Ep.66- The "Job" of Working & How It Contributes to Financial Freedom
FINANCIAL FREEDOM & JOBS TO BE DONE
If we start thinking about "the job" everything does, we suddenly gain a new perspective. For example, for me, the job of a podcast, is to kill boredom during my crazy L.A. commute. Otherwise, I don't just sit on my couch and listen to podcasts. What if we apply that to personal finance. What is the " job" of working? Is it simply to make money? I think not.
One way to put financial freedom into the framework of "jobs to be done", is this: The "job" of working is to save, not just to live. It does not just stop there. The "job" of savings is to grow the money through investing. Ultimately, once given enough time, we will accumulate enough money, so that we can achieve financial freedom, which is that we don't have to work if we choose not to.
The line below pretty sums it up.
WORK ---> SAVE ---> INVEST ---> NOT HAVING TO WORK (BY CHOICE)
THE "JOB" OF WORKING IS TO SAVE, NOT TO MAKE MORE
Robert Kiyosaki, the author of Rich Dad Poor Dad, had a quote that best captures the core of personal finance.
"It's not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for."
Making more money does not mean having more savings. Making more money certainly helps. But in reality, a lot of high-earning people have nothing saved by the end of the day. Why? Their expenses and lifestyle keep up with their high income.
An improved mindset is to understand that the role of working, is to save money in the end. Why? We can only stop working one day, when we have large amount of savings, which we can draw upon if we choose not to work. If we deplete all we have every month, we will never be able to achieve financial freedom.
THE "JOB" OF SAVINGS IS TO INVEST
Just saving money is not enough. The role of accumulating savings is so we have a base to grow the money. The way to do so is called investing, typically in stocks, real estate, bond markets, or cash-flow generating businesses.
We need to accumulate savings, because oftentime, there's a threshold one needs to overcome to invest in strategic projects. For example, if we want to invest in the stock market, it's better to invest at least $1,000 compared to $100, because of each trade (buy or sell) comes with a transaction cost, typically $7- $10.
The critical mass is much higher in real estate, often requiring at least 5% of the house price, to cover a small 3% down payment and 2% transaction costs. With a modest home of $500k in Los Angeles, one needs at least $25,000 in savings.
TL;DR: WE WORK IN ORDER TO SAVE, WE SAVE IN ORDER TO INVEST, WE INVEST IN ORDER TO NOT HAVING TO WORK
This mindset ultimate leads to financial freedom, which is not having to work. Just to recap, the purpose of working is that we can accumulate savings, which in turn provides enough base to grow through investing. Once day, when we have grown the savings long enough, we can then achieve financial freedom.
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