The Space Between
Posted On March 22, 2020
Becoming financially independent, entering early retirement, or not having a full clench moment when the mechanic hands you the bill is about creating space. By that, I don’t mean leaving the mechanics shop without paying. I’m talking about financial space between what you make and what you pay. Here’s the equation that you absolutely NEED to understand to become wealthy.
What you make – What you spend = Your CashFlow
This CashFlow, if positive is what turns into wealth.
Wealth isn’t just about what you make, and it’s not just about what you spend, its the gap. The space between what you make and what you spend where your money isn’t tied to any expense or dedicated to a purchase that you plan on making (or God forbid already made on a credit card that you didn’t have the cash on hand to pay off.) This space is magical when it’s roomy, and when it’s not… You’re broke. I don’t care if you make $20,000 or $200,000. If you are spending exactly what you are making, you better reevaluate.
“Well CPT CashFlow, I’m actually a CEO and I make $500,000 a year. I drive a Tesla and own 8 Rolexes. How could someone so sophisticated and undoubtedly rich, like myself, be ‘broke’?” How does you’re retirement plan look? If your job went away tomorrow, what happens? Do all of your fancy possessions stay around or does the bank come by and start collecting? If you just wanted to live your life the way YOU want to live it and not the way your boss wants you to, could you? Could you walk away tomorrow as a free human being? Oh no, that’s right, you bought a million-dollar house because you could, as the bank likes to say “afford it.”
“Well, of course, I’m broke Captain! I only make $50,000 a year! After my car payment, rent, health and dental insurance, Netflix, Hulu, Amazon Prime, Disney Plus, Xbox Gold subscription, iPhone 11XSMAX+pro payment, with the 50 gigs of data, of course, cable, daily coffee and bagel, clothing budget, clothes for my pup, and uhh… hold on, there’s more” Of course there’s more! People seem to believe that life is a whole lot more expensive than it is. As someone with a total household income of less than the above example, I can confirm that you’re gonna need a pretty massive excuse to not be saving money.
The point here isn’t to berate people for there lack of saving and willingness to handcuff themselves to an employer until they reach an age of which all of the fun stuff that you used to want to do seems more exhausting. The point here is to find the space between. For example 1 we have a Doctor who thinks that they are rich because they make more money than I would in a decade, and in example 2 we have someone who thinks they are out of options because they don’t make a gazillion dollars. What are we missing? SPENDING. At 50,000 dollars, you should be looking at how to make your life cost $30,000 or less, and at 500,000 dollars, why not be living off of the same $30,000? Why not be saving and investing that gap in your future to buy your time back instead of buying your 9th Rolex so that you can tell exactly how much time you are at work instead of living the life you want to live.
As we continue, we will break down each individual line item that the common lower-middle-income family has to be more intentional with those dollars and how to maximize each one to create a wider, and more roomy gap.