From: alexhormozi
Improving one’s financial situation, particularly when struggling, necessitates an aggressive approach to expense reduction [01:06:00]. This strategy is critical to gain control and create financial breathing room, especially when starting with limited resources [03:30:29]. By significantly lowering a “money budget,” individuals can begin to get their head “firmly above water” [03:30:29].
Strategies for Cutting Costs
To achieve rapid financial improvement, the speaker advises taking extreme measures in personal finance strategies related to spending:
- Eliminate Dining Out Eating out is forbidden; if hungry, one must deal with it [01:13:00]. All food purchases should be from discount grocery stores [01:17:00].
- Minimal Clothing Purchases Existing clothing should suffice for at least two years, with no exceptions [01:21:00]. Options for acquiring clothes include reusing, trading, or shopping at Goodwill [01:24:00].
- Reduce Housing Costs The ideal scenario is living at home with family, utilizing any available space like a couch or basement [01:31:00]. If family is not an option, consider cohabiting with multiple other families who are also trying to save, splitting costs to make it as cheap as possible [01:36:00].
- The speaker personally shared a room in a house with six other people, paying $400 a month in a nice neighborhood, enduring inconveniences like shared kitchens and pets, to save money for educational opportunities [05:50:00].
- Prioritize Necessities For a period, only food and shelter should be considered essential expenses [06:18:00]. All other expenditures should be dropped and existing essential expenses reduced to the “greatest degree possible” [06:20:00].
- Avoid Unnecessary Purchases Spending money on “relatively nice clothes” when struggling financially indicates poor money habits [03:32:00]. It’s important to recognize that such purchases are the “last thing” money should be spent on [03:43:00].
- Strategic Vehicle Ownership If a car is necessary for work (e.g., for driving Uber), save up to buy one in cash, aiming for a 10,000 vehicle [07:31:00]. This avoids monthly payments, leaving only insurance, which is less for a cheaper car [07:38:00].
Mindset and Sacrifices
Reducing expenses to this degree requires a significant shift in mindset and a willingness to make temporary sacrifices.
- Accepting Temporary Hardship One’s family “will suffer” in the short term, but it is better for this to happen when children are too young to remember than when they are old enough to understand and be impacted by persistent poverty [00:57:00]. This is not forever, but for “now” [01:01:00].
- Embrace “Unbalanced” Living People in one’s surroundings may describe this extreme approach as “unbalanced,” but the speaker asserts that being extreme and unbalanced is necessary for the current season of life to get ahead [05:16:00]. Failing to take action will result in no change over several years [05:28:00].
- Family Unit Balance Balancing life priorities and responsibilities can occur at the family unit level rather than individually [06:42:00]. For example, one parent might focus more on childcare, sacrificing their career, while the other focuses intensely on career development, sacrificing time with the child [06:54:00]. This collective effort contributes to the family’s long-term financial goals and overall balance over a lifespan [06:47:00].
- Information Diet and Social Circle To support this financial discipline, it’s crucial to go on a “different information diet” [04:26:00]. This means ignoring advice from “poor people about how to get rich” [04:32:00]. Individuals who don’t have bigger dreams for you than you do should be entirely ignored [07:04:00]. Every person one chooses to spend time or money on must “earn their keep” by helping one get to where they want to go [04:54:00].