Financial Freedom summary

Einstein is quoted as naming compounding the eighth wonder of the world. Compounding makes the value of your money increase over time, even if you don’t add another cent to your investment account. This happens because every dollar in your account generates interest. If you don’t withdraw that interest, it generates its own interest, essentially giving you free money!

When the author Grant decided he wanted to save $1,250,000, it wasn’t because the word “millionaire” had a nice ring to it. It was the minimum figure he needed to invest, so that he could live comfortably off the compound interest. He worked out how much money he needed every year, and then used that as the basis for calculating his savings target.

Whether you’re heading somewhere special on vacation, launching a new business, or embarking on parenthood, every journey has a starting point. On the path to financial freedom, that starting point is your net worth – or your overall financial value.

When it comes to maintaining financial independence, your net worth is the most important figure. This is because it will guide your financial strategy. It acts as the reference point, telling you how far you have to go before you reach your savings target. Without it, you’re like a boat without a rudder.

Chances are, you make small comfort purchases every day, like that morning coffee before you hit the office. Often these rituals don’t add up to much, and they inject joy into your day.

But when you’re working toward financial freedom, you have to change the way you value what you purchase. An item’s true cost isn’t its ticket price. It’s the number of hours you have to work so you can buy it. And don’t forget, the ticket price includes tax, but your take-home pay doesn’t. To buy that $3 coffee, you actually have to make $4 pre-tax.

Budgets are a bit like diets. With temptation lurking in every shop and online store, they’re easy to break. And when you break them, you feel so guilty that you often give up altogether.

The problem with budgets is that they give you the impression that money is scarce – by forcing you to account for every cent. But budgets rarely help you save significantly anyway, since small savings are typically overshadowed by the larger, ongoing costs.

For many of us, the workplace is an island we visit five days a week. When we return to the mainland, we try not to think about it. Even if we love what we do, we want to spend our precious nonworking hours with our loved ones, and pursuing our passions.

This mindset is completely understandable. But when we see our jobs in a bubble, and not as part of our wealth-building strategy, we cheat ourselves of opportunities that support our financial goals.

Meet Matt, a full-time graphic designer based in Chicago. Matt loves his job, which pays $55,000 a year. But there’s more. At just 25, Matt’s on track to having $1.5 million saved by his 30th birthday. All thanks to the dog-walking business he set up, just three years prior.

As a cash-strapped student, Matt started charging dog owners $5 a walk. At first, he was only walking about ten dogs a week. But then more pooches moved into the neighborhood. He was so overwhelmed with business that he had to hire people to meet demand. Now, Matt has all the benefits that come with nine-to-five employment, plus a side business that brings him an extra $200,000 a year that he can save.

The author’s journey to financial freedom began with him realizing he had to do something different. But it’s no easy task to be a pioneer.

Grant lost his job in 2010, due to the recession. Before that, he had enjoyed boozy Saturday lunches with his friends, followed by a nap. But to reach his savings target, he had to cut these back to once every two-to-three months, and instead use the time for his side businesses.