to get a man to understand something, when his salary depends on his not understanding it.
—Upton Sinclair
Whose bread I eat, his song I sing.
—Charlie Munger
Truth is hard to assimilate when it is opposed by interest. You cannot really understand how the world truly works unless you have financial independence. Once you achieve this state, it changes everything. It enables you to look at reality in a truly unbiased manner. Aim to achieve financial independence at the earliest time. That is when you will start seeing the world as it really is. It is difficult to think and act long term unless you are financially independent. Financial independence doesn’t mean you don’t work, just that you don’t need to. It removes the internal distraction of unpredictable employment.
The goal of financial independence is to stop depending on others (bosses, clients, a schedule, a paycheck). True wealth is measured in terms of personal liberty and freedom, not monetary currency. Money alone does not signify independence. Control over time does. The only definition of success is to be able to spend your life in your own way.
Is there a way for us to achieve financial independence?
As it turns out, there is indeed a simple way to do it.
It’s simple but not easy.
It requires a lot of hard work, sacrifice, discipline, and patience.
When I was young, I read The Richest Man in Babylon, which said to underspend your income and invest the difference [emphasis added]. Lo and behold, I did this and it worked.
—Charlie Munger
The first step to financial independence is to live within your means. In Charles Dickens’s classic David Copperfield, he wrote, “Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.”1
This was written in 1849, and it is just as true today—and will remain so forever.
Underspend your income to the maximum extent possible. Avoid taking on any debt for discretionary consumption. Cook at home. Buy clothes only on sale. Learn to cherish frugality. Read The Way to Wealth by Benjamin Franklin, The Richest Man in Babylon by George Clason, The Millionaire Next Door by Thomas Stanley and William Danko, and Rich Dad Poor Dad by Robert Kiyosaki. Always pay yourself first. Spend on yourself only what is left after you have made an investment. Never depend on a single source of income; make an investment in yourself and learn a new skill to create a second source. Avoid get-rich-quick schemes. Invest wisely by learning from the great investors. When you finally achieve financial independence, you will truly appreciate the value of money because of all the sacrifices you made in the past.
Building wealth over time has less to do with your income levels or investment returns and more to do with your savings discipline. As Peter Lynch says, “In the long run, it’s not just how much money you make that will determine your future prosperity. It’s how much of that money you put to work by saving it and investing it.”2 Wealth is the accumulated savings, over time, that is left over after you are done spending from your income. Because you can build wealth without a high income but have no chance without any savings, it is pretty obvious which one deserves a higher priority.
To me, money represents freedom and independence and not a means to engage in conspicuous consumption. Spending beyond a modest level of materialism is mostly a reflection of one’s ego. One of the most effective ways to increase your savings is to raise not your income but your humility. A friend once asked me, “Why make all that money so you can save it?” to which I replied, “Why spend all that money so you need to earn it again?”
If money were the true measure of wealth, every rich person would be happy. But we know this is not true. Money can’t buy a loving family, good health, integrity, ethics, humility, kindness, respect, character, or a clear conscience. The most important things in life are priceless, and, in my view, those are the true measures of wealth. Lasting happiness is achieved by living a meaningful life—a life filled with passion and freedom in which we grow as individuals and contribute beyond ourselves. Growth and contribution are the bedrocks of happiness. Not stuff. In his book The Geometry of Wealth, Brian Portnoy describes wealth as “funded contentment,” that is, the ability to underwrite a meaningful life in which purpose and practice are thoughtfully calibrated.3 Wealth derives its real meaning from a personal definition of our inner values.
Savings is a hedge against life’s inevitable setbacks. Savings confers on us options and flexibility, the ability to wait, and the very possibility to participate in the rare superlative opportunities that may present themselves during one’s lifetime. But the most important reason for saving is personal freedom and control over time. This allows us to devote more attention to the meaningful aspects of our lives, such as relationships, creative pursuits, health, and philanthropy.
Personal freedom allows us sufficient time to think. Making good decisions requires quiet time alone in our heads to think through a problem from multiple points of view.
Uninterrupted personal time is life’s most valuable limited resource. Several notable creators, including Bill Gates and Mark Zuckerberg, regularly take “think weeks” to invigorate their thinking and to allow their minds to wander. They often advocate the value of taking time off specifically to relax and clear one’s head. Taking a whole week off to focus on our thinking process may sound like a farfetched scenario, but this is possible once we achieve financial independence. Only then can we engage in frequent pauses, self-reflection, and a calm distillation of thoughts, patterns, and wisdom. (This is essential. As investors, we tend to spend too much time reading about what others think or are investing in. As a result, we spend too little time on introspection.) Quiet freedom is exotic. Freedom is like income that cannot be taxed. Value investors who achieve financial independence in their thirties or forties spend the rest of their lives doing something that they love: learning more about the world.
Benjamin Franklin frequently wrote about the virtues of frugality and a strong work ethic. He was aware that “lost time is never found again,” and he pursued financial independence to make sure he gained back as much time as possible. He testified that more than 90 percent of his writing was “the gleanings I had made of the sense of all ages and nations.” Franklin studied the past so that he could gain more freedom in his present.
By building a print shop into a successful business, Franklin was able to retire at the age of forty-two. What is truly inspirational is his attitude toward building wealth. Here was a man who accumulated a vast fortune by the age of forty-two, but he didn’t concern himself with accumulating money for money’s sake. In a letter to his mother, Franklin wrote, “I would rather have it said, ‘He lived usefully,’ than, ‘He died rich.’ ”
Franklin lived usefully and put himself into the position to give away his fortune throughout his life.
The Way to Wealth, published in 1758, is a summary of Benjamin Franklin’s advice from Poor Richard’s Almanack, published from 1733 to 1758. It’s a compilation of proverbs woven into a systematic ethical code advocating industry and frugality as a “way to wealth,” thereby securing personal virtue. Franklin’s advice is just as relevant today as it was more than 260 years ago. He advocated work ethic, industry, and enterprise in one’s daily affairs: “But dost thou love life, then do not squander time, for that’s the stuff life is made of.”
Franklin believed everyone should contribute to society and that we should enthusiastically
