The Onist

The Onist


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The Position of Fuck You: 6 Steps to Financial Freedom

I don't want to be told how to live my life by a job or boss, by marketers or social media influences, or by society at large. I want to chart my own path. A path that means something to me. Here are the 6 steps that I am following to achieve financial independence.

You have probably been told a few times throughout your life that "money doesn't buy happiness". Ignoring the fact that the people who told you this probably have a decent amount of money, anyone that is truly honest with themselves can find some truth in this statement. At the same time however, it is even easier to come to the conclusion that it's not quite this simple and therefore not the complete picture. I think what's actually closer to the truth is the following quote from Kanye West.

Having money isn't everything, not having it is.

Now I don't usually take financial advice from rappers but Kanye has a pretty good point in this regard. When you don't have money, it quickly becomes the source of a lot of pain, frustration and anger. It consumes your life and fogs the lens in which you see the world. When we don't have money every problem seems to revolve around it and while being rich wont fix every problem in your life, stacking up money seems like a worthwhile pursuit.

When you become financially free you will know longer make every decision solely based on money. You don't take that job just because it pays better. You don't have to decline the invitation to that dream vacation with your friends and family. You don't have to worry about the guilt of buying expensive organic groceries. You don't have to miss your sons baseball game because you're worried about upsetting your boss and not getting the time off of work. You can do all of this and much more because you are in the position of Fuck You. The steps to get to this position are simple but it's not going to happen overnight.

Step 1: Create an Emergency Fund

Save at least $1500 and put it into an emergency fund that you will only use in the most dire of circumstances. This should go without saying but "emergencies" don't include last minute beer money, vacations or even an engagement ring. This money should only be used when shit hits the fan. Situations whereby if you don't resolve this problem right now, your life will become completely derailed. Examples include when your car breaks down and you can no longer get to work, your water heater goes out or unexpected medical expenses arise.

Why create an emergency fund? Simply put, because anything that can go wrong will go wrong at one point or another. And instead of borrowing money from your parents for the umpteenth time or pulling out your credit card (further increasing your debt), you'll have something to fallback on.

The great thing about having a solid emergency fund is that it starts to give you that feeling of financial freedom. Perhaps for the first time in your adult life, you have some sort of savings and thereby some room to breath financially. This step is the quickest and easiest way to gain some control back but is still very far from the position of Fuck You.

Step 2: Pay off your Debt

About 80% of American adults are in debt and therefore this has just been accepted as the status quo. Maybe you bought shit you didn't need to furnish that apartment you couldn't really afford. Maybe you bought a new car when you could have (and should have) boughten used. Maybe you had to have that new shiny overpriced Apple product and paid for it with plastic. Or perhaps most likely, you were being the average young adult and tried to bolster that resume with an overpriced, increasingly worthless college degree. However you got into debt doesn't really matter now but you should take some time to self reflect and learn about yourself, your spending habits and prepare yourself for an all out war against it.

One of the biggest problems with debt is that it severely restricts your monthly income, your ability to save and your overall happiness. The biggest upside to paying off your debts as quickly as possible is the amount of money you will save on interest to those loans. Unfortunately, most people don't actually understand how interests works and therefore how much money they are losing by just making the monthly minimum payments. Take a look at the math below for a far too common 20 something year old strapped with 100k in student loans @ a 5% interest rate for a 20 year term.

$100,000 * 0.05% * 240 [months] = $158,389.38 - $100,000 = $58,389.38

The math above should be shocking to you. I'm not going to explain how the math works but basically the equation above is saying if you pay the monthly minimum on your 100k loan for 20 years. You will end up paying the bank 58k in interest alone on top of your 100k principal. Yikes! If you'd like an easy way to calculate your exact situation here is a handy loan calculator.

To put it simply, paying the minimums on your debt is not how you are going to win the war against your debt. You must pay as much as you can safely afford each month on these loans to pay them off as quickly as possible.

There are two main payback strategies for loans based on your preference and financial psyche. They are "Debt Stacking" (i.e. paying off the debt with the highest interest rate first and then second highest, so on and so forth) and the "Debt Snowball" (i.e. paying off the smallest loan first, then the next smallest, so on and so forth). You can read a great overview on both methods here.

Neither method is truly superior to the other as long as the debts get paid and the war is won as quickly as possible.

Step 3: Create a Runway

What would it feel like to have 6 to 12 months worth of expenses saved in a bank account? Imagine the amount of freedom and stress relief you'd have knowing that if you ever lost your job or became too injured to work that you'd be taken care of for the foreseeable future. Having a lengthy financial runway is truly the first big step towards Fuck You.

Calculating the amount of money needed for any desired length of runway is quite simple. Open up a spreadsheet and create a complete list of all your monthly expenses estimated to the best of your abilities. Be sure to include everything. This includes rent, utilities, groceries, gym, insurances, etc. Add them all up and you have you the absolute minimum amount of money needed to get through an average month. Take this number and multiply it by 6. This is the amount of money needed for a 6 month runway. Be a go getter and multiply your monthly total by 12 to get your 12 month runway. The tough math is laid out below.

$2,634 * 6 months  = $15,804 [6 month runway]
$2,634 * 12 months = $31,608 [12 month runway]

Save at least 6 months of worth of runway in a high interest savings account and try to forget that you even have it.

Step 4: Start a Retirement Fund

Starting a retirement fund or 401k could arguably be done before or in tandem with step 3. This is especially true if your employer offers any sort of match on your 401k contributions since it is basically free money being given to you. Nonetheless, starting a dedicated retirement fund as early as possible is crucial to obtaining Fuck You status.

Personal finance is often about making short term sacrifices for long term gains. Truer words may never have been spoken for 401k's as the immediate sacrifice is often small but the medium and long term rewards are huge. Let's dive into why this is the case.

First off, compound interest is the shit when it's working in your favor such as in the case of your 401k. Explained simply, compound interest is interest on the initial principal (your contributions), which also includes interest on all of the accumulated interest of previous periods of a deposit or loan. The image below shows the difference of value of $1,000 initial investment that compounds versus an interest non-compounding savings over a 20 year period. Wow!

The graph above shows that just saving $1,000 dollars in a 401k (at a perhaps slightly unrealistic 10% interest) turns into over $7,000 after 20 years. Imagine now that you contribute each year the annual max to your 401k (19k as of 2019). By the time you retire, that will be an insane amount of money. If you'd like more exact numbers for your situation, try out this handy 401k calculator.

Explaining the different fund investment decisions and strategies for retirement investments such as a 401k is worthy of an entire blog post in and of itself. But to quickly summarize the key rules, they are as follows:

The importance of point number 2 about investing in only low-cost index funds cannot be overstated. Simply put, high-cost actively managed funds are usually a terrible idea and vary rarely beat the returns of a simple index fund that track the S&P 500 or DOW Jones. If you have an hour to spare, I cannot recommend this superb PBS Frontline documentary enough!
It is linked below and it covers the retirement crisis for baby boomers but also dives into the almost criminal acts of actively managed funds and the amount of money you will lose over the course of your investment career. I implore you to watch this video in full!

Step 5: Learn. Give. Live.

Learn.

There are many, many variables that will factor into your own journey towards financial freedom and the inherent debt payoff and investment strategies. Variables such as your age, current debt, income, anticipated retirement lifestyle, risk tolerance, etc. Therefore it is up to you and only you to do your homework before, during and after your journey to Fuck You. Here is a list of great resources to get started with now:

Give.

No matter how wealthy you become, there’s one thing you should always remember: None of this matters unless you share it with yourself and others. If you've made it to this step in the journey to financial freedom, you clearly have intelligence, discipline and skills.

Therefore it is imperative that you give back not only to yourself but to your friends, family, mentors and the community with which you live. Giving your time, money, and knowledge to others can help achieve their goals and dreams. No matter how you give back, just be sure you do it. I'll leave you with an inspiring quote and song lyrics on the topic.

We make a living by what we earn. We make a life by what we give.

-Winston Churchill

Live.

When it comes to investing and saving for retirement, everyone wants a sure thing. But in real life, nothing is a sure thing except for right now. Right now, this very moment in which you read this, is the only sure thing. So, by all means, live for today. Splurge for a few things you really, truly want. Spend money on the things you value most and enjoy each day as if it were your last. Have fun. Go on vacation. Enjoy your family and friends and make memories.

It is of utmost importance to understand that memories gained throughout your life are yours forever. And like a fine wine, they only get better with age. They live on after you die. They can't be taxed by the government. No economic crisis, political upheaval, or stock market crash can take them away from you. If that’s not a sound investment, I don’t know what is.

Step 6: Fuck You

The final step to financial freedom isn't really a step at all but more of an enlightenment attained only after the first 5 steps have been completed. It is a new empowerment over life that allows you say Fuck You to anything and everything.

Allow me have John Goodman explain further:

This clip was taken from the movie The Gambler and if you’re thinking of watching it because of this scene, don’t. Just watch this scene on a loop for 2 hours and you’ll be far better off.

Conclusion

No matter where you are on your journey towards financial freedom. It is important to stayed disciplined and stick to your current and future goals. If you are just starting out on your journey, it is easy to feel hopeless. Trust me, I was once there, just as were 99% percent of adults in America.

Just remember that when you finally reach your financially goals, say Fuck You every now and again to the people and things in your life that either bring you down or don't foster true happiness. In closing, live your best life no matter where you are in it.

Oh... and by the way, Fuck You.

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