Tuesday, July 23, 2024

5 Roadblocks on the Path Toward Financial Freedom

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Welcome to America! Land of the free. Or are we?

What is freedom anyway? The average American’s definition seems to be working five days per week, 50 weeks per year, 40 years of their life. Many are going through the motions, waiting for the weekend or for that vacation once a year.

I don’t think I am being a radicalist when I say that we are not actually free. We are trapped in a metaphorical prison called a “job.” Without it, most Americans would not have the means to survive.

If you call that freedom, then I have no choice but to disagree.

In America, freedom is not given like many people think. It is earned—earned by those who know how to handle money. It’s earned by those who know how to spend less than they make and invest that difference such that it produces a return at the same level or more than their expenses.

There’s only problem. Most people do not know how to do this!

In this article, I am going to explain five things that are a part of almost everyone’s life that have a large negative impact on your financial situation. If you are striving to be on the fast track toward financial independence, these things are just going to slow you down.

Before you think I am a heartless son of a gun, let me preface everything by saying that I am not suggesting you get rid of these things. I am saying that they are slowing you down toward hitting your financial independence goal. You will be much better off avoiding them until your passive income can satisfy the cost.

Here are the five things.

5 Barriers Between You & Financial Freedom

1. Your House

I am a real estate guy. You might be surprised that I am saying your primary residence is likely slowing you down rather than expediting your financial independence.

But it’s true. Whether you have a mortgage or are paying rent, the average American spends about 33 percent of their income on housing.

If you are paying a mortgage, sure, some of that goes to loan paydown, and your house will likely appreciate over time. However, you still have to deal with maintenance, repairs, insurance, taxes, and all of that good stuff.

In the end, how much do you think you are actually netting? I would argue much less than you think.

So what do you do? How do you get rid of your housing expense?

Well, I have not paid a cent toward rent or my mortgage in over two years. How is that possible?! House hacking!

House hacking works like this. You purchase a property, live in part of it, and rent the other parts out. That way the rent from your tenants is paying your mortgage and you live for free.

Do this for a few years and you will see hundreds of thousands of dollars being added to your net worth through rent savings, cash flow, loan paydown, and appreciation on your property. House hacking is the most significant thing you can do that will put you on the super fast track toward financial independence.


2. Your Car

The automobile has without a doubt changed the world. Some say for the better; I say for the worse.

Sure, cars allow us to get to places we may not be able to go otherwise. However, humans have taken advantage of this.

We drive everywhere we go: work, school, grocery store, etc. You name it. We drive there.

The fastest and most radical way to achieve financial independence is to completely ditch your car or turn it into an asset by renting it out on a site called Turo. I did this for a year and made over $10,000 on my car in that year. Not bad considering that most Americans spend 17 percent of their income on transportation!

However, I understand that this may not be feasible for everyone. In fact, it is not even feasible for me anymore.

I have a car, though I seldom drive it. It is not my main source of transportation. I bike to work. I bike to the grocery store. The only time I use it is if I am going to the mountains or have an errand to run that requires transporting something heavy or awkward.

I am not currently on the fastest possible track toward financial independence in the car department, because I am still paying for insurance and gas. However, I am at least in the left lane, passing those who use their car as a primary source of transportation.

Not only is a car damaging to your bank account, but it is also damaging to your health and the environment. I do not want to go too far down the rabbit hole here as to why your car sucks, but if you want my recommendation, here it is.

Go one year without owning a car. Either rent it out or get rid of it altogether. I can almost guarantee that you will find yourself healthier, wealthier, and wiser.

Related: Retired at 31, This Couple Will Show You How to ‘Quit Like a Millionaire’

3. Education

Education might be a tough one to swallow. It sure is for me. I graduated with close to $100,000 in debt for a bachelor’s degree.

Granted, an education is known as an investment in yourself. Pay hundreds of thousands of dollars up front to make more money in the next 40 years.

Makes sense, right? For some, maybe. For those seeking early retirement, no.

If your goal is to achieve financial independence and retire early through real estate investing, a higher education will likely set you back. Why? You do not need a formal education to invest in real estate.

Instead, you can listen to every episode of the BiggerPockets Real Estate Podcast, watch several upcoming webinars, and continue reading blog articles like this one. You will essentially earn an MBA in real estate investing for free in a few months!

Pro tip: Read books—like those available in the BiggerPockets Bookstore—if you want a premium experience for well under $1,000.

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Education Exceptions

There are two uncommon scenarios in which obtaining a formal education makes sense. The first is if you can obtain a free education. The second is if you are truly passionate about the work done in a field where an education is needed (such as a doctor, lawyer, etc.).

My only qualm here is that most (not all) people who go to school for these higher paying professions aren’t doing so because they genuinely like the work. They are doing it for the larger paycheck.

If that’s your motivation, you’re doing it wrong.

My recommendation? If your goal is early retirement, ditch the idea that you NEED a formal education. Take that money and use it to invest in real estate or start a business instead.

I bet you will lose less money and learn more. And if you stick with it, your investment will likely pay you many multiples of what your educational investment would have.

If you do fall in the boat where your life work is truly dependent on getting an education, go to a school that will provide you with the highest paying salary at the lowest possible cost.

Kristy Shen and Bryce Leung, authors of Quit Like a Millionaire, had a formula they used when deciding which school to go to. Here’s how it works.

Take the average annual salary of your profession and divide that by the annual tuition cost of your school. The resulting percentage represents each dollar you make per dollar spent on education. Written out the formula looks like this:

Average Salary / Annual Tuition Cost

Obviously, the higher the number, the better off you are going to that school.

Related: House Hack No. 2: Guess How Much I’ve Added to My Net Worth?!

4. Pets

Pets are another one. Do you know what cats, dogs, gerbils, hamsters, peacocks, bunnies, and snakes all have in common? People usually pay for them and then pay to maintain them.

What many people may not realize is that these cute animals are setting them years behind in terms of retiring early. The true cost of owning a pet can cost up to $1,000 per year on average.

If it is a bad year and your pet needs a surgery, it can be much higher than this. Don’t believe me? Check out this article from Money Under 30 on the true cost of pet ownership.

This does not even include the valuable time that you spend walking your dog every day, taking him or her to the vet, or additional fees if you want to travel with your dog or hire a petsitter.

I understand that your cat or dog may fill a void that no human could ever fill. However, it also leaves a large hole in your pocket.

Don’t get me wrong. I love animals of all species (except snakes—I don’t like snakes). But they should be considered a luxury and not a necessity.

My recommendation is to hold back on obtaining a pet until AFTER you have achieved financial independence. Until then, love everyone else’s pets.

Once you have reached financial independence, introduce the luxury of owning pets into your life.

And this brings me to my last point. Kids.

low stress landlord, rental property, real estate

5. Kids

According to the Department of Agriculture, the cost of raising a child is on average $14,000 per year or $233,610 over the course of 17 years.

Ahem, excuse me?! $14,000 per year?! That’s more than what many people pay for rent!

I completely understand that for some people the whole reason for achieving financial independence or living in general is for their kids. If you are reading this article and already have a child, I am not suggesting you get rid of them.

However, if you are reading this and you are thinking about having a child, I caution you that they will be a huge step backward in terms of achieving financial independence. This is from both a money and time perspective.

Besides, don’t you think that your child (or future child) deserves to have their parents around all the time? It would be much more ideal than just a few waking hours each week.

My recommendation? Just like pets, I think you’d be better off to achieve financial independence before having kids.

Once your passive income exceeds the cost of having a child, then by all means, have away! Until then, keep on pushing!

The Bottom Line

I know this article may agitate a few people. Many of these financial mistakes may have occurred in the past and cannot be undone.

For example, you will have trouble undoing your education or ridding yourself of your kids or your pet. I am not even suggesting anyone do this.

Instead, I want people who have not yet made these decisions to rethink them and be mindful that they WILL set them back in terms of achieving financial independence. If you really cannot wait, then do something to expedite your journey toward financial independence—side hustles, save more, etc.

If you really, REALLY cannot wait, then do it. But I don’t want to hear any excuses as to why you are not financially independent yet.



Do you agree or disagree with these five barriers? Have any negatively impacted your financial journey? How are you course-correcting?

Let’s talk in the comment section below!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

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