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How to Achieve Financial Independence and Retire Early by JD Roth
Website: https://www.getrichslowly.org/
Who is JD Roth?
https://www.getrichslowly.org/about/ regular guy who went to the school of hard knocks. Made a number of poor choices, found himself in a shitload of debt and then did the hard yards to get himself out of it.
EPISODE 1 What is financial independence?
Think of the matrix. “You’ve felt it your entire life, that there’s something wrong with the world. Like a splinter in your mind driving you mad. It is this feeling that has brought you to me…. The matrix. The matrix is everywhere.”
“Remember all I am offering you is the truth and nothing more”.
If you follow this course – you will come to see money differently.
We live in a culture built on debt.
Definitions
What does it mean to be retired?
Leaving one’s job and ceasing to work. “Retirement” relevantly recent concept only available in wealthy nations where citizens have relatively long life spans. Throughout history people have lived short lifetimes.
What is financial independence?
You’re earning enough money to support your spending habits for the rest of your life.
Spend less than you save. Some people in the FIRE movement – save half of their income.
The more you save, the quicker you achieve financial freedom.
Formula includes following elements:
- Slash spending
- Increase Income
- Increase investment
Generally sustainable to take 4%
Multiply your current annual expenses by 25. If the product is less than your savings, you’ve reached FI – Financial Independence.
My expenses would be $50,000 per annum so product $1,250,000 to achieve financial independence.
Financial Independence is not one thing. It is a series of incremental thing. A series of financial milestones – each more exciting than the last.
Money Scripts
Our attitudes and beliefs are shaped by parents, community, and friends.
Our view of reality is like a map to navigate our way through life. If the map is true you will do well. If it is false, you will get lost along the way.
We aren’t born with these maps we pick them up along the way. No two maps are the same. No map is 100% accurate. Our mental maps require constant revision and updating.
Revising our mental maps requires effort. It’s not easy. Most of the time these maps are hidden. They are subconscious.
“Invisible scripts” from book “I will teach you to be rich” by Ramit Sethi
Examples:
‘Money is the root of all evil’
‘I can’t get ahead because the economy sucks’
‘I have to go to university in order to be successful’
‘I can always make more money’
Etc…
Most of our money scripts come from childhood.
WHY IS A MONEY SCRIPT IMPORTANT?
IF you don’t like your relationship with money, you need to re-write your script. You will have to do things differently to get new results. Rewrite your script and act on it to make change.
If you want to make changes you must take action.
EXERCISE 1
Take some time to think about your own money script and think about how it has affected your life.
What does it mean to be rich? What does wealth mean to you?
Freedom. Freedom to do whatever I like and not have to worry about making ends meet or finding money to pay bills.
Think about the first messages about money you ever received. What were those messages? How have they influenced you from childhood??
I recall my mum always saying “we could never own that” “we don’t have any money” and having a “poor person” mindset. She would say things like “it’s better not owning anything” and while there was no value put on anything, we struggled financially, didn’t save for the future, spent impulsively and frivolously, didn’t exercise self-control or self-discipline at all.
It impacted on me significantly as I tended to spend frivolously, not exercise self-discipline or self-control etc and I found the whole experience, conversation around it extremely humiliating.
Imagine you are in a romantic relationship with money. What does it look like? Are you in control or does money control you?
It is reckless in that I am not monitoring it and it has been totally derailed.
What is one step you can take today to improve your relationship with money?
Create a budget and focus on my FI number.
First Step to escaping your money myth is getting clear on purpose
EPISODE 2 – THE POWER OF PURPOSE
It’s important to have the right mindset.
Have a plan. Build a foundation.
What attitudes can you develop that are likely to help you at completing your journey to financial independence? How can you create a plan so amazing that you are willing to walk to work bleary eyed every morning in order to achieve it?
Each of us largely create our own reality and our own happiness by choosing what we focus on and how we react to it.
The shape and content of your life is largely a reflection of how you experience objective reality.
There are two ways that you can primarily change your life:
- You can change external conditions; or
- You can change how you experience those external conditions – change your internal response to them.
Sometimes the best way to improve things is to change the world around you.
There are times when the best way to improve your life is to change your environment.
Due to many of us are used to following rules and living up to certain standards – so have thus developed an external locus of control.
External vs Internal LOCUS of control
In psychology a LOCUS OF CONTROL refers to how people view the world around them and where they place responsibility for things that happen in their lives.
External
You believe that the world happens to you.You believe circumstances outside of yourself and largely outside of your control are the cause or fate of your happiness and life circumstances. In
Internal
You believe you are in control. You either change your environment or change the way you are reacting to the world around you.
You can change that person or you can change how you relate with that person. Here’s the reality – you can’t control other people.
People who try to change the world around them believe in the external.
People who change themselves to deal with the world. Internal locus of control – shift.
If you don’t like your circumstances it’s up to you to change them.
You have the power to determine your own destiny. FIRE Movement followers: Believe you – Forge your own path. Be proactive rather than reactive.
The pursuit of financial independence is by nature a proactive. Default actions lead to default results.
If you don’t act, you do not escape the matrix.
I want the freedom to do what I want when I want – common attitude of people searching for financial freedom/independence.
When you are running towards something you are being proactive.
HOW DO YOU IDENTIFY YOUR PURPOSE IN LIFE??
I had no greater goal so no wonder I got into debt.
George Kinder – certified financial planner
Discover goals and values of client – he considers himself a life planner, not a financial planner.
Asks his clients three questions:-
- Imagine that you are financially secure. You have all the money to live for the rest of your life. What would you do? What would you do with your life?
- Imagine you go to your doctor. She gives you the sad news that you are about to die. If you knew you were going to be gone in the next few years – how would you change your life? Would you change your life? (noting you don’t have unlimited wealth)
- Now you find out – you only have24 hours to live and there is no way to change it. How would you feel? Who did you not get to be? How would you feel about your life so far? How would you spend your last day?
Life planning is all about asking that final question. What would you do/how would you feel about the last day of your life?
Most people miss people, experiences, events, achievements.
EXERCISE – Personal Mission Statement
Steps (each on a new page)
- What are my lifetime goals? (let your mind run free, list every single thing you would do with your life? Note the 3 that seem the most important to you)
- How would I like to spend the next five years? What would you like to do? Suspend judgement – highlight 3 goals that resonate the most
- How would I live if I knew I would be dead in 6 months? When finished find new
- New Page – write My most Important goals – and take the top 3 from each of the prior questions
- Label “My Mission” is there a theme? Using your list as a launching pad – draft yourself a personal mission statement. Set aside mission statement and walk away. Wait a week.
- Review your mission statement. How does it make you feel? You will want a mission statement to hold you in good stead through good times and bad times.
What does a personal mission statement sound like?
“I want to be the best person I can be both mentally and physically. I want to sample all the world has to offer by fostering new relationships, exploring new ideas and daring to try new things. I want to use my skills and experience to improve the lives of others while also improving my own.”
Set goals based on what goals align with your mission statement. Your mission statement shapes how you manage your money and your life. Yours should too.