Rule #3: Spend much less than you make

Wealth

Jan 16

Generating the wealth necessary to separate your time from your income is a multi-part equation, with Rule 2 and Rule 3 forming the vanguard — we make as much as we’re able, and then we spend much less than we make.

Self-evident, spending much less than we make allows the benefit of accruing savings. Less obviously, it allows us to invest that savings, purchasing publicly-accessible dividend-producing and appreciating assets, the raw material of passive income — and by extension, the mechanism that allows us to reclaim sovereignty over our time.

As a tool for generating Agency, spending less than you make gains power as the gap between your income and your needs increases, hence the requirement to spend much less than you make.

This is not an exhortation to extreme frugality – rather, it’s the recognition that the more wealth we can accumulate in any given period of time the faster our journey to Agency, coupled with the recognition that speed to wealth comes not just by generating income, but by refusing to spend that income as quickly as it is generated.

Your key metric here is your savings rate, the percentage of your take home income that you move into productive investment assets per unit time. This rate is best increased not by a draconian swipe at cutting your expenses (although some inspection is usually warranted), but by making as much as you’re able without simultaneously inflating your lifestyle. Think bigger paychecks but the same house, the same car, and the same (modest) vacations.