Financial freedom

At 21, Pete Adeney mapped out his dream life. The steps were: graduate from college → make good money as a software engineer → buy a nice house and car → buy a beach house for weekends → climb the corporate ladder to CEO.


A year later, Adeney’s plan was on track. He had a high-paying software job and a second-hand sports car. He ate at fancy restaurants and vacationed at beach resorts.


Three years passed. Adeney’s plan was still on track. But he noticed his colleagues were paying a high price for their money. They were stressed and distracted. They owned big houses and cottages, but didn’t have time to enjoy them.


At 24, Adeney realized what he truly wanted was freedom. Freedom to play with his kids. Freedom to read books. Freedom to work on meaningful projects. With this goal in mind, he created a new map.


It took 6 years—Adeney retired at 30. For fun, he created a blog called Mr. Money Mustache to teach everyone how to become financially free. Within a few years, millions of people were reading it… which generated hundreds of thousands of dollars of extra income he didn’t even need.


If money is your hope for independence you will never have it. The only real security that a man can have in this world is a reserve of knowledge, experience and ability.

-Henry Ford


Money while you sleep

Pete Adeney achieved financial freedom by saving money and buying income-generating investments.


You can do the same.


Here is a system that doesn’t require special skills:


If you don't find a way to make money while you sleep, you will work until you die.

-Warren Buffett


Live on $25,000


Here is a budget for living comfortably:

Expense Monthly Annual

Rent $1,000 $12,000

Food $360 $4,320

Entertainment $200 $2,400

Clothing, other $150 $1,800

Transit pass $150 $1,800

Medical, dental $100 $1,200

Internet $40 $480

Cell phone $40 $480

Total $1,940 $24,480



Wealth is not an absolute. It is relative to desire. Every time we seek something we cannot afford, we grow poorer, whatever our resources. And every time we feel satisfied with what we have, we can be counted as rich, however little we may actually own.

-Alain de Botton


Healthy, affordable food

It’s faster, healthier, and cheaper to cook Paleo meals for yourself. Here are some tasty examples:


Oatmeal + peanut butter + blueberries + banana


Roast chicken + baby spinach + grape tomatoes + peppers + olive oil


For other meals, replace roast chicken with:


Your diet is a bank account. Good food choices are good investments.

-Bethenny Frankel


Save $500,000


For most people, a low-risk high-probability system for saving $500,000 is:


Get a day job

Here is how fast you’ll save $500,000 with different salaries:

Salary After-tax income Expenses Savings Time to reach $500K

$35K $29K $25K $4K 125 years

$50K $39K $25K $14K 36 years

$100K $73K $25K $48K 11 years

$150K $101K $25K $76K 7 years

This is the after-tax income for someone living in Ontario, Canada. For your state or province, search online for a free income tax calculator.


When you first start a job, it’s stressful to figure things out. But you’ll get better over time. This frees up energy to start a side business.


If you make a good income each year and spend it all, you are not getting wealthier. You are just living high. Wealth is what you accumulate, not what you spend.

-Thomas Stanley


Start a side business

At most jobs, it’s easy to get a small raise, but hard to get a big one. This means the fastest way to boost your income is starting a side business.


Other benefits:


For most people, the best side business is offering a service because start-up costs are usually low, profit margins are high, and you can start right away. In contrast, a product business may require product development, manufacturing, sourcing, inventory, customer support, and returns.


It’s simpler if your service is the same as your day job. For example, let’s say you’re in marketing. You could offer marketing services as a side business.


I believe in “chicken entrepreneurship”—starting out slowly and learning about a side business while you have the safe and steady income of your main job.

-Michael Masterson


Example side business

I know a young woman named Rachel Collier who started a side business called Third Door Marketing. Her start-up costs were less than $1,000 and she cleared $100,000 in profit in 12 months. Here is her business blueprint:


Social media service for companies






Cheap and easy online services for your business


With investing, best case you can return 1020% consistently. Best, best, case. But if you start a business you can earn multiples of 10,000%.

-James Altucher


Pay off debts

As you save money, your first priority should be paying off all debts. Start with debt that has the highest interest rate, like a credit card.


Debt is terrible because interest compounds. For example, let’s say you have a $100,000 mortgage at an interest rate of 7.5%. If you pay back $789 per month for 25 years, the total is $221,697 ($100,000 for the original loan plus $121,697 in interest).


I have never, ever borrowed a penny. So I have zero credit record. No loans, no mortgage, nothing. Ever. When I had no money, I rented. I have an allergy to borrowing and a scorn for people who are in debt, and I don’t hide it. I follow the Romans’ attitude that debtors are not free people.

-Nassim Taleb


Avoid financial fraud

E-mails saying your bank account has been hacked; phone calls saying you owe taxes; guaranteed investment opportunities; fake prizes; bogus charities—the scams are endless. Unfortunately, they work. A Stanford survey of 2,000 Americans found that 50% had experienced financial fraud in the past year.


Don’t be a victim. Assume all unsolicited contacts are scams. And unless you’re a financial expert, only invest in low-cost index funds.


Cultivate compassion for those less intelligent than you. Many people, through no fault of their own, can’t handle forms, scammers, or complex situations. Be kind to them because the world is not.

-Conor Barnes


In the United States, a study of 1.2 million registered financial advisors found that 7% had misconduct records, including regulatory and criminal offences. The rate was higher than 13% at well-known firms such as Morgan Stanley, Raymond James, UBS, and Wells Fargo.


It’s difficult to tell who’s corrupt until it’s too late. For example, Bernie Madoff was regarded as a Wall Street genius for decades. He even served as chairman of the NASDAQ stock market. But in 2008, the collapse of his Ponzi scheme defrauded thousands of investors of billions in savings.


To protect yourself, don’t hand over your savings to a financial advisor. Instead, purchase investments yourself through an online brokerage account at well-capitalized banks such as Charles Schwab, Fidelity Investments, and TD Ameritrade in the United States, and Scotia iTRADE and TD Direct Investing in Canada.


Another reason to avoid financial advisors is they typically charge a management fee of 1% of your assets. While 1% may not sound like a lot, it adds up to huge fees over time. For example, let’s say you invest $500,000 with a financial advisor for 20 years. If your average investment return is 8% per year, a 1% fee lowers your savings by $396,000.


Finally, a 14-year study of 4,000 advisors with 500,000 clients found that advisors underperformed low-cost index funds by an average of 3%. They chased returns, under-diversified, and overinvested in expensive actively-managed funds. For $500,000 invested over 20 years, a 3% underperformance means your savings will be lower by $1 million.


If returns are going to be 7 or 8% and you’re paying 1% for fees, that makes an enormous difference in how much money you’re going to have in retirement.

-Warren Buffett


Sign a pre-nuptial agreement

About 82% of men and 88% of women get married over their lifetime. But 40–50% of marriages end in divorce.


If you’re the high earner, sign a pre-nup before marriage to protect your future savings. Otherwise, you could lose 50% or more. Of course, it’s not in your best interest if you’re the low earner.


Get an experienced lawyer to draft the pre-nup. It’s worth spending money to do it right.


Ah, yes, divorce…from the Latin word meaning to rip out a man’s genitals through his wallet.

-Robin Williams


Buy investments that earn $25,000

To be financially free, you need safe investments that generate enough money to cover your living expenses.


For most people, a low-risk high-probability system is:


Over time, this system should generate returns of 8% per year or more. This shortens the time to reach $500,000.


Salary After tax Expenses Savings Just savings With 8% returns

$35K $29K $25K $4K 125 years 31 years

$50K $39K $25K $14K 36 years 17 years

$100K $73K $25K $48K 11 years 8 years

$150K $101K $25K $76K 7 years 6 years


Once you have $500,000 in investments, you’ll be financially free because the returns should easily cover your expenses:


My wealth has come from a combination of living in America, some lucky genes, and compound interest.

-Warren Buffett


By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.

-John Maynard Keynes


Rainy day fund

Set aside $25,000 to cover a year’s worth of living expenses. If you lose your day job and side business, this provides time to recover without liquidating investments.


Consider parking this money in a no-fee, high-interest savings account such as Varo Bank in the United States or Canadian Tire Bank in Canada.


The one thing I will tell you is the worst investment you can have is cash. Everybody is talking about cash being king and all that sort of thing. Cash is going to become worth less over time. But good businesses are going to become worth more over time.

-Warren Buffett


Invest 50% in a low-cost index fund

Over the long term, a U.S. equity index fund will likely generate returns of 6% per year or more.


The S&P 500 Index tracks performance of the 500 largest companies in the United States


Vanguard is a respected company with $6 trillion in assets, and they offer the lowest-cost index funds


To invest, open an online brokerage account and buy shares of Vanguard’s S&P 500 Index Exchange-Traded Fund (ETF) once or twice a year with your annual savings


A low-cost index fund is the most sensible equity investment for the great majority of investors. My mentor, Ben Graham, took this position many years ago and everything I have seen since convinces me of its truth.

-Warren Buffett


Invest 50% in Berkshire Hathaway

Over the long term, Berkshire Hathaway stock will likely generate returns of 10% per year or more


Berkshire’s consistent outperformance of the index is due to unique advantages


To invest, buy Berkshire shares once or twice a year with your annual savings


You get truly rich by owning things that increase rapidly in value. This can be a piece of a business, real estate, natural resource, intellectual property, or other similar things. But somehow or other, you need to own equity in something, instead of just selling your time. Time only scales linearly.

-Sam Altman


What’s the risk when Buffett dies?

For 55 years, Warren Buffett has led Berkshire as its CEO and largest shareholder. Almost 99% of his net worth is in Berkshire stock. And he’s been paid the same $100,000 salary for 25 years. This means his incentives are aligned with shareholders.


In 2020, Buffett turned 90. To ensure Berkshire prospers after he’s gone, Buffett has selected a Board of Directors who own large amounts of Berkshire stock and are motivated to make good decisions for shareholders. In addition, Buffett’s son Howard will be appointed as non-executive Chairman and have the power to quickly fire a bad CEO.


Nevertheless, something unexpectedly bad could happen at Berkshire. That’s why you should diversify 50% of your savings in Berkshire and the other 50% in Vanguard.


Investors should always keep in mind that the most important metric is not the returns achieved, but the returns weighed against the risks incurred. Ultimately, nothing should be more important to investors than the ability to sleep soundly at night.

-Seth Klarman


Should I buy a house?

Berkshire and Vanguard own shares of companies. Over time, companies can grow profits by increasing sales and developing new products. In contrast, there are limits to expanding the size of a house or increasing rent.


For example, from 1900 to 2018, the annualized return on houses in the United States was only 1.39%. Even Manhattan’s real estate has only appreciated by 6.3% per year since the island was settled by Dutch colonists in 1626. This is why it’s usually better to rent and invest your savings.


That being said, buying is smart if prices are low enough. For example, if your rental is $1,000 per month, it could be worth buying a comparable house for $100,000.


Here is the rough math:


House price: $100,000

Annual property tax (1%): $1,000

Annual maintenance/repairs (1%): $1,000


Annual rent: $12,000


Annual net income: $10,000 = 10% return


Seek a minimum 10% return because owning a house is more hassle than earning 8% with the combination of Berkshire and Vanguard.


It’s a bad idea to get a mortgage because interest compounds. Also, a mortgage magnifies risk. For example, let’s say you buy a $100,000 house with 10% down and a mortgage for 90%. If housing prices drop by 10%, your equity is wiped out and you still owe the mortgage.


If you’re patient, it’s possible to get a great deal. In 2012, 14-year-old Willow Tufano bought a 2-bedroom house in Florida for $12,000 (down from $100,000 in 2005). She earned the money from selling used furniture and appliances on Craigslist. After cleaning it up, Tufano rented it out for $8,400 per year.


In this country, real estate is religion. And we grow up being taught these phrases like “You’re throwing money away on rent,” “Don’t pay your landlord’s mortgage,” or “They’re not building more land.” And so, people grow up without really thinking about it, but eventually “knowing” that they should buy a house…I have lived in San Francisco, New York, and Los Angeles. I’ve rented in all of those by choice. It would have made no financial sense for me to buy.

-Ramit Sethi



To recap, here is a steady system for financial freedom:


Remember that reputation and integrity are your most valuable assets—and can be lost in a heartbeat.

-Charlie Munger


Adeney P. (2011, September 15). A brief history of the stash: How we saved from zero to retirement in 10 years. Mr. Money Mustache.


Start a side business

Raffiee J, Feng J. (2013). Should I quit my day job?: A hybrid path to entrepreneurship. Academy Management Journal. 57(4): 936–963.


Avoid financial fraud

DeLiema M, Mottola G, Deevy M. (2017, February). Findings from a pilot study to measure financial fraud in the United States. Stanford Center on Longevity and FINRA Investor Education Foundation.


Egan M, Matvos G, Seru A. (2019). The market for financial adviser misconduct. J Political Economy. 127(1): 233–295.


Larson E. (2018, December 12). The key players in Bernie Madoff’s orbit: Ten years later, what’s become of them? Financial Post.


Jurek JW. (2017, January 25). The tyranny of compounding costs. Wealthfront.


Linnainmaa JT, Melzer BT, Previtero A. (2020). The misguided beliefs of financial advisors. J Finance. 76(2): 587–621.


Sign a pre-nuptial agreement

Schoen R, Standish N. (2001). The retrenchment of marriage: Results from marital status life tables for the United States, 1995. Population Development Review. 27(3): 553–563.


Copen CE et al. (2012). First marriages in the United States: data from the 2006-2010 National Survey of Family Growth. Natl Health Stat Report. 22(49): 1–21.


Invest 50% in a low-cost index fund

Hamm T. (2013, May 6). What Warren Buffett’s stock market math means for your retirement. Christian Science Monitor.


Liu B, Sinha G. (2020). SPIVA® U.S. scorecard. S&P Dow Jones Indices.


Fonda D. (2019, September 18). Mutual fund fees in Canada are among the world’s highest. Barron’s.


Invest 50% in Berkshire Hathaway stock

Buffett WE. (2020). Berkshire Hathaway Inc.: 2019 annual report.


Frazzini A, Kabiller D, Pedersen LH. (2018). Buffett’s alpha. Financial Analysts Journal. 74(4): 35–55.


Frankel M. (2016, March 11). Has Bank of America become a Warren Buffett favorite? Motley Fool.


What’s the risk when Buffett dies?

Jordon S. (2018, March 18). Warren Buffett’s $100,000 salary is 1.87 times median pay at Berkshire. Omaha World-Herald.


Buffett WE. (2015). Berkshire Hathaway Inc.: 2014 annual report.


Should I buy a house?

Dimson E, Marsh P, Staunton M. (2018, February). Credit Suisse global investment returns yearbook 2018. Credit Suisse Research Institute.


Barr J, Smith F, Kulkarni S. (2015). What’s Manhattan worth? A land values index from 1950 to 2013. Working Papers Rutgers University, Newark. 2015-002.


Joffe-Walt C. (2012, March 9). This 14-year-old girl just bought a house in Florida. NPR.

Did you enjoy this chapter? Read the full book. Download your free copy: EPUB PDF

Copyright © by Raven Dojo Inc.

Limit of Liability/Disclaimer of Warranty