O Is Where We Own
Not where we own stuff, though. We need to talk about three types of ownership:
- How we own this process
- What ownership means (not debt)
- And how we only really own our lives when we’ve got the Freedom Formula down
Own The Process
No one is going to help you with this, for lots of reasons. First, it’s not their life, so they don’t care. Second, if anyone wants to help you with your finances, they probably want some money in return, and if they’re any good, they’ll want a lot of money. If you meet anyone trying to give you money advice for free, then you need to be really careful it’s not a scam (I’ll ask you to buy my book later, don’t worry).
The biggest problem with other people, is that they will tell you this isn’t possible, that you can’t achieve the Freedom Formula, that you can’t get to 25X, that you can’t be free. Why? Because they didn’t. Because they don’t know how. And because they want to be right in not know how.
You need to know you can do this on your own, and not rely on other people for help, for advice. You need to own the process, and you will be able to succeed.
Own The Asset
Debt is not ownership. Debt means the person you borrowed off owns your house, or your car. If you car and house aren’t worth enough, they own your life. Debt means you don’t own.
I don’t think all debt is bad. I think cheap debt is great, particularly things where I can borrow cheap to make a great return – but that doesn’t happen as often as I’d like, and expensive debt to borrow an asset that isn’t an asset (which makes less return than the debt costs) is a disaster.
if you’ve already got a lot of debt before you read this, I’m sorry. I wish you didn’t, but you do, and you are going to have to pay it off. The good news, it isn’t impossible, and it doesn’t make getting to the Freedom Formula that much harder than it already is…
Debt snowball
Look that up on google. Find out what you can about it. FOR FREE! Don’t pay anyone any money for their advice on this, you can’t afford it. A debt snowball is pretty simple: aim to pay off your smallest debt first. You have to make sure you make your minimum payments on the other ones, but if you can clear a small debt first, tick it off the list. Write them all up on the wall, or window, and tick them off, one by one. Like a snowball rolling down the mountain, you can use the momentum to clear up all your debts faster than you would if you tried otherwise.
You’re Not As Far Behind As You Think
So you’ve got some debt. Maybe a year of your current income. Maybe three. Maybe, at worst case, five*. It’s not a small amount, but you’re not as far behind the people with no debt as you think. Let’s put it into perspective.
To achieve the Freedom Formula, Jack needs to have 25X his annual spending. Someone with no savings needs to save 25X their current level of saving, which if Jack has no savings is probably 25X his total income. Jack’s first move is probably going to be to save an emergency fund of six months of his spending. If he cuts back his spending to two thirds of his income, saving one third, in a year he will have saved a half of what he has spent… he will have 6 months of spending saved: an emergency fund. Now he just needs another twenty four and a half times his spending, and he is free. Not easy, but he will soon start investing, and the magic of compound investing can kick in.
Now we imagine Jill has debts that are two full years of her current income. She needs to go through the same process as Jack, cutting back on her spending and getting an emergency fund (so she never has to borrow again!). After a year, imagine she hasn’t paid back any debt, but she has built that emergency fund… instead of needing to save and invest to get 24 and a half times her spending, she needs to get 26 and a half times. It’s not really that much worse.
If her debt is expensive, the worst part is that she will need to pay it back straight away, and not take advantage of the power of compound returns, which is how money grows faster and faster over time. If her debt is cheap, she can do that, and potentially pay back her debt later. She may even catch up and overtake Jack.
And Really Owning Your Life…
Is when you reach the Freedom Formula, at 25X your annual spending.
*If you have debt of more than five years of your income, without an asset attached, you should probably get a professional to help as there may be legal moves you can make that will be better than trying to save your way out of your problems.