- Every choice that you
make comes with a trade-off. (cheerful music) Money is an invitation
to critical thinking. You can afford anything,
but not everything. So if there's something that you value, whether it's travel, food, or a house, you can have that thing. You just can't have an
endless series of ands. You might not be able to have
that thing and something else and something else and something else. And that doesn't just apply to your money. That applies to your time, your focus, your energy, your attention
- any limited resource. And life is the ultimate limited resource. So when you practice being
better at managing your money, you practice being better
at managing your life. My name is Paula Pant. I am the host of the
"Afford Anything Podcast." I want to help you reach
financial independence by making smarter
decisions with your money. (contemplative music) The mistake that I see
a lot of people make when they start asking questions about how to manage their money is that oftentimes people
will ask a question about a product or a tactic. So for example, they might say, "Should I use this app, or should I invest in cryptocurrency?" First-principles thinking
is stripping away everything and really getting to
the root of something. So if you think about a tree, the tactics and the products
are like the leaves of a tree. That's the most visible surface so, of course, it's what
people might ask about first. But first, let's start with
the roots of that tree. The roots of that tree are your values. It's that question of what matters most. And then from those roots
stem that trunk of the tree, which is your philosophy of life, the type of life that you want to lead. And from that philosophy, then your objective or your goals: How does that philosophy of living translate into specific goals? That's really that tree trunk. From there, you go out into
the branches of the tree, and they represent the strategy. Now that you know your
philosophy of living, you know your goals, now you
can come up with strategies for how to obtain those goals. And then once you have
that strategy in place, then those leaves are the
tactics and the products. So if you're starting with the question about tactic or product,
you've got a leaf in your hand, but you don't have that
root system built yet. When personal finance is framed in the context of delayed gratification so that you can have more
money when you're 75 years old, it's really hard to
get excited about that. But when we reframe that
as financial independence and how taking better care of your money leads to this flourishing of freedom, of opportunity, of choice, that becomes much more enticing. FI is the point at which your
potential passive income - money that comes to you
when you're sleeping, typically through investments - is enough to cover your basic bills. And the reason that matters is because then endless
options open up for you. You have the freedom to
do whatever you want - whether that's to stay in
your current profession, make a midlife career change,
become a full-time parent, or travel the world. Whatever
choice you want to make, you're able to make that
without having to sweat about how you're gonna keep the lights on, how you're gonna keep the fridge stocked. The pursuit of FI is for everyone, but the first steps that you
are going to take will differ depending on where you
are in your journey. There are really only three steps to achieving financial independence: Grow the gap, invest the gap, repeat. Grow the gap means to grow the gap between what you earn and what you spend. And there are only two
ways to increase that gap: earn more or spend less or both. If you don't make very much, like me when I was in my
first job out of college making $21,000 a year, at that stage of life, your
goal is to increase your income. If you're already making big dollars but you have a spending problem, the low-hanging fruit is to
curb that spending problem and to address the root
psychological issues that are leading to that spending problem. Step two is to then invest that gap. My personal feeling is
that everyone should aim to save and invest at
least 20% of their income. And when I say save and invest, that includes making additional payments towards the debt above and
beyond the minimum required, retirement savings, investments
in an investment account. It includes building
up your emergency fund. Start with the goal of saving 20%, and if you're nowhere close to that, increase your savings rate by 1% and do that every month or two. It will take a few years, but you will over time
get to that 20% mark. And then step three is repeat. This is a lifetime practice. This is not a quick hit or something that's going
to happen overnight. Money management happens for life. (contemplative music) There has never been a point in history when the world has not been volatile. A hundred years ago, there
was also a pandemic going on, and there was a first World War. A decade later, the Great Depression. After that was World War II. After that, event after event after event that affected the entire globe. I came to FI because I was scared and anxious about the volatility
in my life and the world. My response to that was to become obsessed with saving as much as I could because it allowed me to not
be so scared of the future. It felt psychologically
comforting to have these savings. Change is the nature of the
world, the nature of time. And so, if you're looking
out at the big global factors that are happening in the world today and you're feeling fear, embrace it and use that
fear as motivation, as fuel to make wise decisions about how you spend your
money, your time, your effort. That's how you build a life
that's more intentional. And there's a lot of joy in that. (cheerful music) - [Narrator] Get smarter
faster with videos from the world's biggest thinkers. (cheerful music) To learn even more from the
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