The Most Powerful Way to Think About Money

Every choice you make comes with a trade-off.

Money is an invitation to critical thinking—you can afford anything,

but not everything. If there is something you value,

whether it is travel, food, or a house, you can have that thing.

You just cannot have an endless series of “ands.”

You might not be able to have that thing, and something else,

and something else.

This concept does not just apply to your money.

It applies to your time, your focus, your energy,

and your attention—any limited resource.

Life is the ultimate limited resource.

When you practice being better at managing your money,

you practice being better at managing your life.

The Root System of Financial Planning

A mistake many people make when they start asking questions about

how to manage their money is focusing on a product or a tactic.

For example, they might ask, “Should I use this app?”

or “Should I invest in cryptocurrency?”

Instead, it is better to use first principles thinking,

which means stripping away everything

and getting to the root of the subject.

Think of personal finance like a tree:

• The Roots (Values): This is the foundation. It answers the question of what matters most to you.
• The Trunk (Philosophy & Goals): Stemming from your roots is your philosophy of life—the type of life you want to lead. This trunk translates your living philosophy into specific objectives or goals.
• The Branches (Strategy): Now that you know your philosophy and goals, you can develop strategies to obtain those goals.
• The Leaves (Tactics & Products): The most visible surface of the tree represents the specific tactics and products you use.

If you start with a question about a tactic or a product,

you have a leaf in your hand,

but you have not built the root system yet.

Reframing Delayed Gratification

When personal finance is framed simply as delayed

gratification—saving so you can have more money

when you are 75 years old—it is very hard to get excited about it.

However, if you reframe that as Financial Independence (FI),

the concept becomes much more enticing.

Taking better care of your money leads to a flourishing

of freedom, opportunity, and choice.

FI is the point at which your potential passive income

(money that comes to you when you are sleeping,

typically through investments) is enough to cover your basic bills.

This matters because it opens up endless options.

You gain the freedom to do whatever you want:

stay in your current profession, make a midlife career change,

become a full-time parent, or travel the world.

You can make these choices without sweating about how

to keep the lights on or the fridge stocked.

The Three Steps to Financial Independence

The pursuit of FI is for everyone,

though the first steps will differ depending

on where you are in your journey.

There are three essential steps

to achieving Financial Independence:

1. Grow the Gap

This means growing the gap between

what you earn and what you spend.

There are only two ways to do this:

earn more, spend less, or both.

• If you have a low income, your primary goal should be to increase your earnings.
• If you already make good money but have a spending problem, the easiest solution is to curb that spending and address the root psychological issues driving it.

2. Invest the Gap

Once you have created a gap, you need to invest it.

A strong target is to aim to save and invest at least 20 percent

of your income.

This includes:

• Making additional payments towards debt (above the minimum required).
• Putting money into retirement savings and investment accounts.
• Building up an emergency fund.

If you are nowhere close to the 20 percent mark,

try increasing your savings rate by just one percent every month or two.

It will take a few years, but you will eventually hit that target.

3. Repeat

Money management is a lifetime practice. It is not a quick hit or an overnight change; you must consistently repeat these steps for life.

Embracing Volatility and Fear

There has never been a point in history when the world was not volatile.

A century ago, people faced a pandemic and a World War,

followed by the Great Depression, World War II,

and endless global events after that.

Many people are drawn to FI because of fear

and anxiety about the volatility in their lives and the world.

Saving aggressively can feel psychologically comforting

and make the future seem less frightening.

Change is the nature of the world and of time.

If you look at global factors today and feel fear, embrace it.

Use that fear as motivation and fuel to make wise,

intentional decisions about how you spend your

money, time, and effort.