Quit Like A Millionaire
Episode 134R
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Mastering Financial Independence: Lessons from Quit Like a Millionaire
Achieving financial independence is a journey that combines education, strategic planning, and a shift in mindset. Drawing insights from the experiences of Christy Shin and Bryce Leung, authors of Quit Like a Millionaire, this article presents actionable advice on building wealth, the value of education, and the power of a scarcity mindset.
The Power of Education as a Tool for Freedom
Education is a critical avenue for financial independence. Christy’s journey from poverty in China to a life of financial freedom underscores the idea that education can be a life-saving tool. Your first step should be evaluating your approach to education. Make sure that your educational investments yield high returns. Consider the following:
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Assess the ROI: Calculate the potential income you could earn from various degrees versus the cost associated with obtaining them. Use the “pot score” method—divide your potential salary above minimum wage by your tuition costs to figure out which degrees offer the best return on investment. For example, computer engineering might yield a high pot score compared to fields with weaker financial trajectories like creative writing.
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Choose Wisely: Avoid accumulating debt for degrees that may not lead to sufficient income. In today’s job market, you can invest in courses that enhance your skills and employability without breaking the bank.
Education as Empowerment
Further educate yourself in personal finance topics and practical skills. Create a structured learning schedule to familiarize yourself with personal finance names and concepts, focusing on budgeting, investing, and wealth management.
Embracing the Scarcity Mindset
A scarcity mindset often arises from necessity, but it can be transformed into a powerful motivator for frugal living and creativity. Here’s how to harness it:
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Use Constraints Creatively: Scarcity can inspire innovation. When faced with limited resources, find new, creative ways to solve problems. For instance, if you cannot afford a particular product or service, explore DIY alternatives or barter with friends.
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Mindful Spending: Reflect on your purchasing habits. Recognize the difference between wants and needs. Before making a purchase, take a step back and ask yourself—“Is this necessary?” Consider employing the "72-hour rule": wait three days before making a significant purchase to determine if it's truly needed.
Budgeting Strategies for Success
Achieving financial independence strongly relies on effective budgeting practices. Tools like You Need A Budget (YNAB) offer strategies to create and maintain a budget effectively. Here are key budgeting takeaways:
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Give Every Dollar a Job: Place every dollar into specific categories to ensure you know where your money goes and to prevent impulsive spending.
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Build a Buffer: Aim to use money that you earned in previous months rather than what you’ll earn in the coming month. This builds up a buffer, providing you with greater financial comfort and reducing anxiety during lean periods.
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Automate Savings: Set up automatic transfers to your savings and investment accounts. This "pay yourself first" approach makes it easier to save rather than spend what's left over.
Building a Portfolio for Retirement
An essential aspect of financial independence is to create a sustainable investment portfolio. Once you've established a budget and freed up capital, consider these practices:
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Diversification: Include a mix of assets in your portfolio—such as stocks, bonds, and real estate—to balance risk and reward. This strategy can help secure your wealth against market volatility.
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Yield Shield Strategy: Focus on investments that generate higher yields to draw from during retirement without selling assets in down markets. Building a mix of dividend-generating stocks and fixed income can provide a steady cash flow.
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Cash Cushion: Maintain a cash buffer to cover living expenses in case of market downturns. Aim to have enough saved up to withstand several years without needing to sell investments at a loss.
Adaptable Mindset Towards Financial Decisions
As your financial journey progresses, remain adaptable and open to changing your approach:
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Transitioning Passions: Understand that interests and passions can evolve. Be open to new opportunities. Use your earlier years to build a solid financial foundation before pivoting to pursuits that are more aligned with your passions.
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Grow Through Challenges: Each financial decision builds character. If mistakes are made, evaluate them and learn. This resilience is crucial for long-term success. Remember, every challenge enriches your experience.
Final Thoughts
In conclusion, mastering financial independence involves a combination of education, strategic budgeting, and a strong mindset. As highlighted by Christy and Bryce’s experiences, it’s about leveraging your circumstances, continuously learning, and being proactive in making financial decisions. Follow these steps to steer your journey toward financial freedom, transform your relationship with money, and create a life unbound by financial stress.
By understanding financial independence from the ground up and applying actionable strategies today, you can cultivate a thriving, financially stable future.
Brad and Jonathan give updates on solar panels and YNAB. Plus, Kristy Shen and Bryce Leung from Millennial Revolution talk about their new book.
[elementor-template id="143609"]Solar Update
Currently, Brad is having solar panels installed on his house. Although it is a large upfront cash outlay of around $20,000, Brad thinks that the return will be around 9 or 10%. If the solar panels produce around $1,800 to $2,000 of electricity each year, then the return for that investment is definitely worth it.
Brad hopes that the solar panels will also change their behavior towards electricity consumption. The goal of each year will be to have their total electricity bill equal to 0.
Listen to our full discussion about solar panels here.
YNAB Update
Last week, Jonathan let us know about his YNAB experiment. So far, the experiment seems to be going well. With his payday in the middle of the month, Jonathan and his family have started to see that scarcity mindset in the beginning of the month as a positive.
Already, Jonathan has been able to defer purchases for another day. Potentially those purchases could be never followed through on.
If you are looking for a way to slow down your spending, then Liz from the Frugalwoods recommends the 72-hour rule. If you still want to make the purchase after 72 hours, then go ahead. Otherwise, you just avoided an impulse buy. (Listen to the full episode with Liz here.)
Related: My Favorite Budgeting Software: You Need A Budget (YNAB) Review
Share Your Story
Jim from Route to Retire showed us that anyone can achieve something remarkable if they follow replicable steps. Simply saving more than you spend for an extended period of time can have a huge impact on your life. Jim's story is not the same path that everyone will take, but it is a path that many people can relate to.
Listen to the full episode with Jim here.
Do you have a story that you think other people could benefit from?
You just need to have a story that you feel is worth hearing.
If you want to be featured on the show, then head over to the application page here.
Pay Off Your Mortgage Or Invest
Last week's episode, 133R, really kicked off a great conversation about whether you should pay off your mortgage or invest. In the comments, listeners mentioned mortgage interest deductions, taxes, and capital gains in relation to this ever-deepening question.
Listen to that full episode here.
Don't worry! We will cover more on that subject to hear differing views in the community soon.
Quit Like A Millionaire
Kristy Shen and Bryce Leung's book Quit Like A Millionaire: No Gimmicks, Luck, Or Trust Fund Required will be out on Tuesday, July 9th. It is an amazing story but it also has actionable advice that you can use when you are ready to pull the trigger on a drawdown strategy.
Shen grew up in China in deep poverty. As a child, she lived on .44 U.S. cents a day and had no idea what a toilet or shower would be like. However, her dad was about to pull his entire family out of poverty through earning his Ph.D. in the West. For her father, the chance to study for his Ph.D. was the best opportunity to move out of poverty. The decision to move Canada for an education was a hope based decision that was fueled by survival because it seemed to be the only way to support his entire family.
My upbringing taught me a lot about perspective.
Shen realized that if you had a home with four walls, food, water, and your family then you were better off than most people in the world. After coming to Canada with her dad through education, she placed a high value on education.
Not all degrees are created equal and if you want to figure out how money works then you really have to make logical decisions about how money works using education as a tool.
Listen to Kristy and Bryce's first visit to the show where they discuss their views on real estate.
The ROI Of Education
When Shen was choosing her college degree, she had to choose between her passion for writing and a more practical degree. Her father told her that he would not be able to support her, so it was essential that she choose a practical degree.
She used the Pay Over Tuition (pot score) to determine what degrees would have a good ROI. After looking at creative writing, accounting, and software engineering, she chose computer engineering based on her scoring system.
Shen has not regretted the choice to follow a lucrative career path. In fact, she says that changing passions make it more practical to fund your passions with a lucrative job instead of relying on your passion to fund your lifestyle.
The idea that we would have the exact same passion for the rest of our life is kind of ludicrous. You actually end up having a lot of passions in your life.
Plus, you do not have to be fully FI in order to make a career switch. If you have a strong portfolio, then you are able to take risks along the way.
The Scarcity Mindset
After growing up in abject poverty, the scarcity mindset was undoubtedly a part of Shen's life. However, she viewed it as a positive. She knew that because she was unable to throw money at the problem, she would need to get creative. Shen has been able to creatively make her way through life and build skills that may not have been possible without the scarcity mindset.
Without her scarcity mindset in the beginning, Shen says it is unlikely that she would have hit FI. However, that mindset did hold her back in terms of investing. That's where Bryce came in. He was able to see that the money they were gathering could be used to buy their freedom.
She is really good at gathering bricks. And then kind I went and looked at the giant pile of bricks and was like, 'we could build a castle out of that.'"
With his more optimistic mindset, Bryce was able to take their rapidly growing savings and leverage that into Financial Independence.
The book follows the couple's story and maps out how they achieved Financial Independence instead of purchasing a 'dream home' or other luxuries. Through their story, you can better understand how money works.
If you figure out money, life is incredibly easy. If you don't figure out money, life is incredibly hard.
You do not need a Ph.D. to understand money, but you do need to take the time and learn about it. This book is the perfect place to start.
Playing With FIRE Update
If you still need tickets for your local Playing with FIRE screening, then head over to Tugg. There are many showings coming soon that still need to sell tickets.
Also, there will be a special evening of Financial Independence hosted by Jonathan and Brad in Richmond, VA on July 19th. It should be a nice evening introduction to FI. If you are coming, then head here for tickets. If you have a large group and would like a group rate, then email [email protected].
Here are the showings that still need your help with ticket sales:
- Santa Cruz, CA
- Bozeman, MT
- Foxboro, MA
- Poughkeepsie, NY
- Oklahoma City, OK
- Rockford, IL
- Minneapolis, MN
- Boston, MA
- Farmington, NM
- Medford, OR
- Reno, NV
- Littleton, CO
- Roswell, GA
- Pearl, MS
- Mountain View, CA
Related Episodes
New to FI? Be sure to check out Episode 100: Welcome To The FI Community!