Hello friends, in today’s article we see a new book summary of Financial Freedom book by Grant Sabatier. this book helps you to achieve your financial Goal. so let’s understand the core principles from this book.
The Psychology of Money book summary
Financial Freedom:-Book Review
In August 2010, the author was unemployed and living with the family at the age of 24. In America, Every person lives their home at the age of 18, but the author lives with their family at age of 24. so his condition at this point is very shameless and bad.
In the last past three years, the author do very hard work, but nothing work for him, His account balance remains only $2 at this time.
You know that our generation is saving very little money as compared to our parent’s generation. So its effect is that every student or person has the debt.
so in that time, the author thinks, If he remains in the 9 to 5 jobs, there is no guarantee of financial freedom at the time of retirement.
so the author decides to try something different, and retire early and do what people do after retirement like, focus on passion, etc.
so Author’s principles were very simple, he want to learn about personal finances, become an entrepreneur as well as invest money in the stock market. (Financial Freedom Book Summary)
In the author, mind come the three strategies to becoming rich.
before that he calculated, his financial freedom Number, i.e. about $1.25 million. If the author makes this much money so they can live financial freedom life. And he won’t have any stress from work.
so he first learns more about personal finance and develops an effective plan to achieve their financial goal.
He decides to Start, following three strategies
- One Full-time Job
- 2 side Businesses
- Invest money in Stock Market.
By following the effective plan, his net worth goes from $2 to $1.25 million in just five years. Now, the author lives the life of Entrepreneurs, he is a podcaster, blogger, and author.
so in this book, the author explains the 7 pages of Financial freedom, are as follows
- Clarity:- In this phase, you know, which situation, you are and you know how to achieve financial freedom.
- Self-Sufficiency:- In this phase, you make that much money, so you can live a very average life, and you can pay all your bills. (Financial Freedom Book Summary)
- Breathing room:- In this Phase, You only depend on the salary but don’t have any savings, and your income is equal to your new expenditure. If your salary is late, then you get in trouble.
- Stability:- In this phase, you already have 6 months of savings. and you stay relaxed and you don’t have any Debt on you.
- Flexibility:- in his phase, you have invested 2 years of income. so you can live 2 years, without worrying about working. this phase is better than the Stability phase.
- Financial Independent Phase:- in this phase, your income comes from your invested money, and you don’t need to work for money. In this phase, you can achieve your all financial goal.
- The abundance of Wealth:- In this phase, you have lots of money invested, and your net worth is growing day by day. so you have an abundance of wealth, on that whole your next five generations live on, without working for money.
so decide, which position you are in now,
let’s talk about 6 strategies to achieve financial freedom, from this book
the first lesson I learned from this book is
Strategy 1:- For financial Freedom, you have to calculate your annual Expenses.
In this strategy, the author talks about taking the benefit of compounding interest. On compounding interest, Albert Einstein says, ” compound interest is the 8th wonder of the World. those who know it earn it, those don’t know to pay it.”
In simple words says, You earn that income from your principal amount and this income adds to the principal amount and you earn that income from the principal amount as well as the first interest got on the principal amount.”
to understand better take the following example, (Financial Freedom Book Summary)
If you make an FD in Bank Account, for 3 years, and the bank decides to pay you 7% interest on your FD.
so you make the 1 lakh rupees FD. After one year you get 7% interest on your principal amount so your money is about 1,07,000.
so, Now for the second year, you get 7% interest on the amount of 1,07,000, not just 100,000
so this is called a compound Interest. so these well know people, those who get the loan or give loan.
To use this effect, the author recommends to first we have to calculate our annual expenses.
to calculate your annual expenses is easy. First, you have to calculate how much debt you have. how much tax you pay in this years. if you live on rent, then calculate, how much rent of year. calculate, Your insurance amount of year, calculate your vacation expense, in the year.
Calculate, your necessary expenses, like, food, clothing, education expenses, and family expenses.
the next step is to add these expenses with your future expense, like a big house, children’s education expenses, and your traveling expenses in the future.
so add this all amount.
Then in the next step, you have to divide this Annual expense( current + future expense) by 4%. so whatever the amount has come, i.e. the Financial Freedom number for your financial freedom life.
Means, This much amount you required to invest in FD or any financial instruments, so you can live on your compound interest, and you can achieve your future goal. (Financial Freedom Book Summary)
the author recommends only 4%, because, we get easily a 7% average in compound interest on FD also, if you put money in a corporate bond, they give the 10, 12 % return annually.
If you only use your 4% then you don’t need to take money from your investment principal amount. and the remaining 3% of your money grows automatically.
so if you think, it’s tough, then the author says, you just try to write it down, and when you do, you know this is very simple.
now let’s move on to the second strategy, I learn from this book
Second lesson:- Calculating net worth before starting the financial journey.
so whenever we want to go, we have to plan, whole things, like, which way we want, how much longer the destination. we make the proper road map, and We choose the right way( path).
If we don’t know the right way, then we face lots of problems. so because, of this, we need proper planning and good direction.
the author says, ” if you calculate the net worth, then at this point, you making the road map for your financial freedom journey.”
Calculating net worth is very easy
Net Wroth = Asset – liability
so you have to calculate all assets you have and all liability you have, then you can subtract all liability from the asset, then you get your Net worth. (Financial Freedom Book Summary)
If you don’t know about, what is the asset and liability, don’t worry, let’s understand with differences
Asset:- asset is that put money in your pocket
Liability:- Liability is that get money out of your pocket.
The asset includes Rental properties, investment in real estate, dividend stocks
Liability includes credit card loans, student loans, business loans, rent, the food
you can remember the better way from the above definition. ( this definition I take from the Robert Kiyosaki book ” Rich Dad poor Dad“ everyone should read this book.)
When you subtract liability from assets, you get the net worth,
for example, the net worth of Warren Buffett is now is about $116 billion.
means, his net worth value, comes from subtracting liability from assets. so now you can imagine, how much money they have.
so now you understand the net worth concept.
so now your net worth may be positive or negative.
The positive net worth:- if your asset is more than your liability
the negative Net worth:- if your liability is more than an asset.
the author recommends we see our daily net worth, buy seeing bank balance, your investment, and also see your income stream and expense outlets.
If you think, this is a very stress full process. for this question the author gives a good answer,
he says, you have to make the habits of seeing regularly net worth. with habits, you train yourself to become financial freedom. (Financial Freedom Book Summary)
let’s see 3rd strategies I learn from this book
lesson 3:- Find out how much, work-time you are exchanging for each item.
In this, the author shares an awesome mindset to minimize unnecessary expenses. the author says, ” when you buying any product you have to see, how much price has product, and how much time you required to earn that much money.
let’s understand this mindset, with examples,
If you buy an iPhone for 1 lakh rupees ( i know prices increases), you have to think like that how many months do you work for to earn 1 lakh rupees.
Suppose, your income is 50,00 rupees per month, it means your iPhone has a value is about 2 months of continuous hard work.
some of us say, “I want to be live an awesome life, I want the fancy phone, why I think like this, that produces negative energy for me.”
to answer this question, the author says,
If you want to be financially free, then you have to calculate your per-hour income.
Calculating your per hour income is not an easy thing,
Generally, we calculate the only working our income at the job,
Per Hour Income = Income / Time
but, we don’t consider the time, which we lost in traveling to the job, in traffic, cleaning the house, buying groceries from the market, and other work, that’s we don’t give that much attention.
If we consider this, all hour, ten our per hour income is very less, than we calculating only job hour.
so we have to take the benefit of this information and focus on spending less.
the author recommends to all when you buy some expensive thing; try to calculate how much you do hard work to get that much amount back. (Financial Freedom Book Summary)
If you think, like this then you spend very consciously. without any regret.
now, let’s see the 4th strategy I learn from this book
Lesson 4:- Saing more money by reducing housing, transport and food costs
in this, the author talk, about our three big expenses.
the author tries to say, at this point, that, if you spend less on these things, you can save more money to invest and get early retirement.
let’s talk about houses, and how can we save money on these expensive things
An average person almost spends 1/3 rd of his money on a house. let’s understand how
If a family buys an apartment for 1 crore rupees, and the general family spends more money on furniture, outdoor, indoor decorations, it almost costs more than 50 lakh rupees. and we also have to pay a society maintenance fee for 1 year.
Thos amount 1.5 crore rupees, you can pay as full payment or take a loan from a bank, and you pay that’s a loan by working full life, to just paying the home loan. (Financial Freedom Book Summary)
then author shared, with us an awesome strategy, to overcome pain for life.
the author says, ” Instead of buying a house, you have to rent a fully furnished house. the rent price of your dream house is about 25,000 to 40,000.
If you follow this strategy, then you save up to 1 crore rupees, before you pay for the house by just renting someone’s apartment. and saving money, you can invest in stocks, bonds, etc. to earn more money on it, to pay easily your rental expenses.
let’s talk about the second most expensive investment we make i.e. car
Many people think, we should have our own car, or have a specific brand car to live an awesome life. the author says, ” If possible use the public transport, so you can save tonnes of money.
If you want to buy a car, then you should calculate the following costs also, for the year
- Petrol/diesel price cost
- Maintenance fees
- Insurance cost
- Parking fee
when you calculate this cost, then you realize, the money your car, takes yearly is almost tonnes of money.
let’s talk about third expensive things,
Food/ necessary expenses:-
the author recommends us,
always shop on a promotional day, or at that time companies offer you the annual membership, in that membership, you get the discount on each and every product. (Financial Freedom Book Summary)
or you can go to the local market, where every product is available cheap, because of supply not because of quality.
If you save long-term money on this expensive investment. then you have tonnes of money in your account. so this money, you can invest in an income-producing asset or invest in stocks to grow to compound for the long term.
5th strategy I learned from this book is
lesson 5:- optimization of your salary.
Most of the people are scared to say to the boss, about increasing salary. they think if I do this, what if my boss just fired me.
so for this problem,
the author recommend us, you have to follow the following rules to increase your salary.
- Rule 1:- Identify your skills, and contribution:- In this, you have to improve your skills, and contribute to the company or employer.
- Rule 2:- Do Market Research of Your salary:- In this, you have to do market research of your skills, and how much other people offer you for this skill.
- Rule 3:- Apply to different Companies first: after doing research you can apply to other companies, that gives you more salary than this one.
- Rule 4:- Ask for salary raise in percentage(%): we are humans, and we are very conscious of our money, and their amount. if you ask your employer to raise your salary by more than 20,000 rupees, this give a direct impact on him, so most of the time, don’t get your salary to raise. instead of this, you can ask in percentage, so you actually get salaries to rise, you can say, 5%, 10%, and 15%, because, this doesn’t give any direct message to the brain about money. (Financial Freedom Book Summary)
- Rule 5:- Ask for work from home:- in many companies have this offer, so you have to take benefit of that. by asking work from home, you save the traveling time, and expense and work are done very fast.
the 6th strategy I learned from this book is
Lesson 6:- Start a side business with your current jobs.
in this lesson, the author gives the example of his friend, to start a business, with doing the job
the author friend, the name is, Mac,
He is a Graphic designer, a professional, and has an annual salary of about $55,000. But having this much amount of salary, he faces a lack of money and financial problem.
so he thinks, he should start a side business by doing a regular job.
he starts the side business of dog walking.
In this business, people pay money for those who can take their dog for a walk.
after doing this dual thing, he gets the $55,000 + side business income
so he invests his income, and now he lives financial-free life.
same thing you can start, with doing a full-time job. try to start a business, that you have an interest in, and focus on not investing more money in business.
so your goal is to become comfortable. try to minimize capital for your business, learn first business skills, and slowly improve your business skill. (Financial Freedom Book Summary)
the author says, we always have to diversify our income. If you diversify your income, then you can be relaxed if your job is gone.
so let’s take a quick reminder of key points of this book
- Calculate your annual expenses and add your future expenses in that
- Calculate your net worth
- Find out how much work time, you are exchanging for each item.
- Saving more money by reducing housing, transport, and food item.
- Optimization of your salary
- Start a side business with your current jobs.
so, guys, this is all about the book ” financial freedom” book summary
you can buy this book, from the following link
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