The Basics
Destination: Exit the Rat Race
According to Consumer Expenditure Survey from the U.S. Bureau of Labor Statistics (BLS) the average expenses per household is nearly $5,600/monthly. The average annual household income after taxes is almost $6,600 (2021)/monthly. The average American will need (sweet spot) roughly $7,600/monthly (includes taxes) in passive income to aggressively retire early.
The figures above may or may not apply depending on your city's standard of living. Nonetheless, knowing our sweet spot to obtain our piece of the PIE (Passive Income Early) lifestyle is the first step in outlining an effective budget (road map to freedom).
Road Map: The Budget
A budget is a premeditated plan for living within our means.
Create - Enforce - Maximize - Enjoy
Passive Income requires the discipline to analyze our financial health, manage expenses, and save for investments to secure our financial wellness.
Step #1: Create Budget
Analyze Financial Fitness
Step #2: Enforce Budget
Manage Financial Health
Step #3: Maximize Budget
Save & Invest
Step #4: Enjoy Budget
Secure Financial Wellness
Step #1: Analyze Financial Fitness
It's extremely difficult to get a clear picture of our overall financial health if we cannot see all our finances in a single snapshot. There are tools on the market to help aggregate our accounts into a single dashboard. We can even use a good old fashion excel spreadsheet to track income and expenses. In addition to knowing how much wealth we have, it's important to know where our wealth is located. The ultimate goal of analyzing our financial health is to understand if our income indeed supersedes our expenses, and to organize our cashflow on a personal level (create budget).
Step #2: Manage Financial Health (Expenses)
Many of us don't like to start with self discipline, but just like everything else in life we can't overindulge (nutrition, partying, entertainment, etc.) and expect to see results. Simply making more money will not fix an inability to live within ones means. We can't outwork a bad diet and we can't out earn counterproductive money habits (enforce budget).
Step #3: Save & Invest in Passive Income
Begin to aggressively save and invest in passive income. It may take a while to figure out which avenue is the best fit. Investing small amounts across many different opportunities reveals which of these avenues feel natural and where our previous acquired skillsets may come handy. This step is about discovery: learning about new passive income methods, becoming aware of our risk tolerance, trusting each other (partnerships), practicing decisiveness, etc.... The number one frequently asked question is "how do I start investing?". The answer is take it one step at a time (slowly) and do what you can to build the muscle. We have to practice and put in reps until we're confident. Anything else is a "get rich quick" scheme and we don't support that kind of money mindset (maximize budget).
Step #4: Secure Financial Wellness
This step may be interchangeable with step #1 for a lot of folks. We positioned financial wellness at number four (4) because it's hard to nurture our wellness (emotions & spirit) if our health (physical) is in jeopardy. Our wellness enables us to satisfy spiritual needs by donating to causes that are dear. Financial wellness is hereditary. Let's focus on the things that truly matter in life (enjoy budget).
Financial Fitness = Physical Relationship with Money
Financial Health = Emotional Relationship with Money
Financial Wellness = Spiritual Relationship with Money