What if I told you that you could retire in five years? Would you believe me? What if I told you that you can change your financial life dramatically in five years? Does that sound more feasible?
Most people can drastically change their lives by adding just one or two passive income streams. The problem is that passive income comes from assets.
Most people live below their means to acquire assets. And therein lies the rub; it takes discipline and sacrifice to acquire assets.
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Today, I want to talk about the art of living below your means so that you can acquire income-producing assets like businesses, real estate, and dividend-paying stocks. Let’s begin.
What is living below your means? Living below your means simply says that you spend less than you earn. For example, say you earn $10,000 per month and spend $8,000—you are living below your means.
This seems like common sense, right? So why is it so difficult to live below your means? Why do most people live lives that are far grander than their paychecks?
The simple answer is debt. Debt allows us to spend our future earnings for a price; that price is called interest.
Debt has always been around, and it will continue to be a thing. If you want a history of debt in our society, read “Debt: The First 5000 Years.”
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What does living below your means look like? Now, let’s take a peek at how to live below your means. This lifestyle is important because the lower your financial requirements, the sooner you can live on passive income.
The first step is removing all debt except for a mortgage, including cars, student loans, credit cards, and personal loans.
Most people try to pay for these things out of their paychecks, which takes multiple years. It may even take an entire generation to free themselves of these bills.
However, when you live deep below your means, you can pay all of these things off in less than five years. How do you do this? You make a drastic change in your lifestyle.
You can move in with your parents if that is an option. You can get roommates, work a second job, or move to a less expensive city.
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I was born and raised in San Diego, California. Many of my family members laughed and joked when my wife and I settled down in Pensacola, Florida.
They wondered why I didn’t want to come back to San Diego. Today, I own five houses, while they struggle to maintain one household.
My wife and I live entirely on passive income without the need to work jobs. They live paycheck to paycheck to afford big city living.
They chose to maintain the status quo. They did the same exact thing that everyone around them did.
Choices have consequences. What we decide today affects our children’s lives tomorrow. My boys (18 and 14) already have homes to live in.
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It would be a miracle for my San Diego people to purchase a home for their kids. San Diego is far too expensive to casually buy multiple properties.
My kids will have the opportunity to avoid paying rent and getting into massive piles of debt. They can live below their means in a paid-off home. Their lives don’t need to be difficult.
As you make strong financial decisions, such as downgrading your home or car, you will start to feel more in control of your life.
I lived above my means for a long time. Then, in 2019, I realized that I couldn’t afford to take my family to Applebee’s without using a credit card. I decided to make a tough financial change; I decided to become smarter than my money.
Slowly living on passive income. You don’t have to jump into passive income living over a few days. Instead, it takes a year or two to truly understand how passive income works.
My advice is to start with dividend-paying stocks using a platform like Cash App. The dividends I receive via Cash App go directly to my debit card.
I call it my Dividend Debit Card. Let’s say I receive a total of $200 on August 1st from stocks like AT&T (T), Verizon (VZ), and CVS (CVS).
I can use that $200 to treat my family to dinner at Applebee’s. In essence, that is the concept of living on passive income.
Your assets produce your discretionary spending. If your assets produce $1,000 a month from dividends and roommates, that is your “fun” money.
You can take it a step further and start paying your bills with passive income. I wrote a book about this process called “Paying Your Bills with Passive Income.”
Pay Down Debt or Start Investing 2
Step-by-step guide to financial freedom. Let’s say you earn $10,000 per month and spend $2,000 on debt payments because you have $100,000 of consumer and student debt.
The first step is to reduce your housing costs to zero. In this case, your parents allow you to move in for free because they understand your situation.
You redirected the $2,500 you were previously paying toward debt to pay off your $100,000 debt. You’ll be surprised at how fast you can turn the tide on your debt.
Within two years, you are debt-free. You decide to stay with your parents and put that same $2,500 toward dividend-paying stocks. You also work a second job to bring in another $1,000 per month.
After five more years, you have a $50,000 home down payment and $100,000 in a dividend portfolio that pays you $1,000 per month.
The Magic of Living Below Your Means
You purchase a home and get a roommate. You continue to save and invest as more and more doors open up for you. You are living the American dream, all in less than ten years.
Why don’t most people get out of debt and live on passive income? Most people cannot reject social norms. They see their friend with a new jeep, then they go purchase a new jeep.
Think about it; most debt is unnecessary. People purchase cars, vacations, wedding rings, and expensive self-care treatment. The American dream became about spending money, not saving it.
The true American dream is about providing a better life for your children. It was never about ensuring you have every single creature comfort in the world.
The goal is to find roommates so your kids won’t have to get them. The goal is to live below your means so that your kids don’t have to take student loans or pay rent to another capitalist landlord.
Conclusion. As soon as you put your kids first, the entire system will make sense. People stay in debt because they want to live like they are rich.
However, rich people live on passive income. For example, a rich person may receive $10,000 a month in passive income from a $4 million dividend portfolio.
They live on $8,000 a month of passive income and reinvest the other $2,000, which allows them to continue becoming richer and richer.
The average person works for their $10,000 a month salary, thinking they are living like a rich person. However, they don’t have a $4 million portfolio; they just have debt.
So, you can see the (debt) game for what it is and make a change. Life is too short to live under the stress and burden of debt. I have been there and down that, and I am not going back. Good Luck!
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