Let's start today with a strange statistic. A study has shown that 7 out of 10 people live 'paycheck to paycheck' every month. In other words, the salary that comes to them at the beginning of the month, flies away by the end of the month! And the rest of the days are spent in extreme stress, anxiety, and utter despair. Are you one of this group? If the answer is 'yes', then know one thing at the beginning - you are not alone!
But the question is, will life be like this? Is it our destiny to sigh at the end of the month?
Absolutely not! Today, from a remarkable discussion between the famous personal finance expert David Bach and motivational speaker Mel Robbins, we will learn some magical Financial Freedom Rules that will change your entire money game. These rules are not complicated mathematics or boring lectures; rather, they are very simple, fun, and 100% effective.
Once you start reading today's detailed guide, you will understand that becoming rich is not a matter of luck; it is simply a game of habit! So, let's sip a cup of coffee and learn the basics of financial freedom.
1. The first truth of the money game: Do you have a plan for your money?
David Bach said a very good thing—"Either you have a plan for your money, or someone else has a plan for your money."
Think about it, what happens when we walk around with money in our pockets without a specific plan? The 'automatic economy' around us is waiting to make us spend that money. The smartphone in your hand is actually a 'money magnet' or money magnet. It is either helping you create wealth or emptying your pockets without you knowing it.
Subscription traps and the 'no-plan plan'
Netflix, Amazon Prime, gym memberships, monthly boxes of skincare products—everything these days is an automatic subscription. We think, “Hey, it’s not a big deal! It’s only a few dollars a month.” But when these small expenses add up at the end of the month, they add up to a huge mountain of expenses. Most people don’t have a “money plan.” David Bach calls it the “No-Plan Plan.” Because of this no-plan plan, as soon as your paycheck comes in, it goes to subscriptions and unnecessary expenses at lightning speed. So the first financial freedom rule is- take control of your money.
2. Pay Yourself First – Earn just one hour a day
The biggest misconception in the financial world is: "If I can earn more money, I will be rich." Wrong! Completely wrong! It is not how much money you earn that matters, but how much money you can 'keep' for yourself at the end of the month. Even if you earn crores of dollars, a person can go bankrupt, while an ordinary employee can become a millionaire with the right rules.
David Bach's most powerful theory is "Pay Yourself First". That is, save money for your future before giving it to anyone else. He advises setting aside at least 1 hour of your daily income for your future. That is, for yourself only.
Simple math
Let's say you work from 9 am to 5 pm. The first hour of your income (which is about 12.5% or 12% of your total salary) should go straight to your retirement or investment account as soon as you get it.
Many people may say, "I can't even manage myself, how can I save 12% on top of that?"
David Bach says, Suppose your boss cuts your salary by 10% due to a recession in the office, would you quit your job? Of course not! You will adapt to your lifestyle with that lower salary, even if it takes a little effort. So why not do the same thing proactively or in advance for your financial freedom? Give yourself a 10% pay cut or salary reduction and invest that money. Even if it's a little difficult for the first two to three months, by the fourth month, you won't even realize that money is being deducted from your account! Then it will become completely easy for you.
3. The Magic of Compound Interest: How can just $27.40 or a few dollars a day turn into a big sum?
Scientist Albert Einstein called compound interest the eighth wonder of the world. If you can invest small amounts of money in the right places over a long period of time, this compound interest will give you unimaginable returns.
David Bach gives a great example. He asked Mel Robbins, holding a bundle of $10,000 in his hand, “How much money do you have to waste every day before you have $10,000 in the end of the year?”
The calculation is simple—just $27.40 a day (or a fraction of that in your local currency). We waste more than that every day on Uber rides, food deliveries, or unnecessary shopping. Watch the magic happen! If you don't spend this small amount of money every day and invest it in a good index fund (such as America's VTI or a diversified fund like this), which gives an average return of 10%, then in the next 40 years, this small amount of money will actually grow to 4.4 million dollars (Over $4.4 Million) in interest!
What, your eyes widened, right? This is the power of compound interest. Your future financial freedom is determined by how much money you spend every day.
4. The Two Escalators to Wealth
The way today's economic system is structured, if you just save money and leave it in the bank, you will continue to grow poorer day by day. Because inflation will reduce the value of your savings. To become rich, you have to take advantage of the system. According to David Bach, there are two main escalators for creating wealth:
- Real Estate/Home Ownership
- Stock Market (Stocks/Index Funds)
Starting with tax laws, the government's economic incentives have been designed to increase the value of these two asset classes. If you are not an investor, you will fall far behind.
Is investing in the stock market risky?
Many people get scared just by hearing the name of the stock market. They think it is gambling! Many young people fall into the trap of social media and lose all their money by investing in ‘Meme Coins’ or nonsense penny stocks, and later blame the system.
David Bach advises never to buy individual stocks of a single company unless you are a professional. The safest and easiest way is to invest in index funds or ETFs. For example, by investing in a fund like Vanguard Total Stock Market (VTI), you become a partner or owner of thousands of top companies with one click. This reduces risk and ensures profit in the long run.
5. DULP Method: How to Escape the Deadly Trap of Credit Cards
Mel Robbins shares a dark chapter in her life. At the age of 41, she and her husband were buried under nearly $800,000 in debt! Only those who have been through it know how devastating the emotional stress of debt can be.
David Bach has a signature method for getting out of debt, called DULP (Done on Last Payment).
If you are stuck in a credit card or other debt trap, follow these steps:
- Remove all cards from your wallet: Stop using them first. Stop getting new cards by falling for store cards or various offers.
- Make a list of debts: Write down the amount and interest rate of all your debts on a piece of paper.
- Pay off the smallest debt first: Mathematics may say that you should pay off high-interest debts first, but David Bach talks about psychology. Pay off the card with the lowest balance first. The confidence and joy you will feel when an account is completely 'zero' will give you the strength to pay off the next big debt.
- Make payments automatic: At least keep the minimum payment with automatic debit, so that you do not have to pay 'late fees' or penalties under any circumstances. Banks are making billions of dollars every year from these late fees!
6. Three essential accounts: Retirement, Security, and Dream Account
The rules of financial freedom are not fulfilled if your money is scattered in different directions. David Bach suggests dividing your savings into three main buckets or accounts:
A) Retirement Account (for the future)
12% to 14% of your salary goes directly here. This is your old age stick. This money cannot be used for any urgent needs, not even to buy a house.
B) Security or Emergency Account (for safety)
Life can be a storm at any time—job loss, medical emergency, or sudden accident. For this, save 3% to 5% of your income in a liquid money market account, so that cash is immediately available when needed. At least 6 months of living expenses should be here.
C) Dream Account (for dreams)
Are we working so hard just to be rich in old age? Absolutely not! We also want to have fun in our present life. Maybe you want to visit Mexico next year, or buy a new car in 5 years. Create a separate 'Dream Account' for this dream and automatically deposit a certain amount of money there every month. Dreams only come true when they are funded!
7. Are you starting too late? (Start Late, Finish Rich)
Many people are reading this article thinking, "Hey, I'm 50 now! I don't have 40 years to take advantage of compound interest. Is my life over?"
David Bach says, "It's never too late, unless you give up."
He has a book called "Start Late, Finish Rich". Even at the age of 50, if a couple starts saving just $20 extra a day and invests it in the right places, then in the next 15 years (i.e., by the age of 65) they can build a fund of almost half a million or $500,000!
Isn't having $500,000 in your pocket a million times better than having no money at all at the age of 65? Of course it is! So, regardless of how old you are, take your first step today. Your 50s or 60s can also be a great time to start investing. So, you can start today if you want.
8. The Hard Truths of Real Life: Widowhood, Divorce, and 'Money Debt'
This part of the article is a bit serious but very important, especially for women. The average age of widowhood in America is 59 years. And the divorce rate is increasing day by day. David Bach says in strict language to women, that the entire responsibility of finances or money should never be left to the husband with a blind eye. Many times, after the death of the husband or after the divorce, women do not even know how much money they have in debt, where their bank accounts are, or what their passwords are!
Money, Fire Drills, and Money Dates
Just as we do a 'fire drill' to avoid accidents on a plane or ship, we should also do a drill in personal finance. Husbands and wives should sit down for a "Money Date" at least once a month. Discuss together over a nice cup of coffee - whether your Wills are updated, whether both of you know the passwords, what is the status of the insurance policy. Stealing or negligence with money can lead to major disasters later. So be careful or aware today.
Conclusion: Take the first step to financial freedom today
The biggest lesson for us from this long discussion between Mel Robbins and David Bach is that financial freedom is not a miracle. It is completely dependent on a conscious decision of your own. Instead of wasting time on stories or psychology, make the "Let Me" decision for yourself today. After finishing the article, put your phone aside and do at least one of the following things today:
- Set aside at least 1% or 5% of your income for automatic savings.
- Print out all your credit card statements and calculate your debt.
- Take on the challenge of saving a certain amount of money each day in a small coffee can or jar.
Remember, "You don't get rich in days, you get rich in decades." A small step you take today will bring you the financial freedom and peace of mind you desire in the future.
Stay well. I hope this article is of some use to you.
Happy Investing!
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