The Young American’s Handbook to Financial Independence

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Imagine 100% of your monthly expenses being covered by some extra source of income that isn’t your job; this is financial independence. This is what is possible. It’s purely a mathematical pursuit! It’s not a new idea and it’s been extensively covered by many authors. For instance, the book Your Money or Your Life by Vicki Robin and Joe Dominguez inspired the “financial independence retire early” movement, where I found inspiration for this idea.

How to Use This Handbook

As an introduction to the ideas of financial independence.

The Mentality

First, you must destroy any pessimistic ideas you have regarding finance. If any thought comes to your mind that consists of a “he said… she said…”, where he/she are people not moving towards or at financial independence, then send it to the void.

Too many people live outside of their means. They will teach you to cower away from your own brilliance and be just like them if you let them. To be exceptional is easy because you simply need to live within your means and invest the rest so it can grow.

The Number

Now, you must list all your expenses down – control them, grasp them, no exceptions. Have a budget. Seriously.

I will provide an example with easy round numbers in the ballpark of the average reality, it’s not important that it doesn’t match reality. The formula is what’s important.

Let’s imagine an average scenario, outside of overly inflated city living, where it costs $2,000 a month in rent for a 2 bed 1 bath. Then, let’s imagine an extra $2,000 a month in other expenses, including food, utilities, and an average lifestyle of modest luxury (buying expensive and useless commercial products for pleasure).

$4,000 a month is what is needed for financial independence… $48,000 a year.

This is your number.

The Strategy

Patience is very important. The money will come.

The first step, we must nuke your housing expense and somehow turn your housing situation into a profitable endeavor. Easy! The best method is to become a landlord and rent your space to other people. This is easily done by purchasing a multi-family home!

It’s commonly called a “house hack” and will do exactly what we need.

House Hacking

To house hack means to buy a multi-family home, which is a property that has multiple dwelling units in it, that is, other houses on the same lot, like an apartment; live in one and rent out the rest. This will dramatically reduce your housing expense as well as invite the opportunity for profit.

For instance, a $275K duplex with 3.5% down ($9.6K), at 5.129% interest, has a $2,031 a month estimated payment – just like the rent we said we’re paying. Since it’s around the same neighborhood, we can get $2,000 a month from the other unit on our lot and so we end up only owing $31 at the end of the month!

Now, we’re building equity at an average of 5% a year, we can claim depreciation on our taxes, and we have increased our budget by $2,000. We just need $2,000 more and we can be financially independent.

Read this: The Beginner’s Guide to Buying Your First Multifamily Property

The Final Moves

House hacking is the first move that starts the engine to the rest of the moves. Clearly, it’s now a matter of time before we can cover that last $2,000! We just need one more multifamily at the same price, right? Let’s see. We buy another multifamily a few years later to bring our total units to 4.

We live in 1 and rent out the other 3 units at $2,000 a month. Now, our mortgage expense is $4,000 and we bring in $6,000! What just happened?

Our housing expense is now completely covered, and we have $2,000 left over every month as profit. We can use all of this to cover our former bills and we’re now financially independent.

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