MAKING TOUGH CHOICES

ON OUR WAY TO FINANCIAL INDEPENDENCE

On your way to financial independence, you will have to make some tough choices.

One of those is a choice to get control of your spending.

Another is to find a way to increase your income.

The purpose of both is to free up money which you can use to invest.  Over time you will be able to build a larger and larger portfolio, one which eventually will be large enough to generate enough passive income to pay all your expenses.

This is the definition of financial independence, but it takes time and some tough choices.

Watch our 8-minute video.  The transcript is also available.

Transcript

INTRODUCTION

Mike

I’m Mike Jacobson.

Harland

And I’m Harland Merriam.

Mike

We are with Attune Investments.

Harland

And we’re trying to help you get on track to be financially independence. To do this, we all need to make some tough choices though.

Mike

If we can reduce our spending and increase our income, then we will have more available to invest. This can be a challenge, though, can’t it? Harland. There’s a battle going on within us. Like the image of the devil on one shoulder and an Angel on the other, each talking in her ear.

Harland

Now you’re talking my language Mike.  Part of me wants to do one thing and another part of me wants to do something else.

Mike

There is a psychological battle going on within us. There are consumer items. We want nice housing for our families, the best for our kids. But on the other hand, somewhere inside, we know that we need to save more and be better investors. For many people, the budget seems to be broken. There isn’t any money left to invest. We are spending all we are taking in. So what can we do?

TAKE CONTROL OVER OUR SPENDING

Harland

First, take control over our spending.

Mike

So in an emergency, we’ve been taught first to stop the bleeding.

Harland

Spending is like bleeding. Could you spend less, bleed less, and still maintain your lifestyle? Look at this graphic, spending less and less and less.

Mike

If we can reduce our spending, we can reallocate those dollars to something else. In this case, free them up to put them into our investments. What are some things we do frequently that we could cut back just a little?

Harland

Those of you who are listening, What have you spent money on recently?  Going out to eat?  A play toy? Extravagant vacation?  Something else? When you look back, could you have cut back on some of those and freed up some money to invest? Surely you can find something. Are you willing to wait?

Mike

One of the principles I like to use is delayed gratification. Just like the dog doesn’t like to wait. You know, sometimes it’s forced to do it, but if there’s something I want, I’ll wait 30 days to see if I really want it. If I do, then I might get it. But often I decide that I didn’t really want it that much. Remember the vision board of your future.

Harland

Which is more important? Something now or achieving that vision of financial independence later? By spending less now and investing in our future, we move closer to the goal of financial independence. Mike, you’ve made some tough choices about buying cars, haven’t you?

Mike

Yes, we prefer to buy nice used cars about two to four years old. Then we drive them for at least 100,000 miles. We’re able to save thousands of dollars at the time of purchase, and if we choose to finance the payments would be half of the amount of new car pay.

Harland

This makes sense, doesn’t it? Investing the savings in your investment portfolio instead of putting them into a brand-new car.

Mike

A good friend of mine, Carl, told me. Don’t try to keep up with the Joneses. They’ll refinance and beat you every time. And you’ll go broke in the process and that has served us well when we applied it.

Harland

We might save a little here or a little there, or, as with your delayed car purchases, save a lot.  Big ticket reductions in our spending can free up big money to invest.

Mike

Such as housing, a car, or vacations? Can you find ways to reduce the cost of the largest ones? Are there any that you can do without?

Think about not financing your toys. Rent them, such as a vacation home. This is one of our first really big mistakes. We bought an oceanfront condo, it had negative cash flow and was upside down in six months. Remember what happened in 2006? Selling that condo freed up over $1000 a month for us. Now we simply rent a place when we want to go somewhere.

We have considered buying another vacation property, but one of our requirements is that it has to have positive cash flow. What about a boat? Would it be cheaper or better to rent a boat instead of owning it? Consider the monthly dock or storage fees and maintenance just like this catamaran, we prefer to go out and rent when it’s time to go out.

Harland

Yeah, or even borrow the boat instead of renting or buying it Mike. That’s another way to save even more if you don’t buy it.  The first place is to get control of your spending now. Think about how many great days you’ll have when you achieve financial independence.

Mike

There are many tough choices you can make today. You can only cut so much from the budget. Take control of your spending now invest rather than spend where you can.

Harland

Spending less is one way of freeing up money to invest. What’s the second way?

TAKE CONTROL OF YOUR INCOME

Mike

Find a way to increase your income. You can take control of your income and invest the extra money as you prepare for your future life when you’re financially free. What are some ways you can think of to increase your income now?

Harland

Hmm, I can think of a few, Mike, such as changing jobs. A new job with higher pay will increase your income, won’t it?

Mike

Yes, our daughter did that. She found a new job at a new company where she enjoyed a significant boost in her income.

Harland

Education is another way, Mike. Learn new skills, get the credentials you need for something with higher value in the job market.

Maybe a part-time job. What are some part-time jobs that people you know have taken on?

Mike

House painting is one. A couple of school teachers teamed up to paint houses on the weekends and over the summer. 

Driving for Uber or Lyft is another way, very flexible to set your own hours and you pick up some extra cash. Our daughter and son-in-law have done that. They also met some interesting people.

Delivering pizzas is another option or start a new business.

While I was working full-time, I started venturing into real estate. I partnered with another investor to flip a house. We made some money and gained a lot of experience. We’ve since built on that experience and shifted our focus to buying properties that we can improve and thus provide affordable housing as rentals. The properties provide income that is adjusted for inflation. With rents increasing as the properties appreciate in value.

Harland

So there are many ways to bring in some extra income. Some of them are at minimum wage or trading hours for dollars, of course. But others like your real estate business can generate some significant income and growth.

My wife and I have an Airbnb property. It generates about $1000 extra income every month. Perhaps you are listening can do something like this?

Mike

One way to free up money is to invest is to take control of your spending. Another way, as we have discussed here, is to add some extra income now and invest that extra now.

Harland

The purpose of finding that extra money to invest now is to build up an investment portfolio, as quickly as you can. Your goal is to build a portfolio that generates enough passive income to cover your expenses.

CONCLUSION

Mike

That is the definition of financial independence when your passive income from your investments is greater than your expenses. If you want to reach financial independence as early as possible, start finding the money now to invest, either through reducing your expenses, creating more income, or better yet, a combination of both.

Harland

There you have it.  And you can do it. We did.

Next week, we’ll explore with you the pros and cons of investing in stocks or mutual funds or investing in real estate. As you might have guessed, both Mike and I think real estate has significant advantages. See you next week.

Mike

Bye for now.