- Every choice that you make comes with a trade-off.
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Money is an invitation to critical thinking.
You can afford anything, but not everything.
So if there's something that you value,
whether it's travel, food, or a house,
you can have that thing.
You just can't have an endless series of ands.
You might not be able to have that thing and something else
and something else and something else.
And that doesn't just apply to your money.
That applies to your time, your focus,
your energy, your attention - any limited resource.
And life is the ultimate limited resource.
So when you practice being better at managing your money,
you practice being better at managing your life.
My name is Paula Pant.
I am the host of the "Afford Anything Podcast."
I want to help you reach financial independence
by making smarter decisions with your money.
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The mistake that I see a lot of people make
when they start asking questions
about how to manage their money
is that oftentimes people will ask a question
about a product or a tactic.
So for example, they might say,
"Should I use this app,
or should I invest in cryptocurrency?"
First-principles thinking is stripping away everything
and really getting to the root of something.
So if you think about a tree,
the tactics and the products are like the leaves of a tree.
That's the most visible surface
so, of course, it's what people might ask about first.
But first, let's start with the roots of that tree.
The roots of that tree are your values.
It's that question of what matters most.
And then from those roots stem that trunk of the tree,
which is your philosophy of life,
the type of life that you want to lead.
And from that philosophy, then
your objective or your goals:
How does that philosophy of living
translate into specific goals?
That's really that tree trunk.
From there, you go out into the branches of the tree,
and they represent the strategy.
Now that you know your philosophy of living,
you know your goals, now you can come up with strategies
for how to obtain those goals.
And then once you have that strategy in place,
then those leaves are the tactics and the products.
So if you're starting with the question
about tactic or product, you've got a leaf in your hand,
but you don't have that root system built yet.
When personal finance is framed
in the context of delayed gratification
so that you can have more money when you're 75 years old,
it's really hard to get excited about that.
But when we reframe that as financial independence
and how taking better care of your money
leads to this flourishing of freedom,
of opportunity, of choice,
that becomes much more enticing.
FI is the point at which your potential passive income -
money that comes to you when you're sleeping,
typically through investments -
is enough to cover your basic bills.
And the reason that matters
is because then endless options open up for you.
You have the freedom to do whatever you want -
whether that's to stay in your current profession,
make a midlife career change, become a full-time parent,
or travel the world. Whatever choice you want to make,
you're able to make that without having to sweat
about how you're gonna keep the lights on,
how you're gonna keep the fridge stocked.
The pursuit of FI is for everyone,
but the first steps that you are going to take will differ
depending on where you are in your journey.
There are really only three steps
to achieving financial independence:
Grow the gap, invest the gap, repeat.
Grow the gap means to grow the gap
between what you earn and what you spend.
And there are only two ways to increase that gap:
earn more or spend less or both.
If you don't make very much,
like me when I was in my first job out of college
making $21,000 a year,
at that stage of life, your goal is to increase your income.
If you're already making big dollars
but you have a spending problem,
the low-hanging fruit is to curb that spending problem
and to address the root psychological issues
that are leading to that spending problem.
Step two is to then invest that gap.
My personal feeling is that everyone should aim
to save and invest at least 20% of their income.
And when I say save and invest,
that includes making additional payments
towards the debt above and beyond the minimum required,
retirement savings, investments in an investment account.
It includes building up your emergency fund.
Start with the goal of saving 20%,
and if you're nowhere close to that,
increase your savings rate by 1%
and do that every month or two.
It will take a few years,
but you will over time get to that 20% mark.
And then step three is repeat.
This is a lifetime practice.
This is not a quick hit
or something that's going to happen overnight.
Money management happens for life.
(contemplative music)
There has never been a point in history
when the world has not been volatile.
A hundred years ago, there was also a pandemic going on,
and there was a first World War.
A decade later, the Great Depression.
After that was World War II.
After that, event after event after event
that affected the entire globe.
I came to FI because I was scared
and anxious about the volatility in my life and the world.
My response to that was to become obsessed
with saving as much as I could
because it allowed me to not be so scared of the future.
It felt psychologically comforting to have these savings.
Change is the nature of the world, the nature of time.
And so, if you're looking out at the big global factors
that are happening in the world today
and you're feeling fear,
embrace it and use that fear as motivation,
as fuel to make wise decisions
about how you spend your money, your time, your effort.
That's how you build a life that's more intentional.
And there's a lot of joy in that.
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