Saving For Freedom

Because No Money, No Freedom

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“Life shrinks or expands in proportion to one's courage.” ― Anais Nin

A lesson I learned early on in life is the importance of financial independence. Growing up, I witnessed how my narcissistic, violent father used my mother's economic dependence on him to control her, and I vowed that this would never happen to me.

My mother's situation is not unique. I have come across many people with similar stories, trapped in a toxic relationship, unable to free themselves with financial dependence a significant factor.

It breaks my heart to witness this, especially when children are involved. My siblings and I suffered decades of abuse because my mother was not able to extricate herself, and in my heart of hearts, I do not want to see this happy to anyone else.

“You must gain control over your money or the lack of it will forever control you.” ― Dave Ramsey 

My mother's need for financial security is understandable. However, her strategy of staying with the abuser to meet this need is suboptimal. Instead, I wish she met this need by earning, saving, and investing wisely, so she has the option to walk away from my father and take us with her. 

I am writing this article with the hopes of empowering everyone to become financially independent, so we can all make the best decision for ourselves and the people we love. 

“Real wealth is not about money. Real wealth is: not having to go to meetings, not having to spend time with jerks, not being locked into status games, not feeling like you have to say ‘yes,’ not worrying about others claiming your time and energy. Real wealth is about freedom.”James Clear

My parents and school did not teach me how to manage money. Everything I know, I learned by myself. When I moved to the United States at age 20, I did not have a penny to my name, but I worked, saved, and invested diligently, so I do not have to worry about finances.

Life gives us enough to deal with without compounding it with money issues.

The method I share here is not a get rich quick scheme, but it guarantees success. If you struggle with saving or investing money, this article is for you. Financial freedom is achievable, and sooner than you think possible. What is required is focus, discipline, and consistency.

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Start with Saving

“Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't... pays it.” ― Albert Einstein

To get anywhere financially, we must save. Americans as a whole, unfortunately, have become a nation of woeful savers, so much so that nearly half of us have trouble scrunching together $400 for an emergency. Our gross national savings rate ranks number 113 in the world, lagging behind a long list of poorer countries like India, Ethiopia, Philippines. This trend of ever-lower savings rate is worrisome. 

To have money, we must save and aim to save as much as is reasonable. Without savings, we cannot invest and watch the money grow.

Small Amounts Matters

Einstein believes that compound interest should be the 8th wonder of the world. Compound interest is why money balloons like a snowball rolling downhill. Per the rule of 72, if we invest money at a 7% annual return, it will double every ten years. 7% is a very reasonable return to expect - the US stock market as a whole returned about 10% a year in the last decade.

In real terms, that pair of jeans we want to buy for $30? If we invest it instead, in 10 years, we'll have $60, and in 40 years, when we're close to retirement, we'll have almost $500. That $5 daily coffee habit? In a year it adds up to $1,800. If we invest the $1,800 annually, it grows to $400k in 40 years, a sizable chunk by any measure!

A mistake that people often make is believing that small amounts don't matter. In reality, everything counts in light of compound interest. Money invested early in life, in particular, has an outsized impact on how much money we have later in life because it has more years to grow.

Buy Less "Wants"

To save more, we have to understand the difference between needs and wants and ruthlessly curtail spending on the latter. 

We need a place to live, clothes to wear, and enough food and water to maintain our health—these are what we need to survive. Outside of this list, most things we buy are wants. 

If we have difficulty curbing discretionary spending, we need to budget monthly expenses and stop spending when we hit limits. We should also always pay ourselves first - set aside a portion of our income for savings and have that money directly deposited from our paycheck to an investment account. This way, we never see that money and are not tempted to spend it.

Make Spending Money Less Fun

To curb the urge to spend, increase the impedance to purchase, so it is less enjoyable to spend. For example, we can cancel Amazon Prime, so orders arrive slower, removing the instant gratification Prime provides (see Amazon Prime members buy way more than other buyers). We can create even more inertia to buy stuff by making ourselves wait a week before purchasing any non-essentials, so we have some time to cool down.

Use Our Creativity To Save Everywhere

We can examine our spending across the board to find ways to save. For example, we can cut gym costs by buying Costco's 2-year 24-hour fitness membership, which costs half of what we would pay by paying for membership monthly. This switch alone saves $500 over two years. We can also skip the gym altogether by working out to free online videos or run outdoors. It just requires some flexibility and creativity on our part.

The opportunity to save is endless, but for maximum return on our effort, look at areas of recurring spending. Internet bills and phone bills are great places for us to negotiate lower rates with the provider. Instead of hiring cleaners, invest in robots that sweep floors, and buy less stuff, so there’s less clutter and less cleaning to do.

As another example, store-bought lactose-free milk costs almost double that of regular milk. We can make lactose free milk at home by adding lactase to regular milk. Depending on how much milk we drink, this is an easy way to save a few hundred dollars a year.

As a caveat, I am not a fan of saving money at all costs. For example, I would not eat instant noodles to save money because I believe health underpins our happiness, and my body deserves to be nourished with nutritious food. However, at the same time, I eat well without breaking the bank by eating out less, cutting back on high priced ingredients such as meat, and eating more produce instead. 

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Invest Money And Watch It Grow

Now that we have some money set aside, the next step is to invest it. By investing, we let the money make more money for us while we sleep.

Just Keep Buying - Income Producing Assets

“Risk comes from not knowing what you are doing.” ― Warren Buffet

A good investment strategy is to buy low costs broad market index funds. Investing this way gives us a diversified portfolio that minimizes our overall risks. 

I recommend looking at low costs funds that track the S&P 500 index, such as SWPPX or VFINX, and pair this stock fund with a broad market bond index fund such as BND. You can start by allocating 60% of your money towards the S&P 500 index fund and 40% towards the bond fund to create a moderate risk, moderate return portfolio.

That money we set up earlier to automatically come out of our paycheck for savings? We direct it to buy shares of these index funds. This way, we are investing a set amount regularly regardless of what is occurring in the financial market, a strategy known as dollar costs averaging

The beauty of dollar costs averaging is that since the investment amount is the same at each interval, we automatically buy more shares of a fund when the price is low and less when the price is high, resulting in lower average costs to acquire shares. 

This investment strategy is simple to set up and hassle-free. Anyone can do it. Just keep buying.

Buy A House (If It Makes Financial Sense)

People generally believe that buying a house is a good idea, but this may not always be true. In some markets where homes are overpriced, it may be more economical to rent vs. buy. Owning a house ties us down to a location, making job changes more difficult. Also, unless we sell the house and downsize, or take out a home equity loan, we cannot tap into the appreciation. 

However, in a typical market, house price generally increases at the rate of inflation. Because we can buy a house with just 20% of our own money as downpayment, if the home price appreciates by 3%, the gain on our investment is 15% (=5X3%). Of course, if the market dips in value, the reverse is true. A leveraged buy means that we will feel any gain or loss more acutely, so being able to weather the stress of a downmarket is essential. 

The US government does give some sweet incentives to homeownership through mortgage interest deduction, which effectively lowers our cost to borrow money. Also, unlike rent, which is purely an expense, a mortgage payment consists of principal and interest, and the principal portion adds to the equity of the house, which we get to keep.

In general, it is a good idea to buy the least expensive house we can comfortably live in, to keep the mortgage payment small, and save any remaining funds towards buying rental properties instead. The beauty of a rental property is that our tenants pay the mortgage for us through their rent payments, and eventually, we own the property free and clear. For more on this, check out Robert Kiyosaki's book "Rich Dad, Poor Dad."

Don't Touch Your Face - And Don't Touch Your Money

In down markets, like the one we have now, it may be hard to resist the primal urge to sell everything to prevent further losses. Some of us tell ourselves that we will reinvest the money once the market starts to recover. This strategy generally does not work because first of all, it is next to impossible to time the market correctly, and second of all, the market recovers in spurts vs. a continuous slow rise up. Missing just a few of these big jumps can dramatically reduce our return. 

Generally, it is best to buy and hold positions, and avoid selling unless we need the cash, we are rebalancing the portfolio, or for tax-loss harvesting purposes. By leaving the money alone and let it grow on its own, we give it the best shot at snowballing to a significant sum a few years down the road.

May all beings have happiness and the causes of happiness.
May all beings be free from suffering and the causes of suffering.
May all beings rejoice in the well-being of others.
May all beings live in peace, free from greed and hatred.

― Buddha

My sincere wish for everyone to be free.

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