The 12 Essential Lessons About Money & Life
Over the past few months, I’ve wanted to explain why this website exists.
I’ve been imagining a “12 Principles”-style list, one that summarizes what this website stands for, what we’re all about.
But this created awkward questions. Notably: When is the list ever truly complete?
The answer might be “never.” It’s a perpetual work in progress, like life.
Four years ago, I started Afford Anything to promote the idea of ruthless prioritization: slash costs that don’t matter so you can spend freely on whatever you love most. For me, that means traveling to 34 countries (and counting!). For you, that might mean buying a vacation home, switching to a more fulfilling career, or opening an animal rescue shelter.
While I still believe, teach and practice ruthless prioritizing, the site’s focus has evolved. These days, I carry a stronger emphasis on financial freedom, passive income and rebellion from social norms.
It’ll keep evolving in the next four years. And the four after that.
What are the principles behind this? I’d still like to answer that question, so here’s a list I can only describe as: “Afford Anything’s core values around money and life, as it stands today.” (Which, by the way, makes a terrible acronym.)
This list doesn’t have heft or finality. Heck, it barely has spell-check. (Is “spell-check” hyphenated?) It’s living, dynamic and constantly iterating. But then, so are we all.
Without further ado — Here are a The 12 Afford Anything Principles.
#1: You Can Afford Anything. You Just Can’t Afford Everything.
Don’t tell me your values. Show me how you spend your money, and I’ll know what you value.
Don’t tell me, for example, that you “can’t afford” to travel the globe or invest for retirement if you’re simultaneously buying nice clothes and hitting the bars.
There’s nothing wrong with clothes and bars if it’s a deliberate, conscious choice, and you’re cool with the trade-offs. But don’t claim that bigger goals are out-of-reach. You’re the master of the bills that escape your wallet. Spend with your eyes open.
Don’t utter, “I can’t afford it,” without asking yourself:
Every dollar you spend is a vote. Make it count.
“How did I afford a decent car, restaurant dining and an iPad?”
#2: Don’t Say, “I Can’t.” Ask, “How Can I?”
With the exception of, say, colonizing Jupiter or understanding why Celine Dion is so popular, you can accomplish pretty much anything.
It won’t be easy. It won’t be fast. But you can make sh*t happen.
Start a fist-fight with your limiting beliefs. Instead of saying “I can’t,” or even asking “Can I?” (with the implication that the answer is no), start phrasing your questions with, “How can I?”
- Instead of: “I can’t save another dime.”
- Try: “How can I shave an extra $50 from this month’s spending?”
- Instead of: “I can’t find any good real estate investments nearby.”
- Try: “How can I find good real estate deals? How can I get comfortable with foreclosure auctions and short sales? How can I find properties that aren’t MLS-listed? How can I invest in other cities and towns that have better deals? How else can I get creative?”
#3: Money Doesn’t Buy Stuff. It Buys Choices.
It’s fashionable to make trite statements like “money isn’t everything,” “money doesn’t matter,” or “I’d rather be happy than rich.” And those sentiments, frankly, are baffling. Why would most people work 8+ hours everyday, only to turn around and claim “money doesn’t matter?”
Clearly it does matter; that’s why most people wake up to an alarm.
When people say, “money doesn’t matter,” I think they’re trying to say “buying fancy crap doesn’t matter.”
That’s a sentiment I endorse. But it’s also missing the point.
The highest and best purpose of money isn’t to fill your life with $10,000 diamond-encrusted headphones (yeah, that’s a thing); it’s to maximize your choices and freedom.
Want to move to another city? Switch jobs? Let one parent stay-at-home? You’ll need some cash.
I’m not saying you need millions. But you need some money. Money brings you mobility and opportunity –which are far more critical than big-screen TVs and random gadgets.
At the “winning the game” level, money gives you the freedom to quit your job, if you choose. With sufficient money, you decide exactly how you spend each day.
You can choose to keep working, if that’s your calling. Or you could choose to stop. Your decision is entirely in your hands, and “How can I buy groceries?” isn’t a question that enters the picture, because you’ve already conquered that part. You’re exercising choice.
And that’s why money matters.
#4: The Best Thing Money Buys is Time.
You can choose to spend you money however you’d like. But I recommend you spend money buying the world’s most rare, precious asset: Time.
Time is the great equalizer. Everyone gets 168 hours per week. We can’t change this; time is limited.
Everyone’s time also has a non-negotiable expiration date. Nobody knows when this date will come. It might happen in 50 years; it could happen tomorrow. The reality is that our sliver of time might be narrower than we know.
(Whoops, it’s not polite to talk about our impending mortality. #PartyFoul).
Money is unlimited. If it slips away, we can make more. But once time is gone, it’s gone. Why squander and waste time while clutching onto pennies?
The best use of your money is to buy back your time. At the day-to-day level, this means you shouldn’t be an extreme cheapskate (unless it’s genuinely need-driven).
Don’t squander your Saturday visiting three grocery stores because bread is cheaper at one, bananas are cheaper at the second and milk is cheaper at the third. Spend the extra $10 buying all your groceries in one spot, so you can devote those two hours to enjoying a long, lingering brunch with your family and friends.
Don’t waste hours clipping coupons, making reusable toilet paper, washing your dental floss and bisecting dryer sheets. Pay the extra $5 so you can spend an hour kicking a soccer ball with your kids in the backyard.
Spend your money buying back your time.
#5: Rebel Against the Norm.
Society holds strange expectations around how we should spend our money.
If we spend $15,000 on a Honda Civic, nobody questions the purchase. No one asks, “How could you afford it?” or exclaims, “Wow, you’re soooo lucky!”
But if we spend this same $15,000 on a scuba-diving trip through the South Pacific islands, people raise eyebrows. They assume we’re filthy rich, or we’re up to our eyeballs in credit card debt, or we’re sponging off some benefactor.
Nobody seems satisfied with the simple, honest answer: “I hustled hard and I spent waaayyy less than I earned.”
If we buy a house for ourselves, nobody questions the purchase. No one says, “Wow, you bought a two-bedroom fixer-upper starter home?! You must be loaded!”
But if we buy an investment property, people raise eyebrows. “Are you some fancy-pants investor? Where did you get that kind of money?”
We’re spending the same amount of money as our neighbor next door, but we’re buying different things. They bought a boat; we bought index funds.
Society says that’s weird. They’ll raise eyebrows, ask questions and make assumptions. Be okay with that. You’re part of a rebellion.
It’s a rebellion against mediocrity. A rebellion against following the herd and getting the same results. If you spend the way that everyone else does, you’ll carry the same debts that they do.
You deserve better.
#6: You Make Money Going Into the Deal.
Speaking of not following the crowd –
Do you hear people say things like:
- “Damn, this stock dropped. I want to break even. I’ll hold onto it until it comes back up.”
- “I might have paid too much for this house. But that’s okay. I’ll make it back when I sell it.”
- “I don’t know how much the insurance/taxes/maintenance for this investment property will cost. But if they’re high, I’ll just raise the rent.”
Here’s the hard truth:
- The stock doesn’t care whether or not you ‘break even.’
- The buyer of your home doesn’t care what you paid.
- Your renters don’t care about your overhead.
Successful investors don’t hope that the market will save them from their mistakes. Hope is not an investment strategy.Hope is not an investment strategy.
Your investments don’t succeed in the future. They succeed in the present, when you score a sweet deal on an undervalued asset.
If you’re hoping that a house or stock “hopefully rises in value in the next few years,” you’re speculating, not investing. To truly invest, you need to find that needle in a haystack. You make your money going in, not coming out.
#7: Hustle is the How.
Some people utter clichés like, “it’s not what you earn, its what you save.” That’s half-true — but also half-false.
Many people have nailed the frugality aspect of the game. But despite their fantastic financial habits, they’re still struggling – not because they have a spending problem, but because they have an earning problem.
That’s the first thing we need to fix.
I hear from readers who say they’d love to save 50% their income, but they only earn $22,000 per year. After taxes, insurance and deductions, they’re taking home $1,500 per month. Rent guzzles half. The remaining $750 needs to cover everything else — utilities, groceries, gas, cell phone, clothes, contacts, computers, co-pays.
When they ask, “How can I save more?,” my answer is unequivocal: “Hustle.” To save more, earn more. A low income is limiting.
When you start earning $80,000 or $100,000 per year, life gets a whole lot easier.
Let’s say you hit the six-figure mark. After taxes and deductions, you take home at least $6,000 per month. If you want to – if you genuinely want to — you can choose to live comfortably on half of that money ($3,000 per month) and save the other half.
(Some people argue that a family with children can’t live on $3k per month. Note that the median American household income is $53,000 per year, which after taxes, comes to $3,000 – $3,500 per month. In other words, the definition of an ordinary American family lives on $3k/month.)
Let’s say you’re bringing home $6,000 per month and saving $3,000 per month. At this rate, you can max out your retirement accounts, buy a rental property, then buy another. You can have a solid emergency fund and zero debt. You’ll hit financial freedom in no time. Life can be grand.
Even though you’re saving aggressively, you’re still living well. You won’t need to move your family into grandma’s basement, eat spaghetti for six consecutive meals, or trudge through snow to the Laundromat with a backpack full of dirty shirts and socks.
You don’t grow wealth by clipping coupons. You grow wealth by boosting your income, launching businesses and investing.
Clichés like “it’s not what you earn, it’s what you save” are misguided. Your income determines how much you can save, particularly at the lower end of the scale. You can’t save 50 percent of your income when you’re making minimum wage – unless you start to hustle.
Hustle is the how. Everything stems from this starting point.
#8: Never Underestimate the Power of Heart and Hustle.
Think abundance, not scarcity. Think of your potential income as unlimited, not fixed.
You are powerful. You are unstoppable. You can create anything in your life with enough heart and hustle.
‘Nuff said.Never underestimate the power of #heart and #hustle.
#9: Mind the Gap
Let’s talk more about that cliché, “it’s not what you earn, it’s what you save.”
The part that says, “it’s not what you earn” is dead-wrong. But the part that cheers “it’s what you save” is onto something. Those savings create a space that I refer to as “the gap.”
The gap is the space between your income and your spending. Your job is to grow this as wide as possible. And at the risk of sounding like Captain Obvious, the two ways to grow this gap are by earning more and spending less.
The core of money-management is simple: Create the gap. Invest the gap. Repeat until the gap can perpetuate itself.Create. Invest. Repeat.
That’s it. This entire conversation, this whole “money thing,” is a discussion about that gap. When your investments cover your day-to-day living expenses while also growing the gap, you’ve won the game. Your money is making its own money. Your income comes from capital, rather than labor.
Your job, in other words, is to create a gap that immortalizes itself. Once that happens … drop the mic. You’re done.
#10: Adopt the Anti-Budget
Hey, I want to let you in on a secret:
Even though I’m a finance blogger, I don’t have a detailed budget. In fact, I think budgets are restrictive, tedious and boring-as-nails.
And that’s okay. I choose to work with this tendency, rather than fight it.
That’s why I coined the anti-budget, the easiest budget on the planet. The concept is dead-simple:
- Pick a savings rate.
- Pull your savings from the top.
- Relax about the rest.
You don’t need to worry about how much you’re spending on cat food vs. toilet paper. Just pull your savings off the top. Whatever is left, is left. You live on that.
How do you handle that leftover money? First, pay the bills. If there’s more money remaining, treat yourself to whatever luxury you want, guilt-free. You saved first. The rest is yours to enjoy.
“How much should I save?”
You might not be able to hit this right away, but as an ultimate goal, I recommend at least two benchmarks:
- Save $1 out of $5 – I’m a firm believer that everyone should save at least 20 percent of his or her income.
- Save Half – If you’re chasing wealth or financial independence, save half. Sounds extreme, I know. But it’s a turbo-accelerant.
If you’re a dual-income couple, the quick-and-dirty way to save half is to live on the lesser of two incomes. Save 100% of the other.
This means that if you literally become a one-income couple (e.g., to care for children), you’re set. You’ve entered financial decisions – including choosing your mortgage – from the perspective of a one-income couple. You can easily adapt to losing the 2nd income. Plus, you’ll have years of accumulated savings and investments behind you.
If you’re single, yank half your income off the top, anti-budget style. Move this into a savings account at a different bank, so it’s “out of sight, out of mind.” Keep an emergency fund; pour the rest into investments and/or aggressive debt payoff.
“Uh … I’m currently saving zero percent. As in, $0.00 every month. My goal isn’t to save half – my goal is simply to save something. How can I possibly hit 20 percent, or even 10 percent?”
That transitions perfectly to the next point …
#11: Start the One Percent Challenge.
Calculate one percent of your income by chopping two zero’s from your monthly earnings. If you make $2,000 per month, one percent is $20. If you make $8,000 per month, one percent is $80.
This month, save one percent more than normal. If you save zero percent, save one percent. If you save 10 percent, save 11 percent.
Next month, boost it by one percent more. The following month, one more. After a year, you’ll save 12 percent more than you currently do.
If you’re starting at zero, this means that within a year, you’re saving 12 percent of your income. That’s 2-3x better than the average American.
(Fun fact: The personal savings rate for the average American has hovered between 4 to 5 percent during the past few years. But it wasn’t always this way. In May 1975, the average American savings rate stood at 17 percent. By July 2005, it dropped to only 1.9 percent. Now you can win Trivial Pursuit.)
Okay, where were we? Ah, right … you’ve stuck with the Challenge for one year.If you started at zero, you’re now saving 12 percent of your income.
If you stick with the Challenge for a second year, you’ll hit a 20 percent savings rate in less than two years – even if you’re starting at zero.
By the way, you can also modify this into earning an extra one percent every month. If you earn $5,000 per month, could you make an extra $50 this month?
#12: Retire Early and Often.
The work-then-retire model is full of flaws. Workers feel frazzled; retirees often feel bored.
I take a different approach: sprinkle mini-retirements throughout your life, while you’re on the road to an early retirement. In other words, retire both early and often.
Work/life isn’t a marathon, it’s a series of sprints. I believe in creating a work/life model that’s based around sprinting, strolling, sprinting, strolling. Hustle hard for awhile, then chill out. Repeat.
Don’t just retire once. Retire constantly.
Mini-retirements can last from two weeks to two years. At the short end, it’s an extended vacation. At the long end, it’s a sabbatical.
While you’re running intervals, also start carving a path to escape the rat race. You could call this “early retirement,” although I don’t mean you necessarily need to quit your job or shutter your business. You should hold the option to quit, if you choose.
Don’t stay beholden to a boss for your survival.
The most accomplished figures in our society – Elon Musk, Mark Zuckerberg, Warren Buffet, the late Steve Jobs – have the freedom to stop working anytime they choose. Their work is driven by passion, not necessity.Work for passion, not for paying bills.
Elon Musk isn’t trying to send a million humans to Mars in an effort to pay his mortgage. (There are easier ways to make money.) He has the freedom to do anything he wants; he could live on the beach and spend his days painting and playing guitar. He chooses to work 100+ hour weeks, not because he needs the income, but because he thinks Tesla and SpaceX and SolarCity are the coolest ideas ever. He wants to leave a legacy.
I understand that 99.99 percent of us won’t achieve that level of wealth, and that’s fine. It takes a relatively modest amount of money to create the freedom to live a passion-driven life. We only need enough money to support ourselves through our investments, in order to escape the cycle of trading-time-for-money.
How do we create this? Mind the gap. The gap is the space between your income and your spending. Create a gap that self-perpetuates.
This creates authentic choice. You can keep working, or you can quit. You can travel, or you can stay home. You can launch a nonprofit, start a sustainable business, or create anything else you dream about.
That’s what it’s all about.