The Ultimate Challenge: Finding the Real “Value” of Money

Ever wonder what the real value of money is? Discover it by following this four-step path toward financial freedom. I'm following it myself!

What’s the purpose of money?

That’s not a rhetorical question. I’m inviting you to sit with this question for a moment. Ponder it. Pray / meditate / reflect on it.

Why do you want to create wealth on your life? What’s the ultimate purpose?

I’ve thought about this on a near-daily basis for the past decade.

Here’s my response to this question – and how it’s influenced a HUGE, game-changing, turning-point decision that I made six months ago.

Level 1: Survival

I know, I know. “Survival” sounds soooo dramatic. Cue the violins.

But in all seriousness, I’ve spent a decent chunk of my life in third-world nations. And I’ve seen that only one quality separates us from malnourishment and disease: money.

You, me, the poorest-of-the-poor: We’re the same people. Money is the only reason we’re not squatting in Calcutta’s worst slums or selling our kidneys on the black market. (Our other difference is nationality, which is significant insofar as it reflects our opportunity to earn a living, and family, which is significant insofar as they can provide housing, food, and good advice.)

At the most primitive level, everyone is struggling for survival.

<< Sorry, I didn’t mean to become such a buzzkill. >>

Fortunately, in the U.S., survival is incredibly easy to achieve. Even college students making $6.45 per hour can rent a shabby apartment with five roommates, eat Ramen noodles, and wear thrift-store sweaters. << #BeenThereDoneThat >>

We’ve mastered survival. And we have the luxury of asking: What’s next?

Level 2: Safety Net

My next priority — after immediate survival — is ensuring the security of my Future Self.

So I built savings.

And then I built more savings.

I later discovered that there’s a name for this: an “emergency fund.” Even without this snippet of jargon, it just makes intuitive sense to keep a cushion, a safety net.

I mean, duh. Right?

People sometimes ask: “How can I save this?”

The answer is simple: Earn more and spend less. When you compare your life to third-world villagers, you won’t feel so bad about working overtime, wearing faded clothes, or eating pasta instead of organic steak. You may not realize it, but you’re living large.

If you can then create a “safety net,” you’re waayyyy ahead of the game.

Which affords you to step into the next level of luxury —

Level 3: Short-Term Goals

After survival and a safety net, you can relax and have a bit of fun.

But beware. In many narratives, this is where the protagonist falls off the rails.

“Then I blew tens of thousands, without realizing it, just by letting my lifestyle creep up …”

Before you start classifying new cars as “normal” (rather than a luxury), pause for a second.

Close your eyes. (Well, not now – you’re reading.)

Ask yourself: What’s on my 5-Year Bucket List? What goals or dreams do I want to achieve in the next 5 years?

Direct your money accordingly.

For example:

• Spend 6 months in Paris.
• Spend 6 more months in Bali.
• Buy a house.
• Launch a business.
• Scale back your working hours.
• Switch into a lower-paying but more-satisfying career.
• …. etc.

Notice what’s not on the list. For many people, “I want to drive a new car” isn’t anywhere on there. Neither is “I want to wear brand-name clothes” or “I want to upgrade my smartphone.”

By the way, there’s nothing wrong with those ambitions. If you are:

• A tech geek who dreams about the day you’ll upgrade your phone
• A car aficionado who reads about every vehicle on the planet
• A foodie who wants to experience fine restaurants across the nation

Awesomeness! You know your answer. You’ve pinpointed your dreams and created your 5-Year Bucket List. Embrace it.

The bottom line: Spend lavishly on your bucket list. Slash everything else.

Level 4: Freedom from Paycheck Dependence

Level Four is the ultimate level of financial-actualization: Freedom from paycheck dependence, also known as “financial freedom.”

Financial freedom, as many of you know, is the state in which your passive income covers your entire cost-of-living. You never need to work again.

You can choose to work (you can choose to do anything!), but you’ll never be forced to work.

Because this is such an Awesome & Audacious goal, I strongly recommend enjoying some Level Three Bucket List mini-victories along the way.

I’m a big advocate of living in both the present and also for the future. Pursuing freedom from paycheck dependence is awesome, but it’s going to take some time. Unless you’re exceptional (e.g. you sell a business, create royalties, etc.), freeing yourself from the shackles of paycheck dependence will take at least 10 years, maybe more.

You can’t defer your life during that journey. You’ll never again experience this current decade (your 20s, 30s, 40s, 50s). And, let’s face it, none of us are sure how long we’ll be around.

<< Wow, I’m a real buzzkill today. >>

So … How much money do you need in order to reach financial freedom?

That’s a tricky question, because “enough” is a moving target. It depends on the size of your family (child-free or eight children?), your location (Manhattan or Nebraska?), and your preferred lifestyle (canned spaghetti or caviar?)

I decided to peg my personal definition of “Financial Freedom” to an external benchmark: the median U.S. household income.

According to the U.S. Census Bureau, the median household in the U.S. earns $51,107 per year, as of 2012, the most recent year for which there’s complete data.

“That sounds low.”

Yeah, I agree. But half of all U.S. households earn less than this. If this figure sounds low, it highlights the fact that “enough” is a moving target – and therefore demands an external benchmark.

How I’m Following This 4-Step Path

As many longtime Afford Anything readers know, I’ve been chasing financial freedom for three years.

When I was 27, I got a mortgage. And then another. And then another.

I renovated the houses. I found tenants. I learned a sh**load about real estate investing by reading books, blogs and meeting hundreds of other investors.

By age 29, I created $35,000 annually in completely passive income. (That’s after paying for management, repairs, and all other active tasks.)

It’s awesome.

But it’s bothering me.

During the first year, I only made the minimum payments. I reinvested cash into buying and renovating more houses.

Then one day, I logged into my account … and nearly had a heart attack.

paying off the mortgage

Hold on a sec. The loan matures in 2041 … when I’ll be 57 years old?!

Ugh. I don’t think so.

The concept of a 30-year loan sounds fine, in theory. It’s abstract and distant. But the concept that I’ll be 57 and still making payments on a house that I bought when I was 27? That sounds tragic.

Like, Shakespearean-level tragic.

So on the same month I turned 30 (and traveled to my 30th country), I tossed an extra $4,000 towards the mortgage.

<< #WeirdestReactionToTurning30Ever >>

And I’ve been continuing nonstop ever since.

“Hold on. WTF? Where are you getting an extra $4,000 every month?”

Most of it (about $3,000/mo) comes from the passive income that the rental properties create. Another $1,000 or so comes from my day-to-day active income (I run a content marketing consulting business from my laptop).

“But why payoff the mortgage? Can’t you earn more money investing?”

Yes, in theory. I could invest that cash instead, and (potentially) create a higher return. There’s a lost opportunity cost.

But let’s turn back to our conversation about goals. In “Level Three,” I asked people to name their five-year bucket list.

My 5-Year Bucket List has three items:

  • Live overseas again. Move to Bali, backpack Europe, spend some time in Buenos Aires.
  • Scale back my hours (in my consulting practice) by handing more of my daily tasks to contractors and assistants. I’ll “quarterback” the process, but I want my business to run itself, via employees.
  • Achieve total financial freedom in the next five years. I define this as creating at least $51,000 (the U.S. median household income) in completely passive income.

If all of my mortgages are paid-in-full, I’d collect between $55,000 – $65,000 in passive income annually (depending on what assumptions you make for vacancy, repairs, etc.)

These goals point towards one clear conclusion: Pay off the mortgages. Now.

Yes, I could theoretically invest more, which means I’d have the potential to collect bigger cash flow in my 50’s. But that comes at the expense of my early 30’s.

There’s a tradeoff. Do I want financial freedom now? Or the possibility of more money later?

I’m shooting for now.

Here’s my personal plan:

  • Max out retirement accounts. Why? Yes, this runs contrary to the stated goal above. But the tax advantage is use-it-or-lose-it.
  • Buy one more house. (Just one more! Yes, I know that’s what addicts say. But I’ve been planning to buy ‘just one more’ for a long time, and I have the cash set aside.)
  • Direct all future money towards turbocharged mortgage payoff.

Is this the “right” choice? There’s no such thing.

People like to look at investments in a vacuum. We have complicated formulas. We add, multiply, divide, amortize. We express “values” through percentages and ratios and rates.

That’s necessary. But it’s not sufficient.

Cash is a tool; like a hammer, it’s used for building and creating and crafting our stories.

The size of the reward isn’t the happy ending; it’s the backdrop. The real story unfolds when our money aligns with our meaning.


  1. says

    Hi! long-time reader but first time commenter here. I just thought it’d be awesome if I’m the first one to comment on your insightful post today. As always, you have a way of making boring topics fun and inspiring. Thanks for posting regularly and generously sharing your thoughts and life experiences with your readers. You rock!

  2. says

    Really giving some good context to the question and practical advice to how to approach it.

    Have you read Maslows heirachy of needs? And any articles or advice on how that may apply to this question?


  3. says

    I like the way you explained all that Paula. It makes a lot of sense.
    I’m just curious, how many properties do you have now and what is the rent you charge? I have 15 rental units now and most of my rents are in the $500/month range. I’m still paying the mortgage on 4 of them and doing my best to pay them all off asap.
    I don’t know for sure if I could earn more by investing the money somewhere else, but for me there’s a great benefit emotionally being debt free. I really don’t like the feeling i get in the back of my mind with those mortgages hanging over my head.
    Also, I figure I am earning guaranteed mimimum 7% since that is the lowest rate of one of my mortgages. Better than I could do in the stock market probably.
    I am hoping to have an income of $5000/month once I get them all paid off. I think that will be enough for me to live a very nice lifestyle pretty much anywhere other than the USA.
    I am working now on finding some other country that will allow me to move there (oermanently) with only rental income to live on. Do you have any suggestions? I am leaning towards Panama.

  4. says

    “Cash is a tool; like a hammer, it’s used for building and creating and crafting our stories.” — Love this! What a good quote. That’s totally true, and the cool thing about money is that you can make it do whatever you want it to do.

  5. says

    Congrats on your decision. We’re working on paying off our primary mortgage. I think true FI is about finding a plan that works for you!

  6. says

    Loving this! It looks like we have similar income goals so I look forward to us motivating each other along the way. I have 3 years to pay off my 65k student loan balance, and 5 years total to get to my income goal of 6k per month in mostly passive income.

    5 years seems like a lot of time but it truly flies! Just 5 years ago the financial world was melting around our ears!

  7. says

    I wouldn’t pay down the loan. Either invest “the extra” in the stock market, where you have two appreciating assets, or more rental properties.

    Also, you probably won’t have the loans for 30 years. You will probably sell/buy some of the property over those 30 years, due to demographic changes, normal age of the asset (unless you built new, the house will probably be unrepairable at 25-30 years…i.e. major renovation, or tear down), tire of dealing with tenants, repairs, etc.

    I think some RE investors think the properties they buy will last 30 years, which, in most cases, will not. They have been told to buy X properties, fix up, hire a PM, and your done. You still must keep up with market conditions, buy and sell appropriately. It is far from “passive.”

    I would look at the overall number (money) of where you want to be, and use the tools (stock and RE) to get there. Once you get to the number, actually retire.

  8. says

    We are still in the property acquisition phase, getting more properties and more debt right now which we fund through our day jobs. Have you played the Cash Flow game? It sure emphasizes that the more your expenses, the more passive income you need to get to Level 4. We are on that journey from Level 3 to Level 4.

    Paula, this really shows your plan to move from “Paula the active real estate investor” to “Paula who uses her real estate assets to follow your passion”. That’s wonderful!

  9. says

    Why not buy more properties? Maybe 10 properties gets you to your $51,000 goal and pays off debt. I enjoy your posts, love that you take action to create your future.

  10. says

    Great post. I’m somewhere between #2 and #3. I really think I’d like to get into the rental properties game, but my debt-to-income ratio is probably a little high right now to get any decent financing. I would also like to get into freelance work (probably writing), but I haven’t jumped into that yet.

    My family used to go to Bali every summer. Some of my favorite memories are on Kuta Beach and in Denpasar.

  11. says

    Our plans our almost identical, if I were a brother site from yours I would be Sustain Anything, a sister site from mine Even Stephanie.

    I’m further away from the goal and have a wrench or two that you do not, but I hope we each accomplish the same result, FI. Thanks for the post, always nice to read.

  12. says

    Very insightful post. The idea of creating your life’s bucket list and then spending your money according to that is fantastic. Most people live according to the CEO’s of big companies bucket list (“Make as much money off everyone by any means necessary) instead of our own. You’re absolutely right money is simply a tool and a means to and end. What that end is, you decide yourself.

  13. says

    Paula, I love this. My husband and I have just recently reassessed our goals, too. In the next 2 years, we want a certain number of rental properties (passive income), a certain amount of capital to flip houses X number of times a year (active income) and enough money to buy a nice used car — maybe in Bali. Hey, we could be neighbors in a few years! 😉

  14. says

    Hi Paula,

    I’m intrigued by owning rental properties. Can you recommend some good books and blogs to get me started in learning about this? I know there’s a lot of scams out there where rental property is concerned, so I want to read reliable sources (like yours!).


  15. says

    I think another way to achieve the pay down the mortgage goal is to take out shorter term loans. Obviously this will only work for that ‘last’ house you buy OR if you ever refinance any of your houses. I have a 20 year and a 15 year mortgage on my rentals. Any future rentals will be 15 or 10 year loans if I can swing it. In the case of my 15 year loan the interest was actually lower than the 30 year loan, so I feel like I’m ‘winning’ by comparison….however yes, it makes your cash flow pathetic while you’re paying down the mortgage – and makes keeping the house rented out imperative, because it’s much more out of your pocket each month if the house sits empty.

  16. says

    Paula this might be my favorite post of yours. You connected right with me, as this is also almost a daily passing thought I have. As someone with two properties, looking at a third, I remembered your quip, “If I had a million dollars I’d go into debt.”

    Other than the idea of wanting, “one more house.” You’re spot on, pick a goal and devote everything to that. I’m also 30 and the one thought is, “I can have 20 houses by the time I’m 60!” But then its, “oh but I’ll be paying them all off still.” It might just be wiser to set a goal of 5 or 6, and devote everything to paying those off. Loved the post Paula.

  17. says

    My question is which mortgage to tackle first? My husband and I own a rental property outright. But we have $200,000 left on our actual home’s mortgage at 4% for another 27-28 years. We are currently looking at using $25k-30k cash on hand to buy and make minor repairs on another $100,000 rental property (doable price for a 3 bedroom, 2.5 bath house in suburb areas near ours built around 1999-2003). We’ll get a similar rate to our home’s, so which one do we try to pay off first? Is there a difference other than interest rate that I am just not paying attention to?

    • says

      @Crystal — Assuming the interest rates are equal, there are two factors you should consider: 1) Reinvesting and 2) Liability/Opportunity.

      #1: Reinvesting
      Cutting your expenses by $1,000 per month isn’t the same as earning an extra $1,000 per month. (Or any other hypothetical amount $X.)

      If you cut expenses, you don’t need to trade your precious time for money in order to amass $1,000 after-tax. You can enjoy more free time and spend fewer hours on-the-job. (This especially applies to your situation if you’re self-employed.)

      However, if you spend less time on-the-job (e.g. NOT earning that $1,000), you won’t be able to reinvest that money. Your upside is limited.

      On the other hand — If you earn an extra $1,000 in passive rental income (most taxes will be offset by depreciation), you can reinvest that money into more houses or stocks, compounding your gains over time.

      Of course, this assumes that if you paid-off your house, you’d work fewer hours and/or earn less. If you paid off your house but kept your income steady, then it’s a draw.

      #2: Liability/Opportunity
      The other consideration: “Who” owns your rentals? If you personally own your residence, but your business owns your rentals, then there might be something to be said for paying off your personal residence. Your business is more likely to get sued than you personally are. The less money that sits inside of your business, the less money that’s vulnerable to liability. (That said, though, the best liability defense is a great umbrella insurance policy — they’re shockingly cheap and indisputably worth it).

      On the other hand, paying off your rentals (building equity inside your company) can give your business the ability to borrow against its own equity. Better yet, the bank might stop requiring you to personally guarantee the loan. If your business can take out the loan, instead of you personally, you’ll avoid the risk, hassle and potential taxes that come with transferring a property from your personal name to your business name via Quit Claim Deed after the note is paid-off.

  18. says

    How were you able to obtain 3 properties in <3 years? Was it pre 2007?
    I got a duplex in 2013, 3 months out of college; by the skin of my teeth. I want to get another but it looks like I need to wait for 2 years to show proof of rental income to boost my debt ratio. Similar to if I had a commission based salary the bank wants 2 years of proof.

    Thank you,

    • says

      I actually got 5 houses in 3 years. :-) I got my first house (a triplex) in 2011, and the rest came after. The first house came from a bank loan, the second was paid in cash, the third was a private lender, the fourth was through the bank, and the fifth was in paid in cash.

      Here are the full details about all of them — — scroll down to the bottom of the page, and I’ve included links in the final paragraph to the full stories of acquiring all five properties.

  19. says

    I am so happy I found your blogs. I am 55 and so want to get out of the rat race of public school teaching. I have one house that I used to live in with my kids ( I was a single mom). I wanted to sell when they grew up and left but was upside down with my mortgage. I decided to rent it out to a family, and have been renting it for 4 years. I rented myself a one bedroom condo and made money.. The market has turned around and I have been able to pay the mortgage down and have some equity in it.. I have been debating whether to sell it or keep renting.. However, I want to build my passive income and just inherited some money from my mom passing. I want THE MONEY TO WORK FOR ME so I don’t have to get up to an alarm every morning to a job I hate! I am exploring all avenues and feel I could do the rental investing, since I have my foot in the door. I have been considering getting my real estate license also, to have a edge. Thanks — I will be reading many of your articles..Your insight is excellent!

  20. says

    I really enjoy your writing and the message that you share. As someone in their early 50’s, I only wish that I would have been exposed to this content AND (this is the key) been smart enough to have acted upon this knowledge. A big pat on the back for your hard work and so glad that you are enjoying the fruits of all your work.


  21. reddingaz says

    I’m curious about your thoughts on lending / refinancing after a foreclosure.

    Several years back my husband was injured & ultimately declared disabled. An unfortunate side effect of this event in our lives is that I lost our rental property to foreclosure – His medical care trumped the need to keep the property.

    Despite this one black mark, (albeit significant) I’ve managed to keep my credit score up above 700. (The loan was in my name only)

    Fast forward 3 years & the good news is that Hubby’s medical condition is now stabilized & he is receiving SSDI. I’m ready to try again with another rental property and had hoped to free up some extra cash by refinancing our primary residence with no cash out into a lower rate & out of the PMI (we’re currently 89% LTV) The plan is to pay off early, but even if we did go the full loan term we’d still be saving close to $30k in interest alone so it just makes sense.

    Not surprisingly, I’m having difficulty finding a lender willing to do the refi even with more than adequate income in my job of 12+ years, 30% +/- equity in the property based on local comps & the addition of my husbands 750+ credit score as a co-borrower.

    Per the FannieMae website, borrower eligibility after a derogatory credit event with extenuating circumstances such as ours, *may* be considered after a 3 year waiting period & some additional financial considerations have been met (which they have been.)

    I realize that we can pay down our existing loan early but being able to refi would make a significant difference to our cash flow situation & allow us to make additional investments & develop revenue streams that will hopefully benefit us for years to come.

    Do you have any suggestions for refinancing or do you think we just need to take our lumps for a couple more years & hope rates are favorable in the future?

    Thanks so much!

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