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:

  • Live on $25,000 per year or less

  • Save $500,000

  • Buy investments that earn $25,000 per year or more

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


  • Living with a roommate is the easiest way to pay $1,000 per month or less in rent

  • Check weekly grocery flyers and stock up on deals

  • Websites like Slickdeals in the United States and RedFlagDeals in Canada have thousands of users constantly posting the best deals on electronics, clothing, food, vacations, and more

  • You can get amazing deals on almost anything if you’re patient and know your prices

  • Consider only buying things you’ll love forever (this “buy it for life” philosophy prevents impulse purchases)

  • Avoid driving a car because it costs $500–1,000 per month for car payments, gas, insurance, maintenance, repairs, parking, and license fees

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

  • Cost: $0.80/meal

    • 1 kg oatmeal = $2 = 40 meals at $0.05/meal

    • 1 kg peanut butter = $3 = 30 meals at $0.10/meal

    • 1 container blueberries = $2 = 5 meals at $0.40/meal

    • 1 banana = $0.25

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

  • Cost: $4.23/meal

    • 1 pre-cooked roast chicken = $11 = 4 meals at $2.75/meal

    • 454 g pre-washed baby spinach = $5 = 8 meals at $0.63/meal

    • 1 pint grape tomatoes = $2 = 7 meals at $0.29/meal

    • 1 pepper = $1 = 2 meals at $0.50/meal

    • 1 L olive oil = $5 = 100 meals at $0.05/meal

For other meals, replace roast chicken with:

  • omelet = $0.50 for 2 eggs

  • salmon = $4 for 1 filet

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

  • Start a side business

  • Pay off debts

  • Avoid financial fraud

  • Sign a pre-nuptial agreement

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:

  • If you’re ever fired, your side business will provide income while you look for a new job

  • Save a few thousand dollars in taxes per year by deducting business expenses such as a cell phone, Internet, computer, and part of your rent for a home office

  • A study of 1,000 entrepreneurs found that starting a business on the side lowered risk of failure by 30%

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

  • 3 social media posts per week

  • 1 blog post per week

  • Includes copywriting, graphic design, and analytics


  • Monthly flat-rate fee of $1,000–2,000

      • Recurring revenues are ideal because you don’t need to constantly find new customers


  • Create a virtual marketing agency with freelancers

      • These can be friends or people you find on services such as Fiverr and Upwork

      • A team makes you look more credible

      • You can pay freelancers a fair hourly wage, while still making a good profit on the monthly fee

      • Freelancers do the execution and this frees your time for client management, finding new customers, and performing well at your day job

  • To get your first customers, ask friends and family for referrals, then ask these people for referrals

  • To lower your personal tax rate, consider paying yourself with dividends instead of salary

  • Over time, structure your business to run itself by following The E-Myth Revisited book by Michael Gerber

Cheap and easy online services for your business

  • To save lawyer fees, incorporate directly through the government

  • Register a custom domain name with NameSilo or Google Domains

  • Set up custom e-mail addresses with Zoho Mail (free) or Google Workspace

  • Design a logo with Canva (free) or Fiverr

  • Create a custom website with Google Sites (free), Squarespace, Wix, or WordPress

      • Include profiles of your freelance team, advisors, testimonials, and customer case studies

  • To save accounting fees, do your own bookkeeping with Wave (free), Xero, or QuickBooks

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:

  • Set aside a rainy day fund of $25,000

  • Invest 50% of your annual savings in a low-cost index fund

  • Invest the other 50% in Berkshire Hathaway stock

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:

  • 8% X $500,000 = $40,000 per year

  • If you spend $25,000, this leaves a margin of safety for below-average years and inflation

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

  • This diversification prevents a few underperforming stocks from jeopardizing returns

  • Index funds are inexpensive to operate because there are no active financial managers—the fund simply purchases stocks in proportion to their weighting in the index

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

  • Vanguard’s S&P 500 Index has a Management Expense Ratio (MER) of 0.03%, compared to an MER of 0.09% for the SPDR S&P 500 Index (the most popular index in the United States)

  • For the past 15 years, Vanguard’s index funds have outperformed 74% of actively-managed funds

  • A major reason is lower fees—actively-managed funds typically have MERs that are 20–60X higher than Vanguard

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

  • The ETF stock ticker symbol is VOO in the United States and VSP in Canada

  • Low-fee, well-capitalized brokerage services include Charles Schwab, Fidelity Investments, and TD Ameritrade in the United States, and Scotia iTRADE and TD Direct Investing in Canada

  • By purchasing shares once or twice a year every year, it doesn’t matter whether the stock market is up or down that year because the ups and downs will average out over time

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

  • From 1965 to 2019, Berkshire gained an average of 20.3% each year vs. 10.0% for the S&P 500 Index

  • In 2020, Berkshire’s market capitalization was $550 billion, and this large size means 20% returns are unlikely to continue (but 10% seems conservative)

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

  • CEO Warren Buffett and vice chairman Charlie Munger have a long track record of identifying outstanding companies and waiting patiently to invest at a cheap price

  • Berkshire owns insurance companies which provide zero-cost investment money in the form of insurance premiums

      • This advantage probably accounts for 3–4% of outperformance

  • Berkshire is regularly offered incredible investment opportunities because it holds tens of billions in cash and has a sterling reputation

      • e.g., in 2011, Bank of America let Berkshire invest $5 billion in exchange for preferred stock with a perpetual 6% dividend and the option to buy 700 million common shares for $5 billion any time before September 2021

      • By 2020, Berkshire had received $2.7 billion in dividends and the option was worth $18 billion in profit

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

  • The stock ticker symbol is BRK.B

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:

  • Live on $25,000 per year or less

  • Save $500,000

      • Get a day job

      • Start a side business

      • Pay off debts

      • Avoid financial fraud

      • Sign a pre-nuptial agreement

  • Buy investments that earn $25,000 per year or more

      • Set aside a rainy day fund of $25,000

      • Invest 50% of your annual savings in a low-cost Vanguard index fund

      • Invest the other 50% in Berkshire Hathaway stock

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.

  • A study of 1,093 self-employed people found that entrepreneurs who started a business while retaining their day job had a 33% lower risk of failure vs. quitting their day job and starting immediately

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.

  • In 2016, a survey of 2,000 U.S. adults found that 50.3% were victimized by financial fraud in the past year

  • 43% paid for a product or service they never received or turned out to be worthless, or were charged for services they did not sign up for

  • 16.5% invested in something that promised high or guaranteed rates of return that ended up being worthless, or their money was never invested

  • 13.5% were victims of job or business opportunity fraud

  • 12.5% donated to a bogus charity

  • 10.6% were victims of phantom debt collection

  • 9.5% were victims of prize and lottery fraud

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

  • A study of all 1.2 million financial advisors registered in the United States from 2005 to 2015 found that 7% had misconduct records

  • The rate was 13% at Morgan Stanley, Raymond James, UBS, and Wells Fargo

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.

  • PriceMetrix found that the average client paid an annual advisory fee of just over 1% for the services of a financial advisor

  • These fees ranged from 1.4% for households with assets under $250,000 to roughly 0.8% for households with over $2 million in assets

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

  • A 14-year study of 4,000 advisers with 500,000 clients found that advisers underperformed low-cost index funds by an average of 3%

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.

  • In 1995, it was estimated that 82% of men and 88% of women would get married over their lifetime

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.

  • From 2006 to 2010, the probability of a marriage lasting 20 years was 52% for women and 56% for men

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.

  • According to Warren Buffett: “The economy, as measured by gross domestic product, can be expected to grow at an annual rate of about 3 percent over the long term, and inflation of 2 percent would push nominal GDP growth to 5 percent. Stocks will probably rise at about that rate and dividend payments will boost total returns to 6 percent to 7 percent.”

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

  • Over the past 15 years, 92% of large-cap growth, 74% of mid-cap growth, and 75% of small-cap growth funds underperformed benchmark indices

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

  • In the United States, median expense ratio for equity funds is 0.59% vs. 1.98% in Canada

Invest 50% in Berkshire Hathaway stock

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

  • From 1965 to 2019, Berkshire gained an average of 20.3% per year vs. 10.0% for the S&P 500 Index

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

  • From 1976 to 2011, Berkshire outperformed the index by 13% per year

  • 4% of outperformance was due to 1.6X leverage from investing insurance premiums

  • The other 9% was due to Buffett’s stock-picking abilities

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

  • In 2011, Bank of America let Berkshire invest $5 billion in exchange for preferred stock with a perpetual 6% dividend and the option to buy 700 million common shares for $5 billion any time before September 2021

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.

  • Buffett’s son Howard will succeed him as non-executive Chairman

Should I buy a house?

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

  • From 1900 to 2018, the annualized return on houses in the United States was 1.39%

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.

  • Manhattan’s real estate has appreciated by 6.3% per year since the island was first inhabited by Dutch settlers in 1626

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 MOBI PDF

Copyright © by Raven Dojo Inc.

Limit of Liability/Disclaimer of Warranty