Financial freedom isn’t living in a caravan at 65 with your swimmers on.
A post by Justin Welsh, who left a fast-growing startup in Los Angeles to work for himself, reminded me of true financial freedom. He’s helped multiple startups collectively raise more than $300M.
With all of the opportunities, he quit to start a side hustle dedicated to helping creators do the same.
His financial freedom formula is interesting, but I’ve updated it to make it powerful and relevant to us normies. Follow this formula to buy back your time, so you can spend it with the people you love, doing the things you love.
The Conventional Approach to Money
Trade your time for money
To earn money at a job you have to give up time. Time is a far superior currency to money that can be created out of thin air by governments.
A job pays you a salary. You have to give up more and more time as you climb the ladder. A junior job can allow you to work a typical 40-hour week. Many don’t know that the high-paying manager and “Chief” level roles have a lot of downsides. Yes, you get paid a fat salary, but you have to work a lot more hours. It’s harder to say no.
Your boss and shareholders will expect you to work stupid hours, and then if you don’t, they’ll quietly remind you. They won’t tell you to work longer. Quite the opposite. They’ll pamper you with “spend time with family” and “make sure you take plenty of holidays. You deserve it.”
In the same breath, they’ll set deadlines for work that needs to be done, that destroys the free time they pretend you have to enjoy life. Say one thing and mean another is a popular big business philosophy.
If you fall into the time trap, more of your time goes down the drain to serve revenue gods who make a lot more money off you than they pay you in salary.
Trade your money for stuff
After a while of trading time for money, eventually, you end up with some small savings. The norm is then to use excess money to buy stuff.
The stuff you buy is marketed as solving a problem. Your purchases don’t solve an urgent problem in reality. It’s a nice-to-have solution to a problem you could defeat by forgetting about it.
It starts with buying an overpriced car that will spend most of its time with the engine off, parked in a car spot. There’s no end. You eventually experience lifestyle creep. Your expenses magically become larger without it being obvious.
Let social media see your money
Instagram is Hollywood Boulevard on steroids. Everybody looks happy and plays their part in the latest Hollywood film. What you don’t see is the unhappy marriages, cheating, drug abuse, and plain selfishness that happens behind the scenes. That’s exactly how Instagram is.
Buying stuff to take photos of it is a human problem. Apes don’t take selfies of eating their bananas — yet.
We want people to think we’re doing okay. Money helps to portray a life that lacks any real problems. The reality is often the opposite. Money used to buy stuff and show it off covers up problems.
Nobody cares what stuff you bought with your money. Most of us can go out and get a credit card to do the same.
Repeat. Take a holiday. Try to do it again.
You reach a plateau after a while of focusing your time to earn money. You don’t feel like earning money for a while.
A holiday comes to save you. You take annual leave and go to an exotic destination to try and numb yourself from all problems associated with making money — like dealing with angry humans.
After the holiday, you come back and try to do the money thing again. Some of us repeat this pattern for our entire working life.
Others, like me, come back after one of these holidays away from making money and decide to exit the game. We decide that the game of trading time for money is exhausting — especially when the value of money is eroded by inflation and governments printing money out of thin air to pay for huge healthcare disasters.
A 4-Step Formula for Financial Freedom
The traditional formula for making money is exhausting. Eventually, you burn out from it all. You simply want time to do whatever you want. You crave time to make your version of art, or help someone less fortunate without desperately needing to charge them money.
Break the cardinal sin
The first step is to trade your time for money. Wait, what?
Yep, it starts with trading time for money so you can gain experience, meet people who think differently, and build a financial base to eventually launch from. I worked in banks for years to earn money. My plan was always to exit the corporate rat race, but I had no magic trust fund to allow me to start right away. I gave up time. Got the money. Then did this…
Use that money to do what every investing book in history teaches
Most people get paid a salary and then channel most of it into bills and buying ‘stuff.’ I recommend you don’t.
The second step to financial freedom is to earn money and buy financial assets. Financial assets are simply stocks, bonds, real estate, gold, and Bitcoin/Ethereum. Financial assets are designed to increase in price over time. Assets protect the time you have to trade for money in the beginning.
If you can’t afford to buy any financial assets then there are a few options.
- Lower your expenses ruthlessly. Translation: cancel Netflix-style subscriptions.
- Go on LinkedIn. Direct message recruiters to find a better work opportunity. Or direct message potential hiring managers on LinkedIn to get a new gig that pays you more until the rest of this financial freedom formula takes over to do the work for you.
Now comes the money-making machine
Financial assets pay you in two ways:
- Their prices increase and you can sell them for a profit.
- They pay you money for owning them.
A financial asset adds a second income stream. You don’t need to show up to an office or trade time to collect the money. All you need to do is sit down, shut up, be patient, turn off the news, hold, and ride the ups and downs of markets. Providing you’ve done quality research, financial assets should do well over a 5+ year time horizon.
The second money-making machine
Financial assets are one type of money-making machine. The second type falls into two categories:
- A side business you own. Businesses generate money. You can work on them after hours to add a further income stream.
- Digital content you own that pays you money (think Youtubers who publish videos and earn money from ads).
Reach the financial tipping point
Once you have multiple income streams that earn money for you while you sleep, there will become a tipping point. There will be a time where both financial assets and non-financial assets will make more money for you than you can earn trading time for money. This point is called financial freedom.
Financial freedom is the choice to do whatever work you want, rather than work you’re forced to do. It’s where you stop trading time for money, and start trading time to do work you enjoy where the financial reward is unimportant.
Owning assets that buy back your time is far cooler than trading time for money to look cool by buying stuff to flash on social media.
This financial formula is peculiar because it spits in the face of consumerism, banks that insist you get into debt, and a social media culture that worships buying stupid stuff we don’t need.
The greatest asset is your time. Protect your time by prioritizing the two levels of underrated assets available to you: financial assets and a tiny business.
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.