10 Financial Freedom Lies that Are Slowing You Down
By Matt Theriault
It’s frustrating, I get it.
You want financial freedom, so you do everything you’ve been told to do. You fire up your retirement calculator and your early mortgage payoff calculator, you figure out how long it will take to become debt-free, and you draw your roadmap to financial security. Yet true financial independence seems farther away every year.
It’s not just you. It’s most people.
According to the Department of Health and Human Services, 90% of people end up financially dependent on others in their so-called “golden years.” They scrimp and they save and they sacrifice, doing everything “right,” only to find themselves relying on the state, or on their church, or on their family.
That’s the opposite of economic freedom.
So what goes wrong for these people? And how can you avoid being one of them?
You can start by questioning a handful of time-honored financial ideas that have been passed down from generation to generation.
These ideas are SO ingrained that they’ve become accepted as unequivocal truths.
I’m going to talk about a few of these “truths.” But first, I want to warn you: these are ideas that we, as a society, have embraced wholeheartedly. We hold them very dear, so having them challenged can be difficult. Our first impulse is to get offended, and our second impulse is to defend them.
With that in mind, I’m going to ask you to put your emotions aside as you read this. Just for the duration of this article, I want you to focus on the logic, not the emotion.
Be willing to consider some new ideas, and to consider acting on those ideas.
Open your mind. Once you finish this article, you can always close it again if you like. But I’m guessing you won’t want to.
Lie #1 – It takes money to make money.
Wrong. It takes value to make money.
In fact, that’s all money really is: a surrogate for value. And value is the result of an idea, usually in the form of a solution. If you solve a problem, you create value, and the market will pay you for it.
In my world (aka real estate investing), that value is created by providing solutions for distressed property owners. Their problems might arise from financial factors like job loss or divorce, or factors of a more personal nature, like drugs, disease, or even death. Whatever setback they’re dealing with, the result is often the same: financial distress.
And the solution is the same too: they need out. For them, at that moment in their lives, value means peace of mind. I provide that value in exchange for equity. I don’t need money to do that. All I need is the idea: an understanding of what they need and how to provide it.
You don’t need money to make money. You need an idea to make money.
Lie #2 – Cash is king.
No. Cash flow is king.
Cash itself is just a pawn. It gets pushed around, traded, sacrificed. That movement—regular influx and outflux of cash—is the difference between stagnation and perpetual replenishment.
Most people don’t get this. The majority of retirees today are deeply terrified of running out of money. And if all they’re focused on is their finite stack of cash—no matter how big or small that stack is—they’re right to be scared. They’ve got what they’ve got, and when it’s gone it’s gone.
But, what if their focus was on their cash flow? Not just now, after they’ve retired, but back when they were planning for retirement? What if their core concern was their financial freedom equation, instead of the balance in their savings account? What if they had focused on ensuring that the money flowing in always exceeded the money flowing out?
Most people—even high earners—will never be able to accrue enough cash to ensure financial freedom for the rest of their lives. If you have a million dollars in the bank yielding 3% interest, you’re a millionaire. Congratulations. But the reality is that you’re living on $30,000 a year, or you’re digging into that finite stack of money, depleting it little by little. To achieve financial freedom for the rest of your life, you’d need ten times that amount in your bank account. For most people, that’s way out of reach.
But most people CAN generate the amount of cash flow that will give them that lifetime of financial freedom, and they can do it A LOT more quickly than they think.
You want cash? Fine. But first, focus on creating that positive cash flow. Then you won’t have to worry about petty outside distractions like food, water, shelter, and healthcare.
Cash flow is king. If it doesn’t flow, it doesn’t grow. It just dwindles until it’s gone.
Lie #3 – Debt is bad.
Again, no. Debt is just part of the equation. It’s a tool. In fact, when utilized intelligently, debt is a valuable resource.
The operative word here is intelligently. When most people think of debt, they picture an idiot digging himself into a financial hole to acquire things that he doesn’t need. Things that create more expenses than revenue. Yes, that’s self-evidently a bad thing.
But debt can also be used to better yourself, or to take your business to the next level, or to build your investment portfolio. Debt can be a tool for financial freedom. If using debt increases production, or sales, or your ROI, or your cash flow, then debt is a useful tool.
It comes down to simple math: plusses and minuses. Sure, debt is a minus, but properly utilized it can result in a net plus. There are a lot of minuses that have that potential, but which have certain negative connotations. Penalties, taxes, fees, interest… for most people, these words have negative implications. But the reality is that they all play a role in the financial freedom equation.
They’re just minuses, nothing more.
Debt is no different. It’s just a tool, like a hammer or a ladder or a table saw. Ignoring the danger these tools represent would be foolish, but you’re not going to build anything worthwhile without them.
Lie #4 – “Pay off your mortgage.”
I could talk about this one for hours. In fact, I have: see episode #262 of the Epic Real Estate Investing podcast for an in-depth, hour-long explanation of this.
But for the purpose of this article, let’s keep it simple:
When you pay off your mortgage, you’re locking up valuable capital inside your house that could be used to create more cash flow, which would, in turn, enable you to achieve your financial independence sooner.
I know. This flies in the face of conventional wisdom. A home with no mortgage means security. You can sleep at night knowing your nest egg is safe.
But is it safe? What if the market crashes? What if, suddenly, that $300,000 house you paid off drops in value to $200,000? Not only have you lost all that equity, but you’ve also lost all the interest that $100,000 would have earned. More importantly, you’ve sacrificed the cash flow you could have created by using that money elsewhere.
For a lot of people, however, the math doesn’t matter. The emotion surrounding this myth is too strong. So they ignore the math entirely, even though the math clearly shows that paying off their mortgage is the wrong thing to do. In fact, buying your primary residence at all is a bad idea for most people.
That’s a complicated subject, so I’ll leave it for another time. For now, I’ll just say this:
If you just can’t resist the idea that you need to pay off your mortgage, at least knock it down a few notches on your priority list.
Don’t retire your money until you’re ready to retire yourself.
Lie #5 – Save your money.
On a related note, don’t bury your money in a savings account. If you do that, you’re putting off your financial freedom longer than you have to. Don’t focus on saving; focus on earning.
Instead of saving that nickel, use it to earn a buck. Then use that buck to earn another buck. Forget saving, and focus instead on a stash-and-deploy approach. Stash that money only until you can find a way to deploy it to a cash-flowing asset.
What do you think banks do when you hand your savings over to them? They deploy it, of course. And they keep most of the proceeds. Why not do that yourself?
When it comes to financial planning, there’s far too much emphasis on sacrifice and saving and too little emphasis on living a decent life. It doesn’t have to be that way.
You can live a good life while still working on ways to invest in yourself and in your future earning potential.
Stash. Deploy. Repeat.
Lie #6 – Max out your 401K.
Some lies are bigger than others. This one — the claim that maxing out your 401K is going to lead to financial independence — is one of the biggest.
It’s also the one that I get the most flack for pointing out. Like mortgages, this is an emotional issue. A third of the people reading these words right now are getting angry at what I’m saying. Enraged, even. They’re starting to mutter things about me under their breath. They might even be thinking about closing out this article and reading something else.
If you’re one of those people, stick around. Try to push aside the emotion for a moment.
It’s just math.
You simply cannot save enough in a 401K to create financial freedom. There are too many limits on how much you can deposit. And even if there were no government-imposed limits, the same things I touched on above — about tucking money away in a savings account or paying off your mortgage — apply to entombing your money in a 401K.
Even in the perfect scenario, where you start early in life, contribute the maximum, and have an employer who matches your contributions, three-fourths of your life will be behind you by the time you get to enjoy it.
The problem with 401Ks is that they weren’t built for you. Like most financial products, they were devised by Wall Street for the benefit of — wait for it — Wall Street. They’re attractive to business owners because they allow them to stop paying pensions. Remember pensions?
Is contributing to a 401K better than stuffing your money in a mattress? Sure. But there are far better options when it comes to creating wealth.
As I said about paying off your mortgage: if you just can’t resist the idea that you need a 401K, fine. I’m not saying 401Ks are all bad. But I hope you’ll consider giving your 401K a lower priority. When you contribute to that 401K, you’re contributing more to the profit of Wall Street than you are to your own financial freedom.
You always hear about wealthy Wall Street fat cats, but how many 401K millionaires do you know?
Let’s hit the pause button for a moment.
We have more to talk about, but those first six items are important. It’s critical to your financial independence that you digest, understand, and apply them.
So ask yourself: how many of your actions so far have been based on the beliefs I outline above?
Are you stuck because you’ve always assumed that you “need money to make money”?
Are you focused on the cash that you make from a transaction instead of how you can turn a transaction into cash flow?
Are you on a mission to eliminate your debt, or pay off your house, or max out your 401K?
If so, are you focused on these things because you’ve done the math? Or is it because they feel financially prudent?
That distinction is critical. There’s no room for feelings in your financial freedom equation. It’s all about the math.
Ponder that as we polish off this list.
Lie #7 – Delegate your investing to an expert.
On the surface, this sounds like common sense. If your kid needs braces, you don’t try to put them on yourself. You go to an orthodontist.
But what if that orthodontist has crooked teeth? Would you question his qualifications?
The same applies to financial advisors. “Financial advisor” does not equal “expert.” If you want to be financially free, look to those who are.
As Warren Buffet said: “Wall Street is the only place in the world where people drive a limo into town to get advice from people that took the subway to get there.”
In 2007, we had a financial expert on every corner, and they lost it all for us.
Sure, the markets have bounced back. A lot of people’s fortunes have returned, and now things feel good, so we forget.
But if you separate the emotion from the math, you’ll realize that people who trusted experts back then, even if they have regained their fortunes now, lost almost a decade of growth. When you lose 50% of your net worth, you have to earn a 100% return just to get back to where you started. If you look at it that way, we’ve barely reached the break-even point.
Thanks, experts. Great job.
Smart investing is not sending your money to someone else, hoping that they know what to do with it. Smart investing is being the person others send money to.
To be that person, you have to prioritize knowledge: specifically, the knowledge about how to attain financial independence for yourself.
Lie #8 – Money is the root of all evil.
I’ve heard this Bible quote way too often. It’s from 1 Timothy 6:10.
But it’s inaccurate. What that verse actually says is that the love of money is the root of all kinds of evil. Very different.
Like most out-of-context Bible quotes, this one is usually used to support someone’s pre-existing bias or to bolster an unrelated argument. But why do they always choose the negative ones?
If we’re going to cherry-pick Bible quotes, I have a better one for you. It’s from Ecclesiastes 10:19:
“A feast is made for laughter. Wine makes life merry. And money is the answer for everything.”
Yep, that’s in the Bible too. My point is this: you get what you focus on. If money is evil, financial freedom is evil too. And if you think that, you’ll never be financially independent.
Lie #9 – Live below your means.
I’m just going to touch on this one briefly because this is a matter of personal discretion.
My own approach is that you have to find a balance. I would never advocate frivolous, unproductive spending, but I’m not about sacrificing life’s pleasures, either. Don’t be dumb. But don’t miss out on life either.
Lie #10 – Be wary of financial advisors who speak in absolutes.
This final item isn’t technically a lie, but rather a warning. When an advisor uses words like “everybody,” “nobody,” “always,” or “never,” I question their credibility. When it comes to answering questions about the best way to achieve financial freedom, most answers should start with, “it depends.”
There are countless variables involved when investment and finance, and those variables will change as the world changes. Any advisor who doesn’t get this is going to lead you into trouble.
The only thing in life that never changes is that everything changes.
That’s a good thing, by the way. Change can be extremely positive. The most positive change you can make right now, today, is to let go of the sacred cows I’ve talked about in this article and allow yourself to achieve financial success as soon as possible.