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Rachael and co-host Curtis Stone are getting schooled in money (in a good way!), and so are all of us!
Grant Sabatier, author of Financial Freedom, stopped by the show to share his take on what financial freedom really is. Here's a hint: It's not the same for everybody!
"Financial freedom is whatever helps you sleep at night," Grant says. "We live in a world that says we need millions of dollars to be free — but in reality, if you're living paycheck-to-paycheck, that million dollars? You shouldn't even be thinking about that."
In his book, Grant talks about seven levels of financial freedom — and simply escaping living paycheck-to-paycheck is the first level, he says.
"With each level of financial freedom you're going to feel more in control and have more time, which is ultimately more valuable than money," Grant explains.
The average American spends 72% of their income on three things: housing, transportation and food — and then about 28% on everything else, Grant points out.
Plus, the average American saves only 3.2% of their income, which probably isn't enough to retire off of.
So, while it seems like everyone in the personal finance world tells you to cut out your daily cup of coffee, that glass of wine after work or those concert tickets, that may not actually be the way to save in the long run.
As Rach points out, "Is [cutting out] the $3 cup of coffee really going to make me financially free? I don't think so! I'd rather be less grumpy," she says.
And the good news is, Grant agrees!
"Those small purchases are often the ones that give us the most joy in our life," he says. "They're the things we look forward to. The world tells us to cut them back, and then we're unhappy and we stop budgeting and we're back to overspending."
Cutting out a $3 cup of coffee will really only save you about $90 a month, according to Grant, which won't get you very far.
It turns out that where you get the big savings is in your housing, which is your biggest expense.
"We're taught to take out the biggest loan, we're taught to get the biggest house that we can… But if you're able to save $900 a month on your rent or on your mortgage, that is going to cut the time it takes you to become financially independent from never to 20 years or less," Grant says.
How do you do that? There are a few different ways!
Share a two- or three-bedroom apartment with a roommate for a little while or buy a three-bedroom apartment and live with two of your friends. This is easier to do when you're young, but as Grant points out, nothing has to be forever. He says that he lived in what ended up being not such an ideal apartment for about three years, but that gave him enough money to invest for the rest of his life.
"You want to try to keep your housing cost as low as possible, because that's really where you're going to save the most money," Grant explains.
Cars are the second biggest expense, so try to carpool, and — more importantly — try to stay away from car payments if you can. "The average car payment in the United States is about $600 per month… Just that one car payment could be enough to help you retire in 20 years or less," Grant adds.
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