Today’s post is part 4 of a Rockstar Finance roundup review of Grant Sabatier’s new book Financial Freedom. I’ll be reviewing some key concepts from chapter 4. Afterwards, I’ll share my overall opinion of the book. But before I do that, let me tell share some information about the author.
After graduating from a top university with a philosophy degree, Grant found himself unable to find employment. He ended up moving back home with his parents, where he slept in his childhood bedroom.
Sounds like the typical millennial story, right? Except it isn’t. One day during that time period, Grant got the craving to eat a burrito from Chipotle, but when he logged into his bank account, he saw a balance of $2.26.
With a balance like that, he was definitely a member of the not so secret group, Broke Phi Broke. After applying for jobs daily, he never got a call for a job interview. Instead of hanging his head low, this lit a fire in him to make all the money he could as quickly as possible.
To do this, he became financially woke, and put in a lot of hard work to become a millionaire in 5 years (Not a typo!).
“Eminently practical…A worthwhile purchase for anyone, not just aspiring millionaires, who feels overwhelmed by finances” – Publishers Weekly https://financialfreedombook.com/ In 2010, I was 24, unemployed, living with my parents, and had $2.26 left to my name. Five years later I had saved $1.25 million.
Would you like to reach Financial Freedom that fast? What does financial freedom even mean to you? Before you can answer those questions, you have to get some clarity on where you are financially. Which is the title of Chapter 4!
Where Are You on the Path to Financial Freedom?
Like any journey in life, in order to know how to get from point A to point B, we must clearly define point A. Although most of us understand this intuitively, a lot of us have our heads buried in the sand when it comes to our finances.
How do I know this? I speak with a lot of people who do not understand what their net worth is. While there should be no shame is this (most were never taught this), I think understanding this number is paramount.
Grant seems to think so as well. In the book he states, “Your net worth is the most important personal finance number for you to track on a regular basis. I track mines daily and you should, too. Or at least once a week.”
How to calculate your net worth is the first lesson taught in Chapter 4. Let’s take a look…
What is Your Net Worth?
Total Assets – Total Liabilities = Net Worth
The formula to calculate your net worth is total assets less total liabilities. An asset is something that has value. For example, a savings account, certificate deposit, and a car (depreciating asset) are all assets.
On the other hand, you have liabilities. These are debts you have. Student loans, payday loans, and credit card debt would be considered liabilities.
To give you a concrete example of how to calculate this number, five years ago my liabilities totaled $40,000 and I had $10,000 in assets. What was my net worth? If you did the math correctly in your head, you should have gotten -$30,000.
Grant recommends using an excel spreadsheet to calculate your own net worth, or you can use the Financial Freedom Net Worth Calculator he created.
After teaching you how to calculate your net worth, he touches briefly on the concept of liquid net worth and your FI number. I won’t go into too much detail here (you should read the book), but I will say this lesson reminded me of a post I read by Money Wizard on Liquid Net Worth.
The next key concept I want to zero in on is what the book has to say about debt reduction strategies.
Debt Reduction: Avalanche vs. Snowball Method
When it comes to debt reduction strategies, it should come as no surprise that Grant prefers the avalanche method This method involves paying off your highest interest loan first, regardless of the balance.
The snowball method, popularized by Dave Ramsey, is different in the fact that the lowest balance is paid off first, ignoring the interest rates on the accounts. Proponents of this method argue that this debt reduction strategy helps those attacking debt stay motivated. Once they see some small wins, they gain momentum.
I recently saw someone post an image showing what debts they had eliminated. When I asked what method they used, their answer was the snowball method. I was happy for them.
And I think Grant would commend them as well, but he chose the avalanche method in the book because it is optimal. After all, the book is about how to achieve financial freedom as quickly as possible.
To give you a concrete example of this in action, let’s say John Wick has three credit cards totaling $35,000. Credit card A has a $20.000 balance and an interest rate of 25%; Card B has a $5,000 balance and an interest rate of 10%; while card C has a balance of $10,000 and an interest rate of 15%.
How much will Joe save if he chooses to use the Avalanche method as opposed to the snowball method?
According to the Magnify Money Snowball vs. Avalanche calculator, Joe would save $2,547 and get out of debt two months faster. [Note: I chose arbitrary monthly payments for this fictitious example, but the point remains the same. Using the avalanche method will save you more money and allow you to get out of debt faster than using the snowball method.
Let’s wrap up by discussing what Grant has to say about automating your finances.
Is the Key to Wealth Automation
The book challenges the notion that automation is the key to wealth. Sabatier warns us that, “Automation is not enough. Automation is the status quo. It’s just the beginning. But it’s also how you get complacent.”
Instead of automating your finances, Grant encourages you to check your accounts daily. This will help you catch any discrepancies on your credit card bill. In addition, it will help you keep track of where your money is going.
Sometimes people have no clue where there money is going because they don’t pay close attention (I am guilty of this myself at times).
In his strongest attack on automation, he writes, “It’s easy to automate, to coast in life. But coasting won’t get you to the next level. Pushing harder is how you get to financial freedom.”
And that’s why Grant reached Financial Freedom. He is not someone who has been drifting; rather, he has been living this super intentional life. A life that allowed him to regain control of his time, which is what financial freedom is all about!
Now, that we have covered all the key concepts I wanted to tackle, let me tell you my overall thoughts.
My Overall Thoughts
In my opinion, this book is a must read if you are trying to become financially woke in 2019. I love the tone of the book and the constant reminder that time is greater than money.
While some personal finance books can be a bit preachy at times, Grant refrains from judging you.
Instead, he shows you how the purchasing decisions you make today impact your financial future. Unlike a lot of personal finance books that focus on extreme frugality, the main focus of this book is to teach you how to maximize your income.
I especially love the chapters on developing the entrepreneurial mindset. This is an area where I am kind of weak. To be honest, it feels weird selling myself at times.
During the first timer’s orientation at FinCon, I found it hard to speak up for myself at first. Selling is a skill I need to hone, and I think following Grant’s advice in the book will help me reach the next level in my journey!
It has influenced me to pivot away from Uber as a side hustle and try new side hustles that teach me in-demand skills. I’ve always been a hustler, but I have been playing the side hustle game wrong. I thought the relationship between time and money was linear. Thanks to Grant I no longer believe that!
Jerry is a Business Insider Contributing Writer who is obsessed with personal finance. He believes you can improve your financial situation by applying principles taught by the financial independence community to your financial life.
If you are having trouble saving, he recommends that you join the SaverLife Savings program where you can get a $60 reward after six months (no income requirement). All you have to do is put a minimum of $20 a month into a savings account. Easy, right?
For a fun read, check out his article 10 Signs You’re a Personal Finance Addict to see if you are a personal finance nerd.
Before you go, check out the new From Broke to Financially Woke Interview Series.
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