Have you heard of the term ‘financial freedom?’ You might have even read it somewhere on this blog. What is it and what does it mean? While something of a buzz term lately, financial freedom does have a concrete meaning.
It is the achievement of earning so much money that you will never need to work again or be financially dependent on someone in your life. At the same time, you will be able to consistently maintain the quality of life that you want.
Is it achievable? Absolutely, there are numerous people who have claimed financial freedom. Thousands or even hundreds of thousands of people around the world are financially free as we speak. Most, as you might have guessed by now, are in their later years and retired. This is when most people are able to ensure that they are completely financially independent. They have a lot of savings, they have paid off their mortgage and there are no debts hanging over their head.
Others are a lot younger like celebrities. A lot of celebrities are financially free. Kylie Jenner, for instance, is the youngest ‘ self-made’ billionaire in the world today. While she chooses to work, she certainly doesn’t have to.
So, perhaps a better question would be whether it’s possible to obtain financial freedom while you are still young and without accomplishing a tremendous feat. The answer to this question is more complicated.
It’s also worth noting that sustained financial freedom isn’t a guarantee. For instance, you might have a lot of money in savings, which is great. Unless of course, the market crashes as it tends to. If that happens then your savings lose value and you might be forced to return to work. In 2008 a lot of pension savings were absolutely obliterated, forcing people to earn more money once again. It also left pensions in a difficult situation.
So even when you achieve financial freedom it’s not the total security that people expect. You can’t plan for everything. A lot of Instagram influencers were financially free until the coronavirus. Suddenly, the sponsorships dried up, and their passive earnings were slashed.
But let’s argue that you are desperate to achieve this goal. What is the right path to take?
You Need To Save
Despite the issues we have just drawn attention to around savings, this is always going to be an essential part of any financial freedom plan. You have to be able to save money and ideally, you need to start saving as much money as you can as soon as possible. This should also be separate from a fund that you keep for those rainy days. Ideally, you should never touch your savings until you start living in complete financial independence.
Saving can be difficult, particularly if you are on a limited income. We’ll discuss this issue in a moment. But to get started you need to set your budget. Think about how much you are earning and include all your incomes, whatever these may be. Subtract the bills and you’ll be left with the sum that you could potentially save, minus little and larger life luxuries from meals out to holidays.
Most people save about half of this sum. However, if you want financial freedom, you should save it all. Now, at this point, you’re probably realizing that on this level of savings, you’re never going to reach your goal. There are two things to keep in mind here. First, your income will typically grow as you progress in your career. Second, there are always ways to increase the speed at which your income grows.
Growing Your Income
The next step is going to be ensuring that your income steadily grows. One of the best ways to do this is to make sure that you have multiple incomes coming into your account. Indeed, financial experts recommend that you have at least two incomes and ideally more if you want your bank balance to remain healthy. A lot of people are happy spending most of their time working when they are young if they know that it will lead to financial freedom when they are just a little older – let’s say forty. But remember financial freedom is never a guarantee. So, you should always think about how much time you want to commit to earning your secondary income.
To avoid spending even more time working, other people will turn their attention to passive incomes like investments. The right investments can be a fantastic way to grow your income in a short period, particularly if you make the right decisions. Some are even accessible without a massive amount of money when you get started. For instance, you can think about trading in stocks or forex. You will need to pick a day trading broker to get started with a venture like this. Once you do they’ll help ensure that you make the right decisions and don’t fall into some traps with these investments. Some individuals make a fortune with investment opportunities like this.
Erase Your Debt
Of course, you can’t gain financial freedom if you still have debt hanging over your head. This is a problem because many individuals actually die in massive levels of debt from student loans to medical bills. Your first priority once you start building up your income, should be paying these off. If you are clear of debt, you can then begin to push money into both savings and investments.
This includes the big and small debts that could be lingering right now. People who are serious about financial freedom hardly ever have credit cards. When they do, they use the loans to push their financial plan further forward rather than spending on luxuries that have no long term value.
Work For Yourself
Last but not least, you’ll find financial freedom far easier if you are working for yourself rather than as an employee. As such, if you have a business idea in your head, now is the time to bring it to fruition. Remember, when you own the business, you keep the majority of the profits.