buffer for unexpected expenses like job loss, personal injury, a health crisis or a death in the family.
As a result, money and work rank as Americans’ top stressors, and they’re taking their toll on our mental and physical health, as well as personal relationships.
While none of this is good news, it does makes sense. Our culture’s love affair with on-demand, instant gratification products and services makes planning for their financial future increasingly difficult. Unfortunately, this also means money worries prevent people from living a truly happy life and spending their time in meaningful ways.
But here’s the silver lining. Personal finances are about personal choices. And by making the decision now to change your financial habits, systematically building up a financial surplus to alleviate your current money stress and also create an investing plan to sustain your financial future is possible. In fact, your overarching goal should be to achieve Financial Freedom. That is accumulating enough investments to produce the income you need to cover your living expenses. The outcome? You no longer have to trade your time for money.
How (and why) I bought back my time
My family does not come from wealth. Born in Rhodesia (now Zimbabwe), my family escaped the civil war when I was five. My parents moved my two brothers and me to South Africa, and we arrived at the height of apartheid. A few years later, amid escalating violence in the country, my parents decided to relocate to Australia. We arrived with a couple thousand dollars in savings. My parents set out to once again rebuild financially.
My father worked as a hairdresser, and my mother returned to the workforce for the first time in many years. Barely able to make ends meet on their two modest incomes, the financial strain took an enormous toll on my parents. Ultimately, this led to their divorce.
Witnessing my parents’ money distress, I vowed to study hard and become a doctor, so I could avoid a similar financial fate. But during my time at university, I examined the path I was on. I looked closely at physicians who were 10 to 15 years ahead of me. And while I admired their professional dedication, they worked incredibly long hours and often suffered poor health. There were also faltering relationships with their partner or kids. They lived a champagne lifestyle, splurging on luxury cars and expensive houses but most were in debt.
Possession-rich but time-poor
Then I realized. These people were possession-rich but time-poor. I also realized that, for my personal happiness and well-being, the most precious thing I could buy was my time. At that moment, I dedicated myself to figuring out how to buy back my time and become Financially Free. My aim was to create a financial future where money was coming in without me having to work for it. I would be free to choose how to spend my time.
With the help of a mentor, I left medicine and bought back my time at age 27. I became a serial entrepreneur and the founder of several successful businesses. Most importantly, I’ve spent quality time with my wife and two sons.
At 39, I faced another turning point when I was diagnosed with a coronary artery aneurysm requiring an open-heart bypass operation. Being confronted in a very real way with my own mortality made me think with a newfound urgency about how I really want to spend my time.
In the short term, I wanted to make sure my sons had all the knowledge they needed to safeguard their own financial future. After years of studying and working in financial planning and investing, I decided to distill and share those lessons with my sons in a series of books.
In the long term, I wanted to help others beyond my own children so I decided to start a company with a cause: Help people move beyond money so they are free to live a happy, financially healthy life, and able to fully contribute their talents and passions to the world.
You can’t work forever
Like death and taxes, aging is an undeniable fact. At some point in everyone’s life, you won’t be able to work. You’ll need to rely on your own funds, or expect charity, the government and/or family to support you. But the current systems in place to sustain those who are no longer able to work are failing. Social Security benefits are likely to be reduced or delayed, and less than a third of Americans between 65 and 74 have any savings in a retirement account to supplement Social Security.
To financially secure your future self, you need to chart a path to achieve Financial Freedom. The phrase might sound daunting, but the concept is simple. You need to know exactly what you need to cover your expenses and lifestyle
Once you’ve identified your Freedom Number, you know your start point (your financial status today) and your end point. The next step is to map out the path to both cure your current Money Stress and lay the groundwork for your future Financial Freedom.
That might sound unwieldy, but I’ve broken the journey down to just four steps.
Four steps to Financial Freedom
Pay Yourself First
The first bill you should pay every paycheck is your future self. Yes, before the rent or mortgage—even before you put food on the table. Our future self is someone most of us rarely think of, but ought to, and paying your future self first is about bringing that person into the present.
Live On What Remains
Don’t go into any more debt. Take a realistic look at your current lifestyle and expenses, and plan your spending so you’re Living On What Remains. What do you need, and what do you want? The difference is critical. The typical middle-class client I work with sends 40 to 50 percent of their paycheck straight to the bank for their mortgage, car loan, credit card and other loan payments. Breaking this pattern is key. Because paying the bank prevents you from paying your future self.
This step has three parts: First, build an Security Buffer that protects you financially. Just in case you lose your job or must leave work due to illness or another emergency. Second, purchase the appropriate amount of personal insurance. Third, accelerate paying off your debt so you have more funds available pay to your future self.
Send Your Money To Work For You
Investing your money so that it produces Cash Flow is the final step. Too many people focus on net worth—the money and assets they own right now. They put money away to build a comfortable nest egg, but it doesn’t grow in value. Financial Freedom comes from Cash Flow, not from net worth. Net worth may give you bragging rights around the barbecue, but investments that pay you a passive income give you Financial Freedom.
Design your financial future today
From decades of working with individuals, families, entrepreneurs, and small businesses to achieve Financial Freedom, I’ve encountered plenty of naysayers. Some protest that their life is too complicated to develop, and stick with, a systematic plan. Others insist: “It’s not possible to pay myself first!” But having worked with thousands of people, I know .almost everyone has the capacity to better their financial habits. Even if those changes are small.
Consider Nathan and Kay. Several years ago, their daughter required medical procedures that resulted in exorbitant expenses. Devastated, stressed, and in debt, Nathan and Kay asked if I could help them implement the four fundamental steps. In a matter of six weeks, they started paying off some of their debt and saving money. They also created a plan for eliminating their remaining debts and building up their Security Buffer. Not long after their ordeal, they were even able to get away on their first vacation in years.
Nathan and Kay’s story underscores an important point. Securing your financial future is about starting where you are and making incremental improvements over time.
Are you thinking you don’t have enough time to reach your Freedom Number? Stop! Don’t let perfection be the enemy of good. Doing something is far better than nothing. And accumulating investments that generate enough income to cover even some expenses is a great help.
Personal finance advisers frequently admonish people that the best time to plan for the future was 20 year ago. I would counter that the second best time is today. The day you start is the day you start to be better off.
It’s time for a Money MindShift.
Dr. Tony is the co-founder of MindShift.money and the best-selling author of three books on personal and business finances. Having achieved Financial Freedom at 27, Dr. Tony believes that through Financially Fit Bootcamp and Cash Flow Cure everyone can get there. He has made it his life’s mission to help others live a life where their money works for them—not the other way around.