فصل 3 بخش 3

CHAPTER 3.3

SPEED IT UP: 1. SAVE MORE AND INVEST THE DIFFERENCE

If everything seems under control, you’re not going fast enough.

—MARIO ANDRETTI

Congratulations: you’ve just taken a huge step toward Financial Freedom! Most people don’t take the time to consider their complete financial picture and create a plan. And for those who do, it often stirs up all kinds of emotions. It’s big, it’s scary. I’ve been there, I get it. But now that you’ve done it, take a moment to savor your victory. And ask yourself this: How do you really feel about your plan? Do you feel good about your or your family’s future—are you excited to realize that your financial dreams are closer than you imagined? Or is it terrifying to think you might never get to where you’d like to be—are you so deep in debt you’re starting to wonder if you’ll ever dig your way out of the money pit?

Wherever you are, it’s okay. You’ve come a long way, you’ve made huge strides and there’s no turning back now. And now that you’ve learned to walk, so to speak, let’s teach you how to run. The goal of these next minichapters is to get you thinking about how to make your financial dreams come true faster than you ever thought possible. Dream big. Make it happen. And then speed it up. Have you ever had a crazy busy day, worked your tail off, raced against the clock, and then, against all odds, finished early? That extra hour or two of life that you reclaim is an absolute gift—a bonus that makes you feel like the world is on your side. You hit the gym and go for a run, head out for cocktails with friends, or race home to tuck the little ones into bed.

I travel like mad; I’m in different countries, on different continents, crossing time zones and flying around the world like the business equivalent of a Harlem Globetrotter. If I arrive somewhere early, if I’ve got an extra window in my week to refocus my energies or spend time with my wife or my family, I’m energized and excited. I just found some extra time!

What if that extra time could last more than just an hour or two? What if you could find not just an extra hour in your day, but, financially, find two years of savings in your life? Or five years? Maybe even a decade of life where you have the freedom of not having to work to support your lifestyle? That’s the promise of these pages. Even if your current plan doesn’t look like it can get you there, these chapters can show you how to shift your plan and find that opening in your life—that extra money, that extra time, that ultimate freedom.

He who gains time gains everything.

—BENJAMIN DISRAELI

If you’re going to speed things up, there are five core strategies. You can do any or all of them—it’s your choice. Any one of them by itself can significantly speed up the tempo with which you achieve your dreams of financial security, independence, or freedom. Put a couple of them together, and you’ll be unstoppable.

You can be rich by having more than you need, or by needing less than you have.

—JIM MOTT

STRATEGY 1: SAVE MORE AND INVEST THE DIFFERENCE

The first way to speed up your plan is to save more and invest those savings for compound growth. I know, I know, that’s not what you want to hear. Maybe you’re even thinking, “Tony, I’m spending every dime I have. There’s no way I can possibly save more under any circumstances.” If that’s true, before we talk about anything else, let’s remember the most fundamental strategy you learned back in chapter 2.9, “Myth 9: The Lies We Tell Ourselves”: the best strategy to get around your belief system is to develop a new belief! You can’t squeeze water from a rock, but you can change your story.

Even if you’re convinced you have no room to save, Nobel Prize winner Richard Thaler showed us that we can all Save More Tomorrow. Remember those blue-collar workers who said they could never save? And just five years and three pay raises later, they were saving 14%. And 65% of them were saving as much as 19%! You can do this, and you can make it painless if you use that strategy. Let’s attack some fresh strategies right now.

What if—in one fell swoop, in one single move—you could save a huge chunk of money toward your Financial Freedom, and it wouldn’t cost you a dime more? Do you like that idea? Let’s take a look at one of the biggest investments in your life: your home. If you’re like millions of Americans, home ownership is important, something you either aspire to or currently take great pride in. Whether you live in Portland, Maine, or Portland, Oregon, your house probably takes the biggest bite out of your monthly apple.

How would you feel if you could save an extra $250,000, $500,000, or even $1 million, from your home? Sound impossible? No, I’m not talking about refinancing your mortgage at a lower rate, although that is one painless way to save hundreds or even thousands of dollars a month.

THE BANKER’S SECRET

You don’t have to wait for a market downtick to save money on your mortgage. By the time you’re reading this, rates may be on their way back up anyway. You can still cut your mortgage payments in half, however, starting as soon as next month, without involving the bank or changing the terms of your loan. How? Let me ask you a simple question. Let’s say you’re applying for a home loan, which would you prefer?

Option 1: 80% of your combined mortgage payments goes toward interest; or

Option 2: a 30-year fixed rate mortgage at 6%.

Go ahead and think about it for a moment. What do you think? Are you tempted by option 2? Does option 1 sound crazy? Did you follow the crowd and choose option 2? Or did you outsmart us all and choose option 1?

The answer: it doesn’t matter. They’re identical. When you sign your name on the dotted line and take on that 30-year fixed-rate mortgage at 6%, fully 80% of your mortgage payments will go toward interest. Didn’t see that one coming, did you? How much does that interest expense wind up costing you over the course of your loan? Is it 30% more? 40% more? 50% more? Life should be so good. You want to know the banker’s secret? Your interest payments will tack on an additional 100% or more to your loan value. That half-million-dollar home you buy actually ends up costing you a million dollars after interest payments. If you buy a $1 million home? That costs over $2 million once interest payments are added in! Take a look at the chart below to see the impact of interest expense on your home purchase. The example is a $1 million home, but no matter what price you pay for your home, the ratio of impact is the same. Interest payments will double the cost over time.

For most people, their mortgage is the single largest expense, and with the vast majority of your payment going toward interest, I bet you’re not surprised to learn that the average American, when you add in credit cards and auto loans, spends 34.5% of every take-home dollar on interest expense. And that’s just the average—many people spend more!

So how can you cut down that enormous interest payment? How can you decrease the interest expense you rack up over time—and take that money and funnel it to your Freedom Fund? The answer is so simple it might surprise you.

If you have a traditional fixed-rate mortgage, all you have to do is make early principal payments over the life of the loan. Prepay your next month’s principal, and you could pay off a 30-year mortgage in 15 years in many cases! Does that mean double your monthly payments? No, not even close! Here’s the key: Money Power Principle 3. Cut your mortgage payments in half! The next time you write your monthly mortgage check, write a second check for the principal-only portion of next month’s payment.

It’s money you’ll have to pay anyway the following month, so why not take it out of your pocket a couple of weeks early and enjoy some serious savings down the road? Fully 80% to 90%, and in some cases even more, of your early payments will be interest expense anyway. And on average, most Americans either move or refinance within five to seven years (and then start the insanity all over again with a new home mortgage).

“It’s a pity,” mortgage expert Marc Eisenson, author of The Banker’s Secret, told the New York Times. “There are millions of people out there who faithfully make their regular mortgage payments because they don’t understand . . . the benefits of pocket-change prepayments.” Let’s take a look at an example (in the table on page 252). The average American home is $270,000—but this strategy works whether your home costs $500,000 or $2 million. A 30-year loan on $270,000 at 6% requires an initial monthly payment of $1,618. With this technique, you would also write a second check for an extra $270—next month’s principal balance—a very small number, relatively speaking. That second check of $270 is money you’ll never pay interest on. To be clear, you’re not paying extra money; you’re simply prepaying next month’s principal a touch sooner.

Hold yourself to this pay-it-forward strategy each month, and, again, you’ll be able to pay off a 30-year mortgage in just 15 years—cutting the total cost of your home by close to 50%. Why not prepay that $270, and cut the life of your mortgage in half? So if you have a million-dollar home, that’s a half million dollars back in your pocket! How much would that accelerate your journey to Financial Freedom?!

BABY, YOU CAN DRIVE MY CAR

It’s not just our homes where we can save big bucks. One of my sons was dying for a BMW. After years of coveting the “ultimate driving machine,” he finally went out and leased a brand-new Beemer with all the performance options. He was thrilled with his purchase. He loved that car: he loved the way it drove, what it said about him, what it represented. It was a point of pride and aspiration, and it announced his arrival—in his own mind, at least.

On the flipside, that BMW cost him a fortune! He could have made a monthly house payment with what he was paying for that car. A year or two later, the car got a little dinged up, and, no surprise, lost some of its luster. At 30, and newly engaged, he decided he wanted to look for a home for him and his future wife. When he did the math, he almost croaked. That $1,200 payment for his BMW X6 (with a twin turbo V8) could have literally covered an entire house payment.

He realized he no longer needed the same ego stroke that came from driving a luxury car. It was just transportation, after all. He saw that he could put himself in a Volkswagen Passat or a Mini Cooper, and it might even be nicer, newer, more fuel efficient.

On top of that, much of the joy that he got from driving that car also disappeared. He found joy elsewhere: in the idea of building a new life, putting down roots with the woman he loved, and buying a home. Getting rid of the BMW was no longer a sacrifice; instead, it became a conscious decision to spend his money elsewhere and start building a financially secure future.

Now, if you’re a car aficionado and love cars (as I do), I’m not telling you to go out and drive a Volkswagen. For many guys, that shiny black Ferrari, Porsche, or the new Tesla is just too much to resist. And if your plan is getting you to where you want to be financially, by all means, drive whatever car you want. But if you’re not getting there, or you’re not getting there fast enough, then maybe it’s time to rethink your wheels and see if you can find some meaningful savings to put into your Freedom Fund.

Remember Angela? She read an early copy of this manuscript and came home with a new car—her first brand–new car ever! Take a look at her numbers: she was able to trade in her old car and save $400 a month, or almost $5,000 a year, to put toward her savings and start compounding right away.

WHAT ELSE CAN YOU DO?

Houses and cars aren’t the only places where we can save. Where else can you work at axing expenses in your life that no longer give you value? I know the idea of living on a budget is totally unappealing to most people. I don’t want to be put on a budget and my guess is you don’t either. But what I do believe in is a spending plan. I like the idea of planning how to spend my money so that it gives me the most joy and happiness but also ensures my financial freedom long term.

Now, to be fair, if you’re one of those people who says, “Screw it, I’m not going to save; I’m just going to focus on earning more,” then you can just go ahead and skip right over to the next minichapter on earning more and adding value. If the idea of saving just completely exhausts or bores you, you’ve got four other strategies to help you speed things up, and I don’t want you to miss them because saving isn’t for you. But if you do, stay with me. I promise you that little things can make a big difference long term—they add up to surprisingly giant numbers.

To be fair, Amazon and brick-and-mortar bookstores have entire sections filled with books on how to save more money. Dave Ramsey is a very caring man with several books in this area, and Suze Orman is another author worth investigating if you are looking to find savings. But we’re going to take a few pages here to highlight the best simple strategies now.

One thing is for sure: you can create a spending plan that helps you decide in advance how and where to spend your money to give you the greatest returns today and in the future.

Remember chapter 1.3, “Tap the Power,” where we looked at how ordering in pizza with friends instead of going out to dinner could save you $40 a week, or $2,080 a year? At an 8% return, that turns into more than $500,000 over 40 years. A half million dollars! That’s a whole different retirement picture than most Americans have today. That kind of money, on its own or added to our 401(k), can certainly help make us rethink our daily Grande skim latte with a shot of vanilla.

Financial expert David Bach is a good friend of mine who got his start by attending one of my financial seminars more than 20 years ago. He made a decision to pursue his dream of helping people become financially independent, and just a few years later, I hired him for his first paid speech. Today, through his passion and dedication, he’s helped educate over four million people through his bestselling book The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich, which includes the concept of creating wealth through finding what he calls your “Latte Factor.” And it’s not just about coffee: the Latte Factor is simply a metaphor for all those small purchases that we don’t even consider—things we wind up wasting our money on without even realizing it. But if you are a coffee fiend, how much is that addiction costing you? Let’s say you’re a casual “user”: at $4 a day, you’re effectively giving up almost $56,500 of savings at 6% interest over 20 years. For a single drink! But let’s be real: the Starbucks loyalist doesn’t go just once a day. What about the real evangelists who are there two or three times a day? Take your $4 habit and boost it to $10 a day, and now you’re drinking away over $141,250 in savings over 20 years. That’s the cost of a four-year college education!

What if you’re a purist? You don’t binge on caffeine; your body is a temple. But bottled water is your thing. Got any Fiji or Evian enthusiasts out there? Or frankly, even if you just stock up on Poland Spring at Costco, how much are you spending on bottled water every year? A young woman I work with, whom I adore and who considers herself very socially conscious, is about to get married to a guy who regularly buys 12-packs of 1.5-liter bottles of Smartwater. How smart is that? He buys them three at a time, 36 big bottles in total, which lasts him about two weeks and sets him back $75. He’s spending $150 a month on water, almost $1,800 a year—on something he could get free from the tap, or filter with a Brita water filter system and a few Nalgene bottles for $50 to $60 a year. Forget that he’s killing our planet; he’s also killing his wallet. I know her fiancé would be much happier if that $1,800 a year was going into their savings account and compounding annually. At 8% over 40 years, that’s $503,605 being pissed away—literally.

I’m not saying you have to give up bottled water or stop getting coffee, but the savings are there somewhere. Isn’t it time to find them?

And finally, let’s not forget about our impulse purchases: you know, the ones that feel great in the moment, like the pricey work bag or the beautiful Hermès tie. Lisa, a young mom from Nashville, has a taste for the finer things in life. She drives her husband batty with her impulse purchases. She’ll come home with a great new dress or an amazing pair of boots, and her husband will invariably ask, “Were they on sale?” or “Did you check online to see if you could get them cheaper?” After several spats, Lisa and her husband agreed on a new plan. When Lisa found herself unexpectedly at Saks Fifth Avenue or Jimmy Choo, she’d take a photo of her next “must-have” and send it to her husband. He had two weeks to find her a better price online; otherwise she’d order her purchase over the phone at full retail. But as Lisa sheepishly admitted to me, over 80% of the time, he did find whatever she was looking for—at often at 20% or 30% cheaper.

So take a page from Lisa and her husband and check out all the online rewards programs that can save you real money. Upromise.com helps you earn cash back for college from your everyday spending, from online purchases to dining out and booking travel. You can put those savings toward a student loan, savings account, or 529 college savings plan, a tax-deferred savings plan set up by parents for their kids’ college tuition. And if college has passed or it’s not a priority, but cash is, there are hundreds of other cash-back websites out there—Extrabux, Ebates, Mr. Rebates—all of which can save you 10% to 30% on purchases at thousands of online stores. As for Lisa and her husband, they put all their savings back into their Upromise account, and now everyone feels better about that pair of stilettos.

At the end of the day, the question to ask yourself is this: Do my expenses, big and small, bring me the thrill they once did? It’s not about depriving yourself; it’s about adjusting your spending habits to mirror your core values and indulge only the experiences that truly matter to you. That deliberate spending allows you to invest in a quality of life that is sustainable and brings you joy. Whether you’ve got 20, 30, or 40 years to invest, no matter where you are, how much you can save, or how many years you’ve got to do it, you can take advantage of the unparalleled power of compounding. Financial security, financial independence—whatever your goals, you will get there a whole lot faster when you put your money to work for you.

It’s not about lifestyle, it’s about timing. Why not make simple changes today to insure you have more than enough down the road to continue to fund your lifestyle and your dreams? You can still enjoy life’s finer pleasures—but you’re in control now. You get to choose how to allocate your funds and where to get the biggest bang for your buck. Whether you’re going to tackle your mortgage expense or trade in those fancy wheels, make your online purchases work for you or do a little better on your everyday expenses—it’s in there. Real, meaningful savings, to the tune of hundreds of thousands of dollars to a million dollars or more are there for you to find and to reinvest.

Now let’s turn the page and uncover the fastest way I know to speed up your plan and achieve financial independence faster. Let’s learn to earn more.

MINDFUL SAVINGS

Here’s a quick-and-easy six-step exercise to get you thinking more aggressively—more purposefully—about saving:

1. Brainstorm about all the recurring expenditures that you could eliminate or reduce to cut your expenses. Car insurance, cell-phone bills, lunch money, movie tickets. Think about where you can make changes.

2. How much do these items or activities cost? Highlight the most significant of these expenditures and make a note of the associated costs. Next, calculate how many times per week you indulge in this expense and take a reality-check snapshot.

3. Now, on a scale from 0 to 10 (with 0 representing none and 10 representing extremely pleasurable), how much joy do you get from each of the items above? Attach a number to each activity or item to help you associate these costs to your life.

4. Next, think of what it would feel like to have Absolute Financial Freedom. Remember how you responded to that concept back in chapter 3.1: “What’s the Price of Your Dreams? Make the Game Winnable”? Remember how it made you feel? But at the same time, remember that this was a feeling you experienced in the abstract, in theory. Here it’s close enough to taste. What would you be able to enjoy, have, do, be, or give if you were absolutely financially free?

5. Decide which is more important to you: the joy you receive from the recurring expenditures on your list or the feeling of Absolute Financial Freedom. Remember that life is a balance. You don’t have to cut out everything from your list to move the needle on that feeling of freedom.

6. Write down at least three expenditures you are resolved to eliminate. Calculate how much money this will save you over the course of the next year.