Buy This, Not That

1. Define Your Financial Freedom & Set Clear Goals

Ultimately, financial freedom means you get to do what you want when you want.

Freedom is the goal. Money is merely a tool to achieve financial freedom, allowing you to control your time and pursue your passions. This freedom provides peace of mind, courage to take risks, the ability to stand up for what's right, and more time with loved ones. Define what this freedom looks like for you, not someone else.

Quantify your dream. Translate your ideal financially free life into a realistic annual spending figure. This number becomes your target passive income goal. Financial independence is achieved when your investments generate enough passive income to cover your desired expenses, or your net worth reaches 20X your average annual gross income.

Progress equals happiness. Happiness is subjective, but making consistent progress towards your goals is a powerful driver. Break down your large financial freedom goal into smaller, achievable steps. "Income tethering" involves linking small investment amounts to specific joys (like a weekly croissant) to build momentum and stay motivated.

2. Prioritize Aggressive Saving & Tax-Advantaged Accounts

Saving early and often is no sacrifice at all. Instead, the biggest sacrifice is living a life on someone else’s terms due to a lack of funds.

Save aggressively. Financial independence starts with saving. Aim to save at least 20% of your after-tax income, ideally pushing towards 50% or more during your peak earning years. This creates a large "money army" that can be put to work generating passive income.

Maximize tax benefits. Always contribute the maximum possible to tax-advantaged retirement accounts like 401(k)s and IRAs, especially if your employer offers a match (free money!). These accounts grow tax-deferred or tax-free, significantly boosting long-term wealth through compounding.

• 401(k) limits are substantial ($20,500 employee, $61,000 total in 2022).
• Roth IRAs offer tax-free growth and withdrawals in retirement.
• SEP-IRAs/Solo 401(k)s are great for the self-employed.

Build taxable accounts. Since tax-advantaged funds are generally inaccessible before age 59.5 without penalty, building a large taxable investment portfolio is crucial for early financial freedom. Aim for your taxable accounts to be 3X the value of your tax-advantaged accounts over time. This provides liquidity and passive income you can use sooner.

3. Master Debt Strategically: Eliminate Bad, Leverage Good

Each debt I’ve paid off made me feel happier and freer.

Eliminate toxic debt. Consumer debt, especially high-interest credit card debt (average ~15% APR), is detrimental to wealth building. Prioritize paying off the highest-interest debt first using the "debt avalanche" method, or the smallest debts first for psychological wins ("debt snowball").

• Credit cards: Worst debt due to high interest and depreciating purchases.
• Auto loans: Bad debt as vehicles depreciate rapidly. Follow the "One-Tenth Rule" (car price <= 10% gross annual income).
• Student loans: Less offensive, but still debt. Aim to pay off quickly.

Leverage good debt. Not all debt is bad. Use debt strategically to acquire assets that appreciate faster than the cost of borrowing. Mortgages are the least egregious debt as they are tied to real estate, a historically appreciating asset with tax benefits.

• Mortgage interest is often tax-deductible.
• Home sale profits can be tax-free up to $250k/$500k.
• 1031 exchanges defer capital gains on rental property sales.

Allocate free cash flow. Use the Financial Samurai Debt and Investment Ratio (FS DAIR): debt interest rate × 10 = % of cash flow after living expenses for debt pay-down. Invest the rest. If your debt interest rate is 10% or higher, allocate 100% of free cash flow to debt. Paying down debt is a guaranteed return equal to the interest rate.

4. Diversify Your Net Worth Across Asset Classes

The more wealth you accumulate, the more courage you will have to take more risks, try new things, and change things up if you wish.

Avoid overconcentration. The average American's net worth is heavily tied to their primary residence (~75%+). This lack of diversification was painful during the 2008-09 financial crisis. Aim to limit your primary residence value to no more than 30% of your net worth as you build wealth.

Build a balanced portfolio. A strong wealth-building strategy involves diversifying across stocks, bonds, and real estate.

• Stocks: Provide growth potential and passive income (dividends).
• Bonds: Offer stability and income, especially important as you age.
• Real Estate: Provides shelter, income (rent), appreciation, and tax benefits. Acts as a "bonds plus" alternative in low-interest environments.

Consider alternative investments. Allocate a small portion (at most 10-20%) to alternatives like cryptocurrency, private equity, or art if they align with your interests and risk tolerance. Quantify your risk tolerance by how many months of income you'd work to recover a potential 35% market loss.

Follow an allocation model. Choose a net worth allocation model (Conventional, New Life, Financial Samurai) based on your age, risk tolerance, and career goals. The key is to have a plan and stick to it, adjusting as circumstances change, but avoiding emotional decisions.

5. Invest Wisely: Index Funds + Strategic "Plus"

As an investor, one of your biggest demons is your emotions.

Embrace passive investing. The vast majority of active fund managers fail to outperform their respective indices over the long term, and their higher fees erode returns. Allocate 80%+ of your public equity portfolio (stocks and bonds) to low-cost passive index funds or ETFs. This is your reliable base.

Add a strategic "plus". To potentially outperform the masses who only invest passively, allocate up to 20% of your equity portfolio to actively managed funds, individual stocks, or alternative investments that you understand and believe in. This is the "Index Plus" strategy.

• Invest in companies you use, trust, and like.
• Focus on companies with great management and visionary leaders.
• Allocate a small percentage (e.g., 5%) to highly speculative "moon shots" for potential outsized gains, but only money you can afford to lose.

Growth vs. Dividend. Younger investors (<40) should favor growth stocks for capital accumulation, as dividend income is less tax-efficient when active income is high. As you age and desire income, gradually shift towards dividend stocks. Real estate can also serve as a "dividend plus" alternative due to higher yields and appreciation potential.

Avoid angel investing directly. Unless you have significant wealth, connections, and expertise, angel investing in individual startups is extremely high risk with low probability of meaningful returns due to dilution, lack of liquidity, and information asymmetry. If interested, invest through reputable angel funds.

6. Leverage Real Estate: Own Your Home & Go Long

So long as you can afford to purchase a home under the 30/30/3 rule, even if it proceeds to decline in value, you aren’t being constantly reminded about its depreciation.

Get neutral real estate. If you plan to live in an area for five years or more, aim to own your primary residence. Renting long-term means you are "short" the real estate market, missing out on appreciation and being subject to rising rents. Homeownership is a forced savings mechanism that builds equity.

Buy responsibly. Use the 30/30/3 home-buying rule:

• Monthly mortgage payment (PITI) <= 30% of gross monthly income.
• Have >= 30% of the home value saved (20% down payment + 10% buffer).
• Home price <= 3X gross annual income (stretch to 5X in low-rate environments if other rules met).
  This framework helps ensure affordability and reduces financial stress.

Go long real estate. True real estate wealth is built by owning investment properties in addition to your primary residence. Real estate is both defensive (stable income in downturns) and offensive (appreciation in bull markets). It offers tax advantages and leverage potential.

• Consider multiunit properties for maximum rental income yield.
• Single-family homes offer more space and potential appreciation.
• Condos are more affordable entry points but may appreciate slower and have HOA fees/rules.

Buy Utility, Rent Luxury (BURL). Live in a property that meets your needs ("utility") and is affordable. If you desire a luxury property in an expensive area, it may be more financially optimal to rent it than to buy it, as rental yields are often low relative to price in luxury markets. Invest the difference in higher-yielding properties elsewhere.

7. Choose Your Location Strategically for Wealth

Live where you have the best opportunity to make the greatest amount of money, regardless of geography.

Prioritize career opportunity. When starting out, move to where the best job opportunities are, even if it's an expensive city. High-cost cities often offer higher salaries and greater networking potential (network effect). Live frugally initially to maximize your savings gap.

Consider geoarbitrage. Once you've established your career and income, consider relocating to a lower-cost-of-living area while maintaining a higher salary (e.g., through remote work). This significantly boosts your savings potential. Always "try before you buy" by visiting extensively.

Invest in up-and-coming areas. When buying property, look beyond prime, expensive neighborhoods. Seek out areas with potential for growth (new businesses, infrastructure, demographic shifts) that are currently undervalued. This offers higher appreciation potential.

• Look for signs like new retail openings (Walgreens, supermarkets).
• Research companies moving into or near the area.
• Consider areas benefiting from remote work trends (heartland, suburbs).

Buy property with expansion potential. Focus on properties with land or wasted space that can be converted into livable square footage. Expanding a home is often cheaper per square foot than buying finished space, creating instant value. Prioritize expanding livable space, then kitchens/bathrooms.

Keep housing costs in check. Regardless of location, aim to keep your total housing expenses (mortgage/rent, taxes, insurance, maintenance) to no more than 20% of your gross monthly income. This is crucial for accelerating your path to financial independence.

8. Maximize Your Career Earnings & Plan Your Exit

Your career is your number one wealth generator—at least in your younger years.

Target high-paying industries. If you're early in your career, focus on industries known for high compensation (tech, finance, consulting, healthcare, government contracting, skilled trades with pensions). Work hard to gain skills and build a network in your chosen field.

Get paid and promoted. Don't rely solely on good work; actively manage your career progression.

• Treat bosses and colleagues like clients to build support.
• Promote your boss to their superiors.
• Develop relationships with senior leaders.
• Build commonality with your boss (strategic brownnosing).
• Treat junior colleagues with respect.

Job hop strategically. In your 20s and 30s, consider changing jobs every 2-5 years to reset your pay and title higher. Companies often pay new hires more than they raise existing employees (loyalty discount). Negotiate aggressively based on market value.

Plan your exit. When you're ready to leave a job, don't quit or get fired. Aim to be laid off with a severance package. This provides financial benefits like severance pay, continued health coverage, unemployment eligibility, and preservation of deferred compensation.

• Negotiate your departure by offering a smooth transition.
• Highlight your value and contributions.
• Consider your employer's needs (succession planning, cost savings).

9. Build Your Side Hustle: Create Permissionless Income

Work while others are sleeping so you can eventually play while others are working.

Develop your X factor. A side hustle is a crucial component of financial freedom, providing an additional income stream and a platform for meaningful work you control. It's easier than ever to start due to the "permissionless society" of the internet.

Start early & stay consistent. The best time to start is when you have a stable day job. Dedicate consistent time (e.g., early mornings, weekends) to build momentum. Progress may be slow initially, but unwavering commitment is key to long-term success.

• Aim for consistent output (e.g., 3 pieces of content/week).
• Don't wait to be an expert; learn as you go.
• Be willing to make sacrifices of time and leisure.

Build a scalable asset. Focus on creating your own unique product or brand online (website, course, content platform) rather than just trading time for money in the gig economy. This creates a scalable asset that can generate passive income and potentially be sold later.

• Online businesses are "unshutdownable" and valuable assets.
• Your website is a dynamic resume and brand builder.

Know when to go full-time. Consider transitioning your side hustle to your main hustle when its income can comfortably cover your basic living expenses and you genuinely enjoy the work. Factor in the value of lost employee benefits (retirement match, health insurance, paid time off) when comparing income.

• Side hustle income should ideally be 30-60% higher than your day job salary to replace it fully.
• A side hustle generating 75-100% of your day job income is a strong signal to consider the leap.

10. Invest in Education (Smartly) & Continuous Learning

Education will set you free.

Education empowers. Learning, both formal and informal, is crucial for making better financial and life decisions. It builds confidence, opens career doors, and helps you understand different perspectives. Continuous learning is a lifelong pursuit.

Prioritize ROI. Don't chase prestigious degrees at all costs, especially if it means significant debt. After your first job, experience and skills matter more than pedigree.

• Choose the best education you can afford.
• Consider public universities, community colleges, or transferring to save money.
• Online courses and certifications offer low-cost ways to gain specific skills.

Evaluate private school costs. For K-12 and college, private school is a significant expense. A guideline: household income should be at least 7X the net annual tuition per child. If your local public schools are good, consider investing the tuition money instead.

• $1 million invested early can provide significant financial freedom later.
• Higher expectations come with higher costs; manage them realistically.

Utilize 529 plans. These tax-advantaged plans are excellent for saving for qualified education expenses (K-12 tuition up to $10k/year, college, apprenticeships, loan repayment). Contributions grow tax-free, and qualified withdrawals are tax-free.

• Don't overfund if it sacrifices your own retirement savings.
• Can be used for generational wealth transfer.

Assess MBA value. Full-time MBA programs are expensive. Consider one if your employer subsidizes it, you need a career change, or you're already wealthy. Part-time programs allow you to keep earning. The value is in the knowledge, network, and confidence gained, but ensure the ROI justifies the cost.

11. Nurture Your Relationships & Financial Partnership

If we love someone, we should help them become financially independent.

Love and money intersect. A strong relationship is vital for happiness, but financial problems are a leading cause of divorce. Choose a partner with a compatible money philosophy and work together as a financial team.

Consider marriage benefits. Legally marrying offers financial advantages, particularly regarding Social Security spousal and survivor benefits, which can significantly benefit a lower-earning partner. However, high-earning couples may face a "marriage tax penalty."

• Discuss finances openly and consider a prenuptial agreement, especially if wealth levels differ significantly.
• Cohabitation is an option if legal marriage isn't desired or financially optimal.

Marry for love AND partnership. While love is essential, also consider a partner's financial habits, intelligence, and life philosophy. Marry someone who will be your best friend and a supportive financial teammate.

Manage finances together and separately. Maintain a joint account for shared expenses and goals, but also keep separate individual accounts. This provides independence, acts as an insurance policy, and allows for healthy financial challenges between partners. A stay-at-home partner's contribution (value of childcare/household management) should be recognized financially.

Time kids strategically. The optimal age to have children balances biology (easier conception/pregnancy when younger) and finances (more stability when older). Ages 30-34 offer a good balance. Ensure you have career momentum, a reasonable income ($100k+ in low-cost, $200k+ in high-cost areas), and a net worth of 2-3X income before having kids.

Spend wisely on weddings. Avoid excessive wedding spending. Follow rules like spending no more than 10% of combined annual income or 3% of combined retirement savings. Invest the difference for your future.

12. Practice Stealth Wealth & Value Time Over Status

The less attention you receive for your wealth, the happier you will be.

Be a rich nobody. True financial freedom includes time freedom and the ability to move through the world unnoticed. Avoid seeking fame or flaunting wealth, which attracts unwanted attention, judgment, and demands on your time. Practice "Stealth Wealth."

Stealth Wealth guidelines:

• Drive a modest, economical car (<= 10% of gross annual income).
• Be discreet about your home address and property value.
• Avoid flashing luxury goods.
• Never reveal your full income or net worth.
• Diversify assets across different accounts and entities.
• Stay humble and attribute success partly to luck.
• Praise others and highlight your failures.
• Volunteer your time and give back.
• Get your estate plan (trusts, will) in order for privacy and smooth transfer.
• Read the room and adapt your demeanor.

Value time over money. Once financially secure, prioritize how you spend your time. Calculate the opportunity cost of tasks you dislike (cooking, cleaning, yard work) and outsource them if the value of your time or alternative activities is higher.

Work to live. Seek work that provides meaning and purpose, not just a paycheck. If your job makes you miserable, find a way to change it, even if it means a temporary step back. You can always try something new and potentially return to your old field if needed.

Prioritize health. Your health is your most valuable asset. Once financially stable
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Last updated: June 18, 2025