Chapter 1 — We’ve Been Duped
Most people believe five lies about money. They sound reasonable, and they keep people stuck.
The first lie is that financial freedom requires a big salary. Picture someone who makes $50,000 a year their whole adult life and saves 10 percent of it, or $5,000 a year. After 45 years, they’ve put away $225,000. It seems impossible for that to reach $1 million. But if they invest it and earn an average return, they end up with more than $3.4 million.
The second lie is that financial freedom takes 40 years or longer. Believe that, and freedom stops looking worth chasing. Either you’ll never get there, or you’ll have one foot in the grave when you do.
The third lie is that happiness is expensive. Much of what you spend doesn’t come from a real choice. It comes from habit. As Warren Buffett put it, “chains of habit are too light to be felt until they are too heavy to be broken.”
The fourth lie is that investing is complicated. In fact, you can look after your investments in about 30 minutes a year. Not a day. A year.
The fifth lie is that debt is a fact of life. But debt usually buys things, and things don’t keep you happy. You have a baseline of happiness. A raise or a shiny new purchase lifts it for a while, then you drift back. The cool new car you bought six months ago is just a car today.
Chapter 2 — The Game Plan
The plan in this book works at any age. In your twenties, you can use it to retire in your thirties or forties. In your forties or fifties with little saved, you can use it to retire on time. Work a typical 45-year career, and you’ll retire with a truckload of money. Or you can use your freedom to do meaningful work you love, at any age.
Chapter 3 — A Note to Mom and Dad
The book includes a short note to parents, and Rob Berger signs it with his own story: retired at 49, retired again at 51, and back to work he loves at 52. That’s the idea behind the whole book. Financial freedom doesn’t mean you never work again. It means the choice is yours.
Chapter 4 — The Money Multiplier
Most people see a dollar and nothing more. But every time a dollar passes through your hands, you get a choice. You can spend it, or you can put it to work.
Spending is necessary, and this isn’t a judgment. But the dollars you don’t spend can go to work in a savings account, a 401(k) or IRA, or paying down high-interest debt. Each one is like the best kind of employee. It never complains, never asks for a raise or a day off, and keeps working for you for the rest of your life.
You don’t need overtime, a second job, rice and beans every night, or even a raise. You just need to invest. Wealth comes from investment returns, not directly from saving. Saving gets the ball rolling, but returns do the heavy lifting, even for the richest people in the world.
Think of the Money Multiplier as a moving walkway for your money. The longer you ride, the faster it goes. It has three parts: time, amount, and return. The next three chapters take them one at a time.
Chapter 5 — Tick-Tock
Time comes first because it’s the most powerful. The book assumes an average return of 9.3 percent a year. At that rate, one cent left alone for 225 years grows to nearly $4.9 million.
But compounding also multiplies what you lose by waiting. Samantha starts investing right out of college, putting $208 a month into her 401(k). After 10 years, she stops adding money and just lets it grow. William waits 10 years for no good reason, then invests for 35. Both earn 9.3 percent. Samantha ends up with just over $1 million. William, who invested three and a half times as long, ends up with about $660,000.
The best time to start is today. Waiting even one year can cost you thousands. Wait five, 10, or 15 years, and the losses really add up. But if you’re late to the game, there’s still hope.
Chapter 6 — Think Small
The second part is the amount, and it can be smaller than you think. Someone Berger once interviewed shared the Rule of 752. Multiply any weekly expense by 752, and that’s what you’d have after 10 years if you invested the money at 7 percent instead. Over 45 years, the number becomes 36,036. A $4 latte three times a week turns into $432,432. Cable at $25 a week turns into about $900,000. Eating out twice a week turns into more than $1 million.
Small amounts, invested over time, grow into piles of cash that can change your life. And you can start with as little as $25 a month.
Chapter 7 — Investment Returns
The third part is the return, and small differences here grow huge. Over 40 years, money doubles four times at a 7 percent return and five times at 9 percent. In one of the book’s examples, a Freedom Fund, the savings and investments that pay for your freedom, reaches more than $1.7 million. Drop the return by just 1 percent, and it only reaches about $1.2 million. Your return matters. A lot.
Chapter 8 — Financial Freedom
Ultimate financial freedom comes when you can live off your savings and investments without needing to work. And it depends on how much you spend, not how much you make. That’s why so many celebrities, athletes, and lottery winners go broke. Their spending ate their huge incomes and then some.
The book breaks the goal into seven levels, each a bigger cushion of expenses saved. The top three are where life starts to change. Say you spend $50,000 a year.
Level 5 is five years of expenses, or $250,000. You’ve already saved more than most people will in a lifetime. It’s also a danger point, where it’s easy to get comfortable and slip back into old habits. The author and his wife were around Level 5 when he realized he could walk out of his job if he needed to. He wasn’t stuck, and it was a great feeling.
Level 6 is 10 years of expenses, or $500,000. At 9.3 percent, that earns about $46,500 in a year, and soon just over $50,000. Your money now earns as much as you spend.
Level 7 is 25 years of expenses. This is ultimate financial freedom. You can retire completely, keep your job, start a business, or work on projects you love. You decide.
The 25 comes from the 4 percent rule, developed by financial planner William Bengen in the early 1990s. It tells you how much of your Freedom Fund you can spend each year without running out. Spend $50,000 a year, and you reach Level 7 at $1.25 million, because 4 percent of $1.25 million is $50,000.
Seeing your progress gives you the grit to keep going. So find your level. Add up what you really spend each month, including gifts and vacations.
Chapter 9 — How Much Should You Save?
Rules of thumb vary. The Richest Man in Babylon, from 1926, made saving 10 percent popular, and it still works today. Dave Ramsey pushes 15 percent. Before she was a senator, Elizabeth Warren wrote about a budget that puts 50 percent toward needs, 30 toward wants, and 20 toward savings. Save even 10 percent, and you’re ahead of most people. The average saving rate in the U.S. is around 6 percent. Use rules of thumb as a starting point, but think for yourself.
Chapter 10 — Emergencies
“There is only one kind of shock worse than the totally unexpected: the expected for which one has refused to prepare.” Emergencies are the expected kind. So before anything else, even retirement, save one month of expenses. Keep it in a high-yield online savings account, away from your checking account, where it’s harder to spend.
Then watch what happens as you save more. When your Saving Rate rises to 20 percent, your Spending Rate falls to 80 percent. You’re saving more, and you need less to cover each month. So every dollar you don’t spend grows your savings and shrinks the Freedom Fund you need. The book calls this the Slingshot Effect. The more you save, the less you spend, and the faster you reach each level.
Chapter 11 — The 4% Rule
The book’s 9.3 percent return is a nominal return, which means it isn’t adjusted for inflation. Inflation has averaged just under 3 percent over the past century, so the real return is 6.3 percent. The book uses that real number to estimate how long it takes to reach Level 7.
The 4 percent rule works like this. In your first year of retirement, you spend 4 percent of your investments. Each year after that, you raise the amount by the rate of inflation. To put it bluntly, the rule gives you a reasonable chance of dying before your money runs out.
Why only 4 percent when your money earns 9.3? Three reasons. You need to reinvest some of it to keep up with inflation. Your money has to survive years when the market drops 25 percent. And many retirees shift toward bonds, which lowers the return.
To find your Level 7 number, multiply what you spend in a year by 25. If you want to retire at 30 and never earn another dime, plan on 3 to 3.5 percent instead of 4, since your money may need to last 60 years.
Here’s the surprise. How much you make doesn’t change how long it takes to reach Level 7. It depends on the percentage you save, your return, and your withdrawal rate. Picture two people who each save 10 percent. One makes $50,000, and the other makes $500,000. The second one saves far more, but also spends $450,000 a year and needs $11.25 million. They’ll both reach Level 7 at the same time.
Your timeline is sensitive, though. A 1 percent difference in returns can add five years or more. So how much should you save? When pushed, Berger always gives the same answer: at least 20 percent.
Chapter 12 — Level 7 & Saving Rate
Small choices move your Saving Rate. Take the Latte Factor. Skip a $5 coffee every day, and you free up about $150 a month. Invested at 9.3 percent for 45 years, it grows to more than $1.2 million. That’s the Slingshot Effect at work. Every dollar you save grows your savings and shrinks your goal.
Chapter 13 — The Cost of Happiness
Next, the book turns to how you actually buy your freedom. It starts with a question: what makes you happy? It’s one of the hardest questions in life, and many people never answer it. So stop and list the 10 things that make you happiest. Then change the question you ask about money. Don’t ask how much you need to make to be happy. Ask how much you need to spend.
Chapter 14 — Freedom First, Lattes Second
Warren Buffett said, “Do not save what is left after spending, but spend what is left after saving.”
Over three decades, the author learned that willpower alone rarely works. It’s like dieting. You lose a few pounds by sheer will, then your willpower fades, and soon it’s all ice cream and fries. Money works the same way.
So decide how much you’ll save before you spend a nickel. Then automate it. Have the money leave your checking account as soon as you get paid. And make it hard to reach. Keep your savings at a different online bank, so getting money out takes a transfer and several days. Think of it as keeping the junk food out of the house.
Chapter 15 — The Money Audit
Start the Money Audit with your monthly bills. Write down every one, from rent and car loans to phone plans, streaming services, and insurance. Then check your bank and card statements, because you almost certainly missed something. Out of sight, out of mind.
Next, cut. Raise your insurance deductibles. Drop life insurance you don’t need. Switch to a cheaper cell provider or a smaller cable package. Refinance debt at a lower rate. People who’ve done this found real money. One switched to Mint and saves $500 a year. One canceled the gym, bought some dumbbells, and saves $65 a month. One shopped around for home and auto insurance and saved $3,000 a year.
And if your employer matches retirement contributions, take the match. The best ways to save are painless and only take action once. Do a Money Audit at least once a year, and automate whatever you free up.
Chapter 16 — The Power of Habit
Bills are one thing. Everyday spending is another, and that’s where the Latte Factor lives. It’s a metaphor for how people waste small amounts of money on small things.
The author learned this with his daily mocha. Giving it up hurt. He couldn’t stop thinking about it. But after a couple of weeks, he didn’t miss it. He hasn’t had one in years, and he’s happier without it than he was when he thought he needed it.
So the Latte Factor isn’t about avoiding pleasure. It’s about making sure what you spend on actually brings you joy. You can change a spending habit in four steps.
First, find your habits. Track your spending for two weeks and look for patterns, like lunch out every day, subscriptions you forgot about, or weekend shopping because you’re bored.
Second, pick just one habit to change. Try to change too much at once, and you’ll likely fall short.
Third, replace it. Every habit has a cue, a routine, and a reward. Say you go out to lunch every day at noon. The cue is the time, and the routine is walking to the food court. But the real reward might not be the food. It might be getting out of the office. So keep the reward and change the routine. Bring your lunch and eat it in a nearby park.
Fourth, automate what you save, whether that’s a bigger 401(k) contribution or a bigger debt payment. If you don’t, you’ll spend the money on something else and not even remember what.
Chapter 17 — What If?
“All life is an experiment,” wrote Ralph Waldo Emerson. “The more experiments you make the better.” So ask yourself some what-if questions. Start small. What if you took your lunch to work? Then go big. What if you got rid of a car? What if you moved close enough to walk to work, or to a cheaper part of the country?
You might think, “I can’t get rid of my car. That’s impossible.” But what would you do without one? You’d survive. The point isn’t to sell your car. The author has one. The point is to imagine past where you are right now.
Then try it for 21 days. In the book’s example, dropping cable saves $100 a month and gets you to Level 7 three years faster. Eating out less saves $200 a month and gets you there six years faster. Going without a car saves $300 a month and gets you there eight years faster. Do all three, and you reach Level 7 in about 30 years instead of nearly 43. A 21-day experiment also shows you whether the way you live now really makes you happy.
Chapter 18 — The #1 Freedom Fund Killer
The car wasn’t a random example. Cars are the number one Freedom Fund killer. The average new car costs about $878 a month in payments, insurance, gas, and upkeep. Invest that at 9.3 percent instead, and you’d have about $173,000 in 10 years, $1.7 million in 30, and nearly $4.5 million in 40.
Not everyone can live without a car, and many people buy used or pay cash. Fair enough. But buying a new car every five years still costs more than $3.7 million in lost wealth over a lifetime. Just driving your car longer adds hundreds of thousands of dollars, as long as you invest what you save. Freedom first, cars second.
Chapter 19 — Stocks & Bonds
Now for where to put your money. Picture a small dry cleaner that needs cash. You could lend it the money, or you could buy part of the business.
Lending the money is a bond, which is just a fancy word for debt. The company pays you interest and gives your money back when the bond ends. But there’s risk. The company might not pay you back. And if interest rates rise, you’re stuck. Lend $100,000 at 7 percent for 10 years, and if similar bonds pay 10 percent two years later, you’ll earn 3 percent less than the going rate for eight more years.
Buying part of the business is a stock. There’s no promised interest and no promise you’ll get your money back. But when the business makes a profit, it can share it with its owners as a dividend, the way Apple does.
History shows the trade-off. Invest $300 in 1928, and by the end of 2017 you’d have about $7,300 in 10-year Treasury bonds and nearly $400,000 in the S&P 500 stock index. But the S&P 500 lost value in 25 of those years, including a drop of about 37 percent in 2008. In the long run, stocks beat bonds. In the short run, stocks swing more.
Chapter 20 — Mutual Funds
Mutual funds come in two types. Actively managed funds try to pick winning investments. Index funds simply track an index, like the S&P 500. Over long periods, index funds beat most actively managed funds after fees and taxes. Over 15 years, 90 percent of active funds trail their indexes. Index funds let you have your cake and eat it too. They’re cheap, simple, and usually better.
Funds also come in many flavors, like small companies, large companies, real estate, and bonds. Real estate funds, called REITs, aren’t tax efficient, so hold them inside a retirement account.
Chapter 21 — Mutual Fund Fees
Warren Buffett said most investors are best off in “an index fund that charges minimal fees.” In investing, the lower the cost, the better it tends to do over time. That feels backward, since you expect to get what you pay for. With investing, it isn’t true.
The main fee is the expense ratio, measured in basis points. One hundred basis points equals 1 percent. On top of that, funds pay trading costs that aren’t part of the expense ratio, and index funds have far fewer of them. Some funds also charge a load fee when you buy or sell, often 5.75 percent up front, and part of it pays the advisor who sold you the fund.
For index funds, keep the expense ratio under 25 basis points, and ideally under 10. The best ones from Vanguard and Fidelity cost less than five, and some Fidelity funds are free. High fees can add years, even a decade, to your trip to Level 7.
Chapter 22 — Investing Made Easy
Good investing has four goals. Diversify, because no one knows which investments will do best. Lean on stocks, because they beat bonds over time. Keep costs low. And keep it simple, because life is complicated enough.
The easiest way to hit all four is a Target Date Retirement Fund. You pick the fund named for about the year you’ll retire. That one fund spreads your money around, holds plenty of stocks, and keeps costs low. It rebalances for you, buying and selling to keep your mix on target. And it shifts toward bonds as you near retirement. Vanguard’s 2060 fund holds about 90 percent stocks. Its 2020 fund, built for people about to retire, holds 53 percent. These funds are set it and forget it, and they’re by far the easiest way to invest.
If you want more control, try the 3-Fund Portfolio: U.S. stocks, foreign stocks, and U.S. bonds. For long-term investors, the author suggests 50 percent in Vanguard’s Total Stock Market Index Fund, 30 percent in its Total International Stock Index Fund, and 20 percent in its Total Bond Index Fund. More funds mean a bit more work, since you’ll need to rebalance about once a year.
So which should you pick? There’s no right answer. If you’re just starting, a target date fund in a retirement account is a great choice. In the end, pick a portfolio you’ll stick with no matter what the market does.
Chapter 23 — Retirement Accounts
“Don’t simply retire from something; have something to retire to,” said Harry Emerson Fosdick. Once you know what to invest in, you need to know where to hold it. There are three kinds of retirement accounts: workplace plans like a 401(k), individual retirement accounts, or IRAs, and health savings accounts, or HSAs.
A 401(k) comes in two flavors. With a traditional 401(k), your contribution lowers your taxes now, and you pay tax when you take the money out. With a Roth 401(k), you get no break now, but your money and all its growth come out tax free. Put $10,000 in a Roth at age 25, and at 9.3 percent it’s worth more than $400,000 at 65, all of it tax free. For most people, the Roth is the better choice.
IRAs work the same two ways, with lower limits. With a Roth IRA, you can take out what you put in at any time without tax or penalty. If you earn too much for one, a Backdoor Roth lets you put money in a traditional IRA and then convert it.
The HSA has tax advantages without equal. Your contributions are deductible, the money grows untaxed, and withdrawals for medical costs are tax free at any age. After 65, you can use it for anything and just pay income tax.
So where should your money go first? Once you’ve saved your one month of expenses, the book’s order is this. First, put enough in your Roth 401(k) to get the full company match. Skipping it is like setting a winning lottery ticket on fire. Second, max out a Roth IRA. Third, max out an HSA if you qualify. Fourth, max out your Roth 401(k). And fifth, invest the rest in a regular taxable account.
There are exceptions. If you’re in a top tax bracket, traditional accounts may be better. And if you plan to retire very early, you might use traditional accounts while you work, then convert a little to a Roth IRA each year once your income drops. That’s called a Roth IRA Conversion Ladder.
Chapter 24 — How to Evaluate a Mutual Fund
To check out a fund, all you need is Morningstar.com. The author shows how with the fund list in his own 401(k). He finds the Fidelity 500 Index Fund, with no load fee and an expense ratio of just 0.02 percent. Then he finds a Fidelity U.S. bond index fund that charges three basis points and a Fidelity international index fund that charges five. And there you have it: a 3-Fund Portfolio built from low-cost funds. You can check any fund in your own plan the same way.
Chapter 25 — Let’s Do This
“The best time to plant a tree is twenty years ago. The second best time is now.” So start with your 401(k). If its target date fund costs more than 25 basis points, it’s too expensive. Anything above 100 basis points is highway robbery. If that’s what your plan offers, build a 3-Fund Portfolio from its index funds instead. For an IRA, Fidelity offers several low-cost index funds, some with no fees at all, and there’s no minimum to open an account.
Chapter 26 — You
“It’s one thing to shoot yourself in the foot,” said Senator Lindsey Graham. “Just don’t reload the gun.” The biggest threat to your financial freedom is you. The people who invest in a fund almost always earn less than the fund itself. They get excited and buy when the market is up, then get scared and sell when it’s down.
The hard part isn’t making a plan. It’s sticking to it. As boxing champ Mike Tyson said, “Everybody has a plan until they get punched in the mouth.” From 2007 to 2009, the market dropped more than 50 percent. Many people sold in fear, and they still talk about it with deep regret. By 2012, the market had fully recovered. The people who kept investing did even better, because they were buying while prices were low. The market has lived through the Great Depression, wars, Black Monday, the dot-com bubble, and 9/11. There will be a next crisis, and another after that. That’s normal.
Debt can trip you up too. Avoid lifestyle debt like the plague, because you can’t return the vacation you took or the meal you ate.
Last, never stop learning. After more than 30 years, the author still learns new things all the time. Read the Wall Street Journal once a week and a good investing book once a year. You don’t have to be a money geek. Just don’t stick your head in the sand.
Chapter 27 — Getting Investment Help
If you want help, look at how an advisor gets paid. Some earn commissions on what they sell you, so they’ll almost never recommend a low-cost index fund. They can’t earn a fee from it. A fee-only advisor avoids that conflict, but still costs a lot. The best option is to handle your own investments.
Chapter 28 — The Progress Principle
Research on motivation at work found that the biggest boost of all is “making progress in meaningful work.” Even a small win changes how people feel and perform. It’s called the Progress Principle, and it works with money too.
If you’re saving 5 percent, fixing your eyes on 30 percent can make every step feel like failure. So set a smaller goal, like reaching 7 percent in the next 12 months. Then look for small wins. Set your 401(k) to raise your contribution by 1 percent a year. Save half of your next raise, or half of your tax refund. Steady progress, however small, builds the confidence to keep going.
Chapter 29 — Debt
There’s a saying that every time you borrow money, you’re robbing your future self. Borrowing also tempts you to spend more than you should, especially on cars and homes.
A mortgage is usually considered good debt, since homes tend to rise in value. But it turns bad when you pay more than the home is worth, spend more than you can truly afford, borrow almost the whole price, or buy where renting is far cheaper. Try to keep housing under 20 percent of your gross monthly income. Student loans need care too. As a rule of thumb, don’t borrow more than one to one and a half times your expected first-year income.
Chapter 30 — How to Get Out of Debt
Getting out of debt is simple. Not easy, but simple. Stop taking on new debt, get rid of what you can, refinance, and pay it down.
You can refinance almost any debt, from a mortgage to a car loan. Move high-interest credit card debt to a card with a 0 percent intro rate. You’ll usually pay a 3 percent fee, but it’s worth it on debt that costs you 15 percent or more. And make any debt above 10 percent a priority to pay down.
Which debt should you pay off first? The debt snowball says to pay off the smallest balance first. Clearing a whole debt keeps you motivated, which is the Progress Principle again. The debt avalanche says to pay off the highest rate first, which is faster and cheaper. Research backs the snowball, but math doesn’t lie. Depending on your rates, it could cost you thousands in extra interest. Run the numbers on both before you choose.
Chapter 31 — Priorities
In most cases, investing shouldn’t take a back seat to paying off debt. Pay extra if you can, but not at the cost of saving. Never give up an employer match. And avoiding new debt matters far more than how fast you pay off old debt.
Chapter 32 — Yes, but…
Just about everybody has objections to investing at first, and working through them is critical to your future. The key is to see yourself as an investor, whatever your age. Investing isn’t for old people. It’s for anyone who wants to take control of their money. The sooner you start, the easier it is.
Remember that “the obstacle is the way.” Find what’s keeping you from investing and run toward it. You’ll have plenty of financial goals in your life. Make financial freedom the first one.
Chapter 33 — To Level 7 and Beyond!
In the end, the numbers lead to bigger questions. What if you could be just as happy with less stuff? What if you had complete control over what makes you happy and what doesn’t? What if the things you thought were making you happy really weren’t? Even worse, what if they were making life less joyful?
That’s where the book began, with the lie that happiness is expensive. The numbers behind financial freedom were never complicated, and they never needed a big salary. Spend less than you make. Save first and automate it. Put the rest in low-cost index funds and give it time. Every dollar you don’t spend works twice. It grows your Freedom Fund, and it shrinks the goal.
And Level 7 isn’t the end of work. Rob Berger retired at 49, retired again at 51, and went back to work he loves at 52. That’s what Level 7 buys you. Not a life of doing nothing, but the freedom to choose how you spend your days.