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16 Timeless Truths of Financial Freedom

financial freedom

My first year out of college, I was in commercial real estate. My new career was straight commission—zero salary. At first I starved, and then the commissions started to come in. That first year, I made $50,000. In my mind, that was enough money to save, invest and become rich one day.

There was only one problem: My spending exceeded my income. No problem, I thought to myself. I just need to make more money. The next year, I made $75,000, but again, my spending exceeded my income. The more I made, the more I seemed to spend.

A few years later, I was a financial advisor earning six figures. I thought I would be set, but I still couldn’t get my spending to a point where I was able to save any money. That is, until the day I met Jim and Sue McIntyre.

When Jim came into my office at age 52 to see about retiring early, I was surprised. Jim had never made more than $55,000 a year in his life. Here I was making six figures and I had nothing saved.

I fully expected to inform Jim and Sue they couldn’t retire early, so imagine my shock when I found out they were actually multimillionaires. They had two homes paid off, one they lived in and the other a rental property. Jim had saved over a half million in his 401(k) and even more in their IRA accounts, and the couple had put their kids through college without any student loans. They had zero debt.

That meeting was an epiphany for me. Jim and Sue had become extraordinarily wealthy on an ordinary income. I, on the other hand, appeared rich, but I was actually living paycheck to paycheck.

Right then and there, I decided to shift my mindset, actions and approach to be more like the McIntyres, and by doing that, I eventually became a self-made millionaire. I have since dedicated my life’s work to helping others live and finish rich, too.

Since then I’ve written 10 consecutive New York Times best-selling books. Over a million people have gone through my programs. This year, at age 52, I took off with my family and moved to Florence, Italy, to enjoy what I call a “radical sabbatical.” I work when I want to because, like the McIntyres, I bought my financial freedom.

It’s the lessons I’ve learned throughout my journey that have made that reality possible—and can make financial freedom a reality for you, too. In this article, I’m sharing 16 timeless truths that I believe anyone, regardless of their income, can use to live and finish rich. I hope they will be helpful to you.


David Bach financial freedom

financial freedom

This is the biggest lesson I learned from Jim and Sue: it’s not what you make, but what you keep that determines if you’ll build wealth. Relatively speaking, the McIntyres didn’t make a lot of money, but they were masters of keeping what they made.

Before meeting the McIntyres, I was leasing a brand new Jaguar and renting an apartment in San Francisco, but I was totally stressed out. When I shifted my mindset and placed a higher emphasis on keeping my money and investing it instead of spending it on things I didn’t need, my stress dropped.

My new book, The Latte Factor, is a parable about Zoey Daniels, a millennial who’s earning a decent living in New York City. But, much like myself at that age, she’s living paycheck to paycheck. Then, one day, she meets a barista named Henry who becomes her mentor.

One of the first lessons Henry teaches Zoey is the value of being financially selfish. He teaches her that the secret to building wealth is three words: Pay yourself first. When you get your paycheck , the first person who should get paid is you. Automatically deposit that first hour of pay into a deductible retirement account, like a 401(k) plan, an IRA account, or a self-employed retirement account. If you do the math, it works out to saving 12.5 percent of your gross income. If your employer offers a match, you can save up to 15 percent of your income annually.

According to an August 401(k) report from Fidelity Investments, the average contribution of their investors—of which there are now 180,000 millionaires—was 13.5 percent.

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What the McIntyres did, what I’ve done, andwhat all the 401(k) millionaires in Fidelity’s plan have done is save money automatically. If you have to write a check or put money in a drawer to save it, that’s not going to get done long term. Thankfully, it’s never been easier to make saving automatic. If you’re looking for an app or service to help, check out Acorn, Clarity Money, Stash or RobinHood. They can get you started saving money in a matter of minutes.

There are two primary escalators to building wealth in America: owning stocks and owning real estate. The escalator that moves you up are these two assets. The escalator that moves you down is bad debt.

Why is this? It’s actually quite simple. The rich get richer because the system is designed so that those two asset classes go up. If you don’t own stock or real estate, you’re not on the “up” escalator to building wealth.

The “down” escalator is racking up debt on high-interest rate credit cards, going into debt to buy things you don’t need, taking out payday loans, and borrowing money to invest in things that can go down in value. That’s a recipe for being broke for life.

Here’s the truth of building wealth in America: You’re not going to be rich if you’re a renter. The net worth of homeowners in America is 44 times higher than the net worth of renters.

The people out there telling you it’s cheaper to rent than own are simply wrong. If you rent over your lifetime, you’re going to spend a half a million to a million dollars, or more, on rent—and have absolutely nothing to show for it 30 years from now. If you own and you pay your mortgage off, you’ll have an asset that’s free and clear and carries a huge amount of equity.

This one is pretty self-explanatory. By the time someone comes to you to borrow money, they’ve already gone to multiple banks looking for a loan. So, if businesses that loan money won’t loan money to your friend or family member, then why would you?

In most cases, loaning money to friends or family members backfires. It complicates the relationship, especially if they don’t pay you back.

This tip comes from Peter Lynch, the legendary investor who ran the Fidelity Magellan Fund. He understood that staying away from complicated investments was the best way to avoid losing money and experiencing serious heartache. Warren Buffett says he can tell within 10 minutes of meeting a perspective business seller if he’s going to buy the business. It doesn’t have to be complicated. If it’s not clear, don’t invest in it.

The reason most investors fail is because they’re incredibly impatient. They’re constantly selling investments they feel aren’t performing, and oftentimes, they end up selling too soon. The secret to building wealth is buying quality investments and holding them.

If you’d invested $1,000 in Amazon during its IPO in May 1997, it would’ve been worth $1.36 million as of September 2018. Investing $1,000 in Apple during its IPO in December 1980 would’ve given you over $500,000 in 2019, according to CNBC.

If you buy quality investments and hold them long term, you can be successful. If you don’t think you’re going to hold it, or if you don’t believe in the future of the investment, don’t buy in.

Timing the market—trying to anticipate imminent movements up or down—is a losing proposition, as recent data from Yahoo Finance illustrates: Let’s assume you invested $10,000 in the S&P 500 for 20 years between January 1, 1998, and December 31, 2017. If you didn’t touch that money, you’d have earned a 7.2 percent annual return.

Now, let’s pretend you tried to time the market and missed some of the days with the biggest gain during those 20 years. Here’s how your return would’ve changed if you missed:

• 5 days: 5.02%
• 10 days: 3.53%
• 20 days: 1.15%
• 40 days: -2.8%

That’s a -114% change that can result from missing just 40 of 5,036 trading days.

When it comes to investing in the stock market, there is nothing more dangerous than borrowing money to buy stocks. In the investment industry, this is known as using margin. Brokerage firms will provide you with loans against your assets to buy more stocks. It is the single riskiest thing you can do, but unfortunately it’s being done at record levels right now. In 2018, the level of margin debt surpassed $600 billion for the first time since the dotcom bubble.

When you invest in margin, if your portfolio drops to a certain level, you can get “called.” When that happens, the brokerage firm you borrowed the money from can turn around and sell your stock portfolio at a loss. You might have intended to be a long-term investor, but now you don’t even have the money to cover your margin debt because you’ve been wiped out financially.

Every couple years there’s some hot new investment that feels like it’s the place to put money. One year it’s gold, the next it’s dotcoms. Recently, it was Bitcoin. In 1636 in the Netherlands, during what’s been dubbed “Tulip Mania,” tulips were the hot investment. Every investor was rushing to buy tulips, only to find them worth nothing a year later when the bubble burst.

You might think this time is different than last time, that this investment is the one that’s going to make you rich. Chances are, it’s not. Things that get hot don’t stay hot forever, and if you want to build wealth, you should never invest all you have into one thing. Don’t buy into the hype of thinking you’re going to get rich quick.

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One of the great mythologies of entrepreneurship is the person who’s climbed back to the top after one (or even multiple) bankruptcies. While that sounds inspiring, it’s also a really hard approach to life. A much better approach is to become a millionaire and stay a millionaire by sticking to the principles that made you a millionaire in the first place.

Not to mention, as you get older, you might get smarter, but you also have less energy. So trust me, you don’t want to be starting over if you don’t have to in your 60s or 70s.

If you study self-made millionaires, especially those with a net worth over $10 million, one of the common denominators you’ll find is that they were giving back before they were rich.

John Templeton, the multi-billionaire and famous philanthropist, once said, “The secret to life is being a go-giver, not a go-getter.” It should be no surprise that the man who gave us such wisdom was reportedly tithing 50 percent of his income before he was rich. If you can’t afford to give back financially right now, you can always give back your time—the key is simply to give.

In 1994, I decided to teach a class on women and money. I was told by everyone in my industry, including the executives in my office, that there would be no market for teaching seminars about women and money. I could’ve listened to their advice, but I refused to give up. I knew the class would be a success, and it was. The first one drew 225 women.

I kept doing the seminars, and two years later, I decided to write a book about women and money. In 1998, when Smart Women Finish Rich went on sale, my publisher told me if the book sold 30,000 copies, it’d be a huge success. Twenty years later, over a million women have bought Smart Women Finish Rich. We’ve had over a half million women attend our seminars. None of that would’ve been possible had I given up my dream.

Many people believe you need to have a lot of money to one day become wealthy, but it’s simply not true. When you combine small amounts of money with time and the power of compound interest, you can change your life. Don’t believe me? If you invested $5 a day—the cost of a latte— and earned a 10 percent annual return, you’d have $948,611 in 40 years.

When you ask people who are older for their biggest financial regret, most will say it’s that they didn’t start saving when they were young. When you ask people who are young why they’re not saving, the No. 1 reason they’ll give you is that they don’t have the money to save.

But as Jim and Sue McIntyre prove, thanks to compound interest, you don’t need to be rich to live rich.

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For more than two decades, I’ve been teaching a principle called the Latte Factor, which is what you saw illustrated above. If you were to double that and invest $10 a day, or $300 a month, and earn 10 percent growth annually, here’s what you’d have saved by age 65 depending on what age you started saving:

• At 25: $1,913,334
• At 35: $684,097
• At 45: $230,009
• At 55: $62,265

Right now, you might be saying, “But I don’t want to give up my latte! It’s the only thing I have going for me in my day.”

I’ve heard this countless times over the past two decades and I get it. Here’s what I’ll say: if you don’t want to give up your lattes at Starbucks, then at least go buy Starbucks stock. If you had bought $1,000 worth of Starbucks stock when it opened in 1992, you’d have close to $250,000 today. By buying stock, at least you’re making yourself rich—and not just someone else—while enjoying the comfort you refuse to give up. The simple fact of life is if you spend more money than you make, every single day, you’re always going to be poor.

You have to save and invest money, even if it’s $5 a day, if you want to achieve financial security and ultimately financial freedom. 

Adapted from “Bach Wisdom–16 Timeless Truths” on DavidBach.com


This article appears in the January/February 2020 issue of SUCCESS magazine.

David Bach is a 10-times New York Times best-selling author. His most recent book is The Latte Factor, a little story you can read in less than a few hours to help you live your richest life. Join David on Instagram @davidlbach and his website, DavidBach.com.

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