For the past six weeks, I've been hard at work writing my “introduction to financial independence and early retirement” project for Audible and The Great Courses. It's been challenging — and fun — to rework my past material for a new audience in a new format.
Naturally, I'm emphasizing two important points in this project: profit and purpose.
- I believe strongly that you need a clear personal mission statement in order to find success with money (and life).
- I also believe that the most important number on your path to financial freedom is your personal profit, the difference between your income and your spending. (Most people refer to this number as saving rate. I prefer the term “personal profit” because it's, well, sexier.)
That last point is important.
Too many people want magic bullets. They want quick and easy ways to get out of debt and build wealth. They believe (or hope) that there's some sort of secret they can uncover, that somehow they've missed. Well, there aren't any secrets. Money mastery is a combination of psychology and math. And the math part is so simple a third-grader could understand it. Wealth is the accumulation of what you earn minus what you spend.
There are only two sides to this wealth equation — earning and spending — but a disproportionate amount of financial advice focuses on the one factor, on spending, and that's too bad. Sure, frugality is an important part of personal finance. And if you're in a tight spot and/or have a high income and still struggle, then cutting expenses is an excellent choice. But the reality is, you won't get rich — slowly or otherwise — by pinching pennies alone.