Editor’s note: This article was first published in June 2017. The figures it cites are from that time: the blogger was then 27, had $180,000 in savings, saved more than 65% of his income and planned to retire before 37.
At 27, with $180,000 in savings and a plan to achieve financial freedom and retire before the age of 37, the young blogger behind My Money Wizard, a financial adviser by profession, tells us how he manages to save more than 65% of his income and gives us some tips that are very easy for anyone to apply. Together with the advice of financial adviser Lauren Lyons Cole, let’s hope they change the way some people see money.
As we have said before, when it comes to finances and financial education, sometimes it has more to do with the mind than with financial knowledge. If you are one of those people who need to spend money to impress others, the spending is the least of it: we should deal with that personal insecurity, which will spill over into other areas of your life. And, of course, it will also cost you money.
These financial advisers’ money tips
(See: The young man who retired rich at 27 explains why he went back to work 3 weeks later)
For Sean, the young blogger, the secret lies in time and in the value of time. Above all, it is about knowing how to equate the price of something we are going to buy with the time it takes us to earn the money to buy it.
Let me explain. What Sean proposes is that, for a while, we look at prices not in dollars or euros but in hours, days or years.
Every purchase you make is paid for with money.
How long did I have to work to earn the money I am about to spend on this purchase?
When we buy certain cars, the real cost of that purchase could be 15 or 20 years of work, because, mind you, we are not talking about gross income but about the net savings we can afford to put aside to cover that expense.
Seen this way, a €50 dinner or a “wild” €150 weekend of drinks could mean weeks of work.
How many customers did you have to convince, how many calls did you have to make or how many hours in the sun did you have to put up with to pay for that treat?
If we follow this rule, we will understand that when a billionaire buys a yacht or a Ferrari, he is actually spending less “time currency” than you are when you buy a second-hand car, because the billionaire makes more net money per hour.
(See: 11 rules of personal finance)
Even so, Sean is not after wealth but freedom. In other words, doing whatever he wants without having to worry about money. To many people it might sound contradictory to think of being free without buying lots of the things you dream of today and hope to have if you ever had a lot of money. But the truth is that as you mature mentally and financially, you discover that you don’t need most of the things you have been sold in “the materialism race”, and that happiness is a state of mind that lies within you.
Sean has also automated his saving, so every month a large part of his income goes into index funds and some savings plans. That way, you don’t spend the money that never passes through your hands.
See also: Why don’t individual investors get Warren Buffett’s returns?
But Sean loves to travel, and he takes a trip every month.
In finance it is often said that constant travel is the best way to make sure your pockets are empty, and Sean knows it, but he doesn’t want to give up this “luxury”. So what he does is plan his trips for the days when plane tickets are cheapest (the days with the least passenger traffic) and compare prices using the comparison sites we now have at our fingertips.
That way, he says, he saves up to 50% on plane tickets.
He says he doesn’t need a luxury hotel, because when we travel the hotel is mostly just for sleeping. So he turns to hostels, budget hotels or Airbnb rentals, and looks on Groupon for food deals in the area he is travelling in.
Lauren Lyons Cole’s advice
“Money is dynamic. Plan for the long term and don’t focus so much on the present.”
Lauren suggests that you look at your financial situation as if it were a listed share. Go over your accounts for the last 5 or 10 years and you will see how your finances have had their ups and downs.
You should keep track of your net worth at all times; that is, the value of your assets.
Just like shares, our money is always on the move, whether in a downtrend or an uptrend. If we keep plotting our net worth on a chart, we will be able to see the ups and downs of our financial situation, and at some point that can motivate us to break a bad trend.
If you are going through a rough patch with money, think of it as something temporary, as long as you are willing to find a solution.
(See: How to pay off $90,000 of debt in 3 years)
Personal finances only improve by saving more, earning more money or both together. If you are in debt, focus on paying off your debts. If you have lost your job, focus on getting a new job or on the alternatives (making money or starting your own business).
Given that the chart of our net worth will always be moving, we must always be on the move too. If you don’t have a financial goal in mind, set one straight away. And if you have already reached a specific goal, set yourself another. You must always keep moving, or you will start to slide backwards.
These are the tips that, in my personal opinion, can be very useful to put into practice.
See also: Tony Robbins’ 13 best money tips
Featured image: Sgroey, CC BY 4.0, via Wikimedia Commons.
