Name: Buy This, Not That
Rating: 4.1 (354 reviews)
Author: Sam Dogen

What’s in it for me? Making the right decisions will help you achieve financial independence.

If you’re reading this Blink, you’re probably into the idea of financial independence. Who isn’t, right? But before you start working toward this goal, you should first understand why you want it. What exactly do you want to achieve? What does financial freedom actually mean to you?

Perhaps you’re seeking it for health or well-being. Financial independence can mean freedom from job-related stress and financial worries. Or maybe you want to feel secure about your ability to afford a hospital bill if you or a loved one falls ill.

Maybe you, like many others, are concerned about job security. Are you worried your boss doesn’t like you? Are you in a cut-throat industry and afraid a colleague might (figuratively) stab you in the back? Does your position mean a company merger could result in you being made redundant? Perhaps, generally speaking, job security just doesn't seem as easy to come by as it used to. Financial independence would give you the freedom to work not because you need to but because you want to.

Or maybe you’re looking at the state of the world and the economy right now, and are worrying about a possible recession. Well, financial independence would give you the means to ride out that storm.

Of course, there are many other reasons you may be seeking financial independence. You might want to make your parents proud, for example. Or maybe you’d like to spend more time with your children or not work for a company that stands against your principles.

This Blink to Buy This, Not That, by Sam Dogen, explores some of the considerations you should be making in your quest to achieve financial freedom. It answers questions like, How should I allocate my savings between financial assets? How much should I invest in real estate? What about my car? And, perhaps surprisingly, Where does love fit into the equation?

Let’s get started!

In this Blink, you’ll learn

the order in which you should tackle your debts;
how the 30/30/3 rule for buying real estate works; and
why you should invest in education – and love.

Tackle your debts, and avoid the temptations of buy-now-pay-later offers.

Take a moment to think about your monthly income and how you use it. How much are you able to save each month? What are you doing to leverage your income toward achieving financial independence? What is financial independence?

First things first. Sam Dogen defines financial independence as being one of two things: either you have a net worth that’s 20 times greater than your average gross income, or you have sufficient investments to generate enough passive income to cover your expenses. Ideally, you have both.

How soon you become financially independent depends on the work you’re willing to put in, how much you save and invest, and how much risk you’re prepared to take. Again, think about your savings: if you can save 50 percent of your after-tax dollars, that’s the equivalent of one year’s living expenses. Seventy percent gets you two years’ living expenses. And if that’s simply not an option right now? At an absolute minimum, save 20 percent, and you’ll have one year’s living expenses within four years. The wise choice is to save and live frugally in your early years to reap the rewards later.

You need to earn, save, invest, and plan if you’re going to achieve financial freedom. But before we get into how to invest, we first need to tackle a thorny subject: debt.

Many of us get into debt because we try to live a life we simply can’t afford. Buy-now-pay-later offers are around every corner, tempting us to skip the hard work and go straight for the rewards. But giving in to them is a surefire way not to achieve financial independence.

Of course, debt is sometimes unavoidable – there’s a catastrophe, unexpected medical costs, or, as a single parent, your finances are just stretched too thinly. But if you’re serious about your quest for financial freedom, paying down debt must be your top priority.

Where do you start? Credit cards. Average APRs are around 15 percent, but some are as high as 29.99 percent. So pay off your cards immediately, and only use them for rewards and insurance. Never ever carry a balance forward – you’ll just find yourself being ripped off by the credit card companies.

Next, you should tackle your car debt. Your car depreciates in value every month – even if your car loan interest rate is low. Follow “the one-tenth rule for car buying.” That is, don’t spend more than one-tenth of your gross annual income on purchasing a car. After all, driving around in your five-year-old, more-milage-on-the-clock-than-I-care-to-mention hatchback won’t kill you until you can afford to buy your spiffy, new car outright!

Third, get your student loans cleared. If you haven’t yet been to college and would like to pursue a degree, choose a school that’s affordable. That way, you can pay off your loan within four years of graduating.

Finally, think about your mortgage. This is a complex area, which we’ll delve into in the next chapter.

Design an investment strategy that will maximize your wealth potential.

Like with most things in life, you need a plan if you want to achieve financial independence. It’s important to consider where and when to invest your savings to maximize your wealth. The more you save, the sooner you’ll achieve financial independence. You should also contribute the maximum to your country’s tax-advantaged retirement accounts and, at the same time, build up your taxable accounts as much as you can.

Where to put your money depends on your life stage and circumstances – but aim to own stocks, bonds, and real estate. Put a small amount of your savings into risk-free assets as an “emergency fund” too. Later, if you want to diversify, consider alternative investments such as art, wine, farmland, cryptocurrencies, and collectibles.

Achieve financial independence earlier by optimizing your career and getting a side hustle.

When you’re young, your career fuels your ability to invest – which in turn generates more cash and eventually leads to your financial freedom. Ideally, you want a well-paid job that you love. But if you can’t find a job you love, make sure that you’re at least well-paid for what you do. You can always do the things you love in your own time.

Use the first 21 years of your career to build the best foundation possible. This will then give you more options when you’re in your forties.

Get yourself an education, and don’t forget about love!

In the final chapter of this Blink, we’ll turn our attention to education and love.

Let’s look at education first. More than anything else, education sets you free. It helps you make choices in terms of your career path, investments, and life partner. It also helps you build your business and feel more confident. Ultimately, it helps you be happy.

Key ideas in Buy This, Not That

About the Author

Sam Dogen, the creator of the hugely successful Financial Samurai, is retired. He achieved his retirement at the remarkably early age of 34 after working in a top investment bank and going to business school part-time. His motivation for writing Buy This, Not That was to offer tips and advice to anyone looking for financial independence.