Three things you must do to achieve financial Independence

June 26th, 2014 by Matt Kelly No comments »

I love the Freakonomics podcast, but don’t always agree.  I recently discovered it and have been binge-listening as I walk to and from my office.


In a recent episode Steven D. Levitt, not your typical economist, and, award-winning author and journalist, Stephen J. Dubner, discuss How to Think About Money and other topics

Prompted by a question by Steve Reda, a 22-year-old in the Washington, D.C., area, who asked if kids today are more careful using credit as opposed to cash.  This leads to a conversation about spending in general, which leads to Levitt’s counterintuitive advice for the youth of today (advice passed down from Milton Friedman to José Scheinkman and on to Levitt):

Listen Now to Freakonomics 

Levitt asserts that based upon the advice of Milton Friedman and other economists it’s better to borrow money and spend more when you are young.  Then you should save more as your income rises.  He goes on to say that young people squander too much time trying to save money on purchases.

To achieve financial independence you must:

  1. Have a financial budget and a time budget that reflect your values – don’t waste time trying to save a few dollars at the expense of more meaningful pursuits.
  2. Invest 15% of your take-home pay.  Yes, when you are getting started this number will be smaller that it will be after you’ve been working for years.  However, the habit of automated investing will payoff in the long run.
  3. Be conscious about how much you are spending.  Whether you use a cash envelope system – my preferred method, or plastic you must by accountable to your dreams and goals.

It’s too easy to mortgage your future for unconscious spending today.

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