Remember the rule of $20 a day. Every time you spend $20 on something, it’s going to take you one extra day of working to gain the true financial freedom that you’re looking for.
The math is like this. If you’re making $60,000 a year, let’s assume you can save $600 a month. That is about $20 a day (600/30 = 20). If that is the rate at which you can save, then every time you’re spending $20 on something that you didn’t really want or need, that is one day closer that you could have been to financial freedom, if your average savings is $20 a day.
If you save less than that – let’s say you can save $200 a month. In that case, it’s actually more like $20 makes you three days closer to financial freedom. In that case, we’ll say $200 / 30days = $6.67/day. You’re saving about $7 a day. This means that $20 is about 3 days of savings. So actually, the less you are able to save, the more important it is that you don’t spend money, because the percentage of your total savings that $20 is is higher, the less you’re saving.
I think the bottom line is to keep this rule in mind to have something less abstract than just a dollar value goal that you want to get to. Measuring $20 against actual days that you spend working is a more concrete and understandable goal than to say just that “I need to save $30,000”. My goal is to accrue $30,000 for a rental property, and that’s still only about 10% of the total cost of a rental property in New Orleans, the area in which I plan to buy in. To reach this goal, I want to keep in mind that every time I spend $20, I have to spend one more day without the financial freedom that I really want. That is also to say, I have to spend one more day paying rent.
Rent is an interesting thing. Once owning a rental property, it’s possible to finesse it so that you don’t even need to pay rent at all. Once you are a home owner renting out your “owner-occupied” rental, the tenants for the other unit of say, a duplex, could cover the mortgage for you.
This means that not only does $20 bring you one day closer to owning a home, but also, once you buy the home, you’ll be living rent-free. This means that at my current rent for a room in NYC of about $1000 a month, it’s now going to be 1000/30 = $33.33 a day extra that I have in my pocket. You can see how this starts to compound. Now we were previously saving $20 a day, which brought us one day closer to a rental property. We are adding $33 on top of that, and more than doubling the speed at which we are saving. It was $20 a day before, and now it’s $53 a day.