How to Never Pay for Anything Again
Why your job is actually making you poor.
Do you know how much your life costs?
I’m not talking about how much you make but how much you spend. Do you know how much it costs to live your life?
To give you an estimate, here are some baseline figures of a few major expenses:
The average rent is $1,739 per month
The average cost of owning a car – including maintenance and insurance – is $1,015 per month
The average food bill each month – including dining out – is $778
According to the Motley Fool, the average household income is $61,937 or $5,161.42 per month – before taxes. With half of American households earning less than $50,000 per year, there’s a good chance your actual take-home pay is around $4,000 per month.
If you’re the average American, that means more than 80% of your monthly income is going to housing, food, and transportation. This doesn’t include other major expenses like health insurance or child care.
For most Americans, the math ain’t mathing. And it hasn’t been for a while now.
There are a number of different explanations to explain why the economy sucks: greedy corporate executives, currency debasement, lack of good jobs for college grads. But I think there’s another reason: everyone is playing the wrong game.
You’re struggling to earn a living to pay your bills because that’s the game that’s been passed down to you. That’s not the only game available to play nor is it the one you must play.
There’s another game you can choose. One where you get to generate money from money itself and live off of that.
Now before we go any deeper I want to be very clear about something. The recommendation laid out in this article isn’t feasible. You don’t have enough cash lying around to actually generate income.
The point isn’t the outcome, it’s to learn a new process. Your job is to practice generating money from money so that as your pot of money grows, you can begin leveraging it more strategy. It’s time to stop being a passive consumer and start being an active steward of your money.
The average American household spends $6,500 each month on three categories of expenses.
According to a 2022 study from the Bureau of Labor Statistics, the average American spends $6,080 per month. Adjusted for inflation, that figure is $6,534.67 in 2024 dollars.
For the sake of this article, let’s assume the average monthly cost of living is around $6,500. How you spend that money fits into three buckets: mandatory, obligatory, and discretionary.
Mandatory expenses are things like car insurance. You might not enjoy paying it, but if you want to keep your license you kind of have to.
Obligatory expenses are things you technically don’t have to pay if you don’t want to, but you’re on the hook to pay for. Take your credit card bill as an example. Will you go to prison for failing to pay your credit card bill? No. But will your credit score take a serious hit if you don’t? Yes.
Discretionary expenses are everything you spend on your life. Think: groceries, gas, and coffee. Unlike your other expenses, discretionary spending fluctuates from month to month and is 100% in your control. You – and only you – decide how this money is spent.
Both mandatory and obligatory are fixed expenses. You know how much each expense will draw from your bank account at regular intervals of time. Discretionary, on the other hand, varies. You likely don’t have a plan for this spending, it just kind of happens.
These categories represent a hierarchy of needs and responsibilities as an adult. Food, clothing, and shelter are the baseline needs of survival. If you own your home you’re obligated to make a monthly mortgage payment to a bank; if you rent that money goes to your landlord.
Aside from these expenses, there are other costs you’ll have to cover if you live in modern society. This includes health insurance, a vehicle, and everyone’s favorite, taxes.
Mandatory and obligatory expenses likely take the bulk of your earnings each month. This leaves you with not a lot left over to actually live. Lattes, nights out, and grabbing lunch in between meetings all have to be charged on credit because you simply don’t have the cash you need to cover the “essentials” of modern life.
If that last paragraph resonated with you, you’re not alone. Even if you think everyone is doing better than you are, the reality is we’re all struggling right now. Even the doctors, lawyers, and pseudo wealthy people with their brand new cars.
It’s clear what we were all told to believe about work and money isn’t entirely accurate. Getting good grades in school does not equal a high paying job.
To be fair, there are personal choices you can make to improve your quality of life. Maybe you could survive buying a latte once or twice a week instead of every day. But even then the savings each month – a hundred bucks at most – isn’t going to solve major structural problems in the economy.
The problem isn’t you, it’s the economy you live in.
If you want things to get better you have to change your perspective on money and the game you’re playing. Working a 9to5 job for 40 years makes you a really great consumer for companies that rely on the revenue they generate from you. It doesn’t lead to a better quality of life though.
To make things more affordable you have to stop operating in a system that is obviously working against you. That means you have to stop earning money to cover your cost of living and start learning how to generate money from money instead.
Do you know what your monthly cost of living is? Feel free to share in the comments below.
Financially independent people don’t work for income to cover their living expenses. They generate income.
Have you ever wondered how the ultra wealthy pay for things?
Does Elon Musk swipe a credit card to buy groceries when his paycheck hasn’t cleared the bank yet?
Did Jeff Bezos finance his last car?
Did Taylor Swift have to show proof of income the last time she rented an apartment?
Of course not. The ultra wealthy live in the same world as you and I but play by a different set of rules. Ironically, it’s not because they’re uber wealthy, it’s because they got out of the rat race before the rest of us. In doing so they made themselves ultra wealthy. Go figure.
You might think that ultra wealthy people have a bank account with a bunch of zeros that they use to pay for things. That’s not entirely true.
The ultra wealthy don’t buy things with cash. Instead, they leverage their assets.
Assets are things like property, shares of a company, or intellectual property. They can be put up as collateral to access lines of credit from a bank. It’s this line of credit – and not cash itself – is used to cover day-to-day expenses.
Lines of credit are used the same way as credit cards. You’re given a limit you can spend up to and have to repay whatever you spend. The difference between the two is the interest rate. A line of credit is usually secured by collateral, giving you access to a much lower interest rate than a credit card.
You might be wondering why someone would want to use a line of credit to pay for things. Take Elon Musk as an example. He has an estimated net worth of around $245 billion. Every minute of his time is worth a jaw dropping $170,138,888.89.
Elon Musk has better things to do than clock in and out of a W2 job. And managing his household budget isn’t high on his priority list. He’s much better off accessing a line of credit, using it to buy what he needs, and letting an accountant deal with the rest.
Eventually, the bill will come due and Elon Musk will have to repay whatever he spent. How does he do that if he’s not earning a paycheck?
This is why it’s important to understand what assets are and how they work. Assets can act as collateral to access better loan terms and they can be used to generate income. If you own a rental property or dividend-paying stock, your asset is earning money for you regardless of how much time you spend working.
Let’s look at Coca-Cola to illustrate this. Every quarter Coca-Cola pays its shareholders $0.49 per share. If you have enough Coca-Cola stock, you can use your quarterly dividend payment to cover your cost of living.
Going back to the earlier assumption that your life costs $6,500 per month, every quarter you’ll spend around $19,500. If you own 39,797 shares of Coca-Cola stock, Coca-Cola will pay you $19,500 which you can use to cover your living expenses.
Rather than slaving away at a corporate job to earn a living, the ultra wealthy use their money to buy assets – like dividend-paying stocks. Those assets generate income for them. Over time they generate enough income where it can cover their living expenses.
Low-cost lines of credit allow them to cover their day-to-day expenses regardless of when those dividend payments hit the bank. Their money makes money for them while giving them access to cheap money they can use wherever they want.
Now, there’s a reason why I’m highlighting wealthy people like Elon Musk to make this point. In order for this to work, you’re going to need a sizable investment. Yeah, 39,797 shares of Coca-Cola can cover your cost of living but you’re going to need to purchase around $2.8 million in Coca-Cola shares to make that happen.
By studying how wealthy people engage with money you can change your own money paradigm. They are clearly operating under different rules and assumptions about money. While you probably don’t have enough cash to buy that many shares of Coca-Cola, you can start changing how you use money.
Namely, you need to stop spending it on consumer goods and start investing it in assets. Stop buying your lattes and start putting your hard-earned cash to work to buy lattes for you.
Below is a simple process you can follow to do just that. Again, the point isn’t to magically become independently wealthy overnight, it’s to begin exercising a money muscle you never knew existed in the first place.
Step #1: Get a pile of cash
The first thing you’re going to need to do is get some cash. You can do this by setting aside cash from your job or working a side hustle.
Personally, I’m a fan of selling household junk on eBay and Facebook Marketplace. I spent a few months decluttering my parents’ basement when COVID was in full swing and turned their junk into $10,000 cash. While there were a couple of big sales on eBay, most of it was from $5 to $10 sales of random stuff on Facebook Marketplace.
Make a plan to get some cash in a specific period of time. It could be 90 days or nine months. Whatever it is, set a goal and execute it so you can start buying assets.
Step #2: Invest your cash in a revenue-generating asset
Once you have some cash to work with it’s time to go asset shopping.
Not all revenue-generating assets are the same. Some assets generate revenue but many don’t. Tesla is a fun stock to own but don’t expect a quarterly dividend payment from Elon.
You want to buy an asset that generates predictable revenue. Something you can game out in a spreadsheet and create a strategy around.
Dividend-paying stocks are a good option. Coca-Cola is one example. REITs – real estate investment trusts – are another. By law, REITs are required to pay 90% of their taxable income to shareholders.
While these are reliable ways to generate revenue, keep in mind that they aren’t perfect and they aren’t always consistent. An economic downturn could result in a cut to shareholder dividends or reduce a REITs taxable income. This site tracks companies that have suspended dividend payments.
Another arguably safer option is a certificate of deposit from a bank. These are like savings accounts with higher interest rates. In exchange for parking your money in a CD for a specific period of time, the bank will pay a higher interest rate. As of this writing the average three-month CD is around 5.5%
Government bonds are another option. They are good for retirement, but for the purpose of this exercise, you want to start covering your living expenses before then. CDs are better in this case because they offer shorter-term limits and can be liquidated and transferred into a savings account if you need it.
Step #3: Use the interest to pay for your cost of living
Let’s assume you decided to park your money in a three-month CD that gives you a 5.5% interest rate.
Using a calculator like this, you can see how much interest you could earn after three months:
A $500 deposit would generate $6.47 in interest
A $1,000 deposit would generate $13.48 in interest
A $5,000 deposit would generate $67.38 in interest
A $10,000 deposit would generate $134.75 in interest
A $50,000 deposit would generate $673.76 in interest
A $100,000 deposit would generate $1,347.52 in interest
The more you invest upfront, the greater the interest payment will be.
This is the game. Instead of spending the money you earn from clocking into your day, you need to put your money to work making more money for you. At the end of the day, the barista making your latte doesn’t care if you’re paying with earned income, generated income, or credit. It’s all the same to them.
Now as you can see from the returns they’re not great. That’s the point. It takes time and a lot of discipline to build up a portfolio that’s large enough to cover a full $6,500 per month lifestyle. And to be completely honest, a CD alone probably isn’t going to get you there.
The goal isn’t to make money, it’s to start learning how to generate money from money. A CD is a low-barrier-to-entry banking product that will help you get started.
Step #4: Reinvest your original pile of cash
Compound interest is often considered the 8th Wonder of the World and for good reason. The younger you are when you realize that spending the money you earn from your job is designed to keep you poor, the faster you begin investing it and letting compound interest grow.
When your CD matures, you get your original cash investment back. You’re not spending money, you’re simply parking it in an account and letting it make money for you.
Let’s say you invested $50,000 and earned around $674 after three months. You get your initial $50,00 back plus the $674 in interest that it generated.
When the CD matures you have a couple of options. You can take the money and spend it. You can reinvest it. Or, you can reinvest both the original $50,000 and the $674 interest. The more you do this, the more the interest will compound and the greater your future earnings will be.
When you have enough assets that generate $6,500 per month for you, your job becomes an option. You can keep working it if you want but you’re no longer dependent on it to cover your living expenses.
At this point, you are financially free.
Final takeaway.
Spending money you earn from a job is a guaranteed way to stay poor. It doesn’t matter if you’re a prestigious lawyer or a well-respected doctor. Working for a living is a poverty trap.
When most people think about money, they think about wealth. They want to earn more so they can stop working.
That’s the wrong approach.
You don’t want to earn more, you want to spend less so you can live on less.
Let me explain. In order to live a $6,500 per month life on generated income, you need at least $2.5 million in the bank. But what if you cut that in half? If your cost of living was $3,250 per month instead, you’d only need $1.25 million in the bank.
And what if you got your cost of living down to $2,000 per month? You would need less than $500,000 invested in a three-month CD.
If your take-home pay is $4,000 per month and you decide to live on half of it, you could save $500,000 in 20 years. And if you work a side hustle or find another way to increase your savings rate, you can hit that goal a lot faster.
Working for 20 years instead of 40+ seems like a better trade-off than working right up until you’re knocking on death’s door.
The game you need to play is a game of assets, not a game of working hard and spending money. How much you earn and how much you spend are levers you control to determine what assets you get to buy and when you can buy them, but the game is ultimately about assets.
Start playing this game while making your standard of living more manageable and you’ll never have to pay for anything ever again.