Why Graham Stephan 'Doesn't Spend Money'

In addition to being a successful real estate agent, investor, and YouTuber, Graham Stephan calls himself a financial minimalist. Even though he earns a very high income, he's also extremely frugal. So frugal, in fact, that Stephan recently published a video where he said he doesn't spend money.

That might sound ridiculous at first. Just about every adult spends money, so when someone claims they don't, it's going to raise some eyebrows. In Stephan's case, it's not entirely true, but there is an interesting explanation behind it.

Graham Stephan's investments cover his cost of living

First things first, Stephan has bills and spends money on them, just like anyone else. As he explains in his video, he uses the proceeds from his investments to pay for all his expenses. He never spends more money than his investments make, so his passive income covers his cost of living.

The way he has achieved that is a two-part process. First, Stephan has built up a large portfolio of investments to generate passive income.

He says that his first rental property generated about $30 per day. After thinking about what bills he could cover with that money, he decided that he wanted to invest more money in income-producing assets that could pay for the rest of his expenses. While Stephan got his start with real estate, investing in stocks is another way to do this.

Stephan also keeps his expenses to a minimum, but not just for the typical reasons like being able to save more. He lives frugally because he knows that the less he spends, the less money he needs invested to fund his lifestyle.

Thanks to his investments, Stephan is in a favorable position financially. He never needs to dip into his bank accounts or even his personal income to pay for anything. He funds his whole life using what he makes on his investments, giving him the freedom to do whatever he wants.

Working toward financial independence

Financial independence, the point where your investments cover your living expenses, is a smart goal. Stephan's far from the only one who has made it a part of his life. There's an entire movement around it, known as FIRE, which is short for "financial independence, retire early."

The FIRE movement recommends maximizing income, minimizing expenses, and investing heavily, exactly like Stephan has done. Now, these are all sound financial decisions. The key is figuring out how far you want to take each one, so you can build for the future without wrecking your quality of life in the present.

Stephan is an extreme case, which he himself has said. He's in the top 1% in terms of income, reportedly making $6 million in 2021. He also doesn't spend extravagantly. Those two factors helped him reach financial independence at a young age (he's 33).

It's definitely worthwhile to follow Stephan's approach, although you don't need to follow it to the extent that he does. Here are some good ways to get started:

• Set aside at least 15% to 20% of your income for savings and investments.
• Invest in the stock market. One of the easiest ways to do this is through index funds.
• Look for areas where you can be more frugal. You don't need to cut back everywhere, but try being more selective about how you spend your money.

Stephan says that money gives you options, and he's right about that. Financial independence is financial freedom. If you manage your money well, you can get to the same place as Stephan, where your investments cover your bills.