the first step

DIY Investor - First Step

The first step towards financial freedom is actually pretty obvious, yet it is completely missed by most people, including myself for years:

produce more than you consume and save the difference

In other words, what’s important is not how big your paycheck is, but how much money is left over AFTER your bills are paid.  Maximize this number.


Expenses are like holes at the bottom of your savings account bucket.  You need to plug up or at least reduce the size of as many of these financial fissures as you can.  Credit card debt, car loans and any unproductive debt besides your mortgage should be your first priority.  Unproductive debt is debt that does not produce income.  A mortgage on a rental property or a margin loan in your brokerage account are examples of productive debt.  Borrowing money to go on an extravagant vacation or buy a new flat screen TV is unproductive debt and should be where you focus your initial efforts.

Then eliminate as many recurring subscription services as you can.  Do you really need a 100+ channels, a land line and the morning newspaper?  Go line by line through your subscriptions to see where your money goes and then determine if it’s justified.

Most likely, your biggest expenses are your home and taxes.  Depending on your situation, it may make sense for you to consider downsizing.  I went from a 3,000 sq ft house to a 1250 sq. ft. condo which cut my monthly mortgage and utility bills substantially.

I am not a tax expert, but there are a several good strategies you can research that will allow you to reduce your tax burden.  Starting a business can open up a multitude of deduction opportunities as well as provide another income stream.  Of course you can maximize your contributions to tax deferred savings accounts like 401k’s and IRA’s.  If you are willing and able to move out of the country there is the foreign earned income exclusion which allows you to make up to $100,800 (for 2015) tax free.  Finally, you can potentially move to Puerto Rico, as I have, to cut your taxes on capital gains to zero by obtaining an Act 22 tax grant.


Obviously you’re not going to be able to increase your wealth through cost cutting alone; you are going to need sufficient inflow.  If you want to make good, honest money, it’s not about who you know or how long you’ve been around.  You generally get paid according to how much value you add.  For example, Steve Jobs improved the lives of millions with the now ubiquitous iPhone and he was richly rewarded financially as a result.  This demonstrates the inherent morality of true capitalism where serving others is in your self interest.

Be a value adder, not a value extractor.  How this looks in practice will vary according to your interests, aptitudes and circumstances.  It may mean that you see a need around you so you quit your job and start a business to meet that need.  Or, you might keep your job and adopt an “entre-ployee” mindset, where you proactively look for creative solutions rather than wait for someone to tell you what to do.

Only you can figure it out for yourself but put in the time on this because it’s vitally important.  If you get it right, not only will you be financially rewarded, but you will receive the deep satisfaction that comes from providing real value to your customers who will benefit tremendously from the solutions you provide.  A voluntary, free-market transaction is always a win/win for everyone involved.

In summary, don’t chase money directly.  Instead, relentlessly look to solve problems and provide value.  Be generous with ideas and solutions and the money will come.

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