Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge, skills, insight, and encouragement you need to live a rich and meaningful life now while building a plan for financial freedom in 10 years or less. My name is Joshua. I am your host. And today we continue with part two of my series, "You Don't Have to Be Smart to Become Financially Independent, But You Can't Be Stupid." And today we talk about expenses.

This series is organized around my framework for wealth. Part one was increase income. If you can do nothing else with money except increase income, you'll naturally have more money. But step two is decrease expenses. Now I love to think and talk about ways of cutting expenses to the bone.

I love to think and talk about really radical lifestyle decisions. But realistically, not many people will do those things. But here's the great news. You don't have to do those radical crazy ideas in order to be financially independent. You just can't be stupid with your money. Now if you look at the way that most people spend their money, there are a few expenses that make up a big portion of the error.

And since this series is focused on simply avoiding stupidity, not trying to make you do something uber smart, just saying that you can't be stupid, let me talk to you about some big danger zones. Number one, the biggest expense that most of us will face in our life is taxes.

Now taxes for the common man, which is what my approach is in this show, taxes are not particularly complicated. I'm going to assume for the purposes of this series that you are just simply working a job. As such, you're going to have employment taxes and you're going to have a certain level of income taxes.

Here's all you need to do to save on your income taxes. That's it. Because most of the time, people who are earning a common man wage don't actually have that much in income taxes. So you can just move right on past that category for right now and focus on something else.

Now if you are a six figure or multi six figure earner, then yes, you need to pay more attention to tax planning. But the average tax liability on somebody earning 50, $80,000 is very reasonable. Now if you didn't like my suggestion of, then let's move past it and here's the simple thing.

Just put money in your 401k. If you don't have a 401k, put money in an IRA, fund one for you, fund one for your spouse. It's as simple as that. If you'll just put money in your 401k, you'll lower your income tax liability by a very reasonable amount and you'll have money down the road.

It's very simple. Most people don't need anything more than that. Now what's the next big category? The biggest expense that most people have is housing. Here is all you need to know with regard to housing. Just choose a modest, comfortable house that's well built, buy it, finance it with a long term fixed rate mortgage and live in it for as long as you can possibly make happen.

If you'll do that, everything will work out. The big errors here that most people make, the stupid things that they do, is one, they buy way more house than they can afford. And because your house is a driver of many other levels of expenses, they automatically put themselves into stupid camp.

Here's why. Your house will dictate the kind of car that you drive. If you live in a modest neighborhood, then a modest car will not seem out of place. But if you live in a ritzy, glitzy neighborhood, a modest car will seem out of place. You can hide it in the garage, but most people will, in time, wind up putting themselves into a situation where they upgrade their car.

If you live in a modest neighborhood, in a modest house, chances are that your neighbors will probably be fairly modest in their financial doings, which means you're more likely to be invited to go on a picnic, or to go out in the boat this weekend, or go down to the lake, which are very modest ways of enjoying your entertainment for the weekend.

If you live in a ritzy, glitzy neighborhood, you're more likely to receive invitations to go snow skiing out in Vail for the week. I like snow skiing in Vail, but it's hard to get away from a week of snow skiing for less than $5,000 for a couple. So your house drives many of your expenses.

Your house purchase price also drives many of the internal expenses for your house. If your house is relatively modest, you can staff it, or fill it, with appropriate, high-quality, but modest appliances. But if your house is very ritzy, your modest appliances will seem very out of place. If your house is modest, then you can treat it with modest landscaping that you can maintain yourself.

But if your house is ritzy, your modest landscaping starts to look out of place, and now all of a sudden you have to hire a gardener to take care of things. The simple decision on your house and your housing will drive almost every other category of your budget. So just choose something modest.

Now you don't have to live down in a van down by the river. Just choose a modest neighborhood with modest homes. Buy a quality home. Finance it with a long-term, fixed-rate mortgage if you don't have the cash to pay for it. If you'll just have a mortgage and pay it off, you'll own a house.

In the United States of America, a huge percentage—I'm grasping for the exact data, look me up, but my gut says it's like 30 to 40 percent—so a huge percentage of houses are owned debt-free. Just say a third. Most of the time those houses are owned not because somebody did some weird radical strategy of building it themselves or living in an igloo because they could build it cheap.

Rather, they just bought a house, paid it off, made some extra payments here and there. It's not hard on a working man, common man's salary to take out a 30-year mortgage and pay it off in 18. Just requires some extra payments here and there. Requires some disciplined choices to go ahead and put extra money towards the mortgage instead of spending it.

So control your house. Move as infrequently as possible. Moving is expensive. It's expensive to sell a house. It's expensive to buy a house. It's expensive in time and it's expensive in money. It's expensive because whenever you buy a house, you're going to have to fix a bunch of stuff that you didn't know about when you did your inspection.

When you buy the house, you're going to have to decorate it. You're going to have to furnish it. The actual physical costs of moving are not insubstantial. So focus on just moving as little as possible. If you'll live a stable lifestyle and buy a home in a modest, comfortable, suburban neighborhood and stay there a long time, you will naturally wind up with a paid-for house and relatively low living expenses.

That's sufficient. You don't have to be a genius. Now let's move on to vehicles, the number three category that most people spend a lot of money in. I think it's wonderful if you would like to get rid of your car and ride a bicycle full time. That is awesome and it will save you a ton of money.

But you know what? You don't have to. I think it's super cool. If you want to buy a $2,000 car, drive it for five years and sell it for $2,000. But you know what? You don't have to. You can go and buy a new car. You can finance said new car.

But here's what you can't do if you want to be wealthy. You can't buy a new car and finance a new car every three years. And you can't buy a new fancy car and finance a new fancy car that goes down in value every three years. But you don't have to buy used cars.

You don't have to ride bicycles or motorcycles or scooters. All those things are cool. Here's what you need to do at the very least. Don't be stupid. If you're going to buy a new car, choose a quality car. Do your shopping first in the Consumer Reports guides rather than on the local showroom floor and choose quality over flashiness.

If you'll choose a quality car, even if you buy it new and you finance it, that car should last you for a long time. Think carefully about your needs and your future needs so that you don't have to automatically change cars in three years because you were short-sighted or stupid and you bought a two-door car when you were pregnant with a baby.

That didn't work. That wasn't a good plan. So go ahead and buy a new car if that's what you need, but buy a carefully chosen, reasonable car, and keep it for a very long time. If you buy a new car and keep it for 20 years, there is almost no meaningful difference between the impact of your buying a new car versus the three-year-old car.

Even if you financed it, it was paid off for 15 years. Just buy a nice car that's reasonable and keep it for a very long time. That's simple. That's doable. Now what other expenses? Well, from here, you need to think carefully about the other big budget items in your life, and these budget items will be unique to you.

For some people, you'll need to consider the cost of private schooling. Other people, you'll need to just simply control a little bit of the cost of your vacations or your hobbies. But you can still go on vacations. You can still have great hobbies and save a lot of money.

Just think a little bit modestly. Don't reach and stretch for the second beach house. Just go and stay at a hotel on the beach for a week. Don't reach and stretch for the big giant RV. Just buy a simple pop-up and use it. Don't reach and stretch for the huge boat.

Just buy the modest boat. If you'll do the simple things like that, you can keep your expenses down while also maintaining an entirely comfortable and sufficient lifestyle, and you can become financially independent in a reasonable amount of time. You don't have to be smart to become financially independent, but you can't be stupid.

So don't be stupid. If you're not into the radical weird stuff, live the normal approach to life. Just don't be stupid with your expenses. Thank you for listening. You've honored me with your time and attention, and I'm grateful for that. And I hope that I've effectively served you today with some ideas and strategies and tactics and techniques and tools that will help move you towards your goals.

Before you go, three simple requests. One, if there's an idea that's been helpful to you in today's show, make a plan to take action on it. Listening does lead to learning, but learning in and of itself doesn't automatically lead to a life change. It's action that leads to a life change.

So take action. Two, take something that was helpful to you in today's show and share it with somebody that you care about. I'm depending on you to be a co-laborer with me in helping me to propagate the message that I'm seeking to share. That helps the person that you are engaging with, and it also helps you because teaching others is one of the most effective ways for you to learn and for you to cement your learning.

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