The core of Financial Freedom
Financial freedom is usually known as “having enough savings, financial investments, and cash on hand to afford the kind of life we desire for ourselves and our families. This term is becoming a lifetime target for most individuals. Let’s imagine that we can retire, spend our precious time doing what we like, or pursue the career we want without being driven by earning a set salary each year thanks to the savings we have. What a dream!
There is a reason why we can believe in a future where we are financially free. It is that financial freedom does not require you to be born into a well-fixed family or be a wealthy businessman who gets tons of money each month. This can be achieved as long as you set your goal and build a proper financial plan. To be specific, financial freedom is all about letting your passive income, from your own business or assets, exceed your expenses.
How to get to financial freedom? The amount needed for financial freedom differs for each of us due to our various living standards. However, it follows the primary step: set your life goals, define the amount of money you need for the purposes, then go for it!
Set your life goals
1) What your lifestyle requires: You need a house, will you get married and have kids, when will you retire…?
2) How much you should have in your bank account to make that possible?
3) What age is the deadline to save that amount?
Remember that the more specific your goals are, the higher the likelihood of achieving them. You can not accomplish everything you want in a month, of course. Nevertheless, a year is a long time to make progress on your achievements. You need to ensure your goal is tied to a specific number you want to hit. When you have your goals defined, you can start working towards them without realizing it.
Figure out your “number”
A goal-based approach helps you determine how much money you should make or expense when creating your monthly budget.
For example, if you are 40 and want to retire by 55 to spend time on your hobby instead of working, you have to make sure that you have enough financial backup to pursue a second career at 55. Considering the inflation rate, years of expectancy post-retirement, and your monthly expenses (now and then), you must calculate your retirement corpus. Next, you can calculate how much money you must save monthly to create that corpus in the given timeframe.
Let’s say you figure out that you will need 500,000 dollars before retiring, and the Interest is 12% annually; you will need to invest ~ 1.000$ monthly if you start now.
Of course, the number will be adjusted based on inflation, life changes, and other add-in goals along your journey; you can calculate the exact number needed here. After having a specific number, start your passive investments as early as possible, even when it is in small amounts, then let the compounding show its magic.
After having the number you need, it is time to draw an earning plan and start saving.
Execute your plan: What to keep in mind to get your financial freedom
Each of us will have a different plan to follow our financial goals, but whatever they are, remember to follow the instructions below to make the goals more achievable.
Clear off the Debt
The biggest roadblock to financial freedom is definitely debt. And the worst kind is credit card debt and other high-interest consumer loans with interest charged between 30 to 40 percent. Therefore, make it a point to pay off the full balance each month.
Though other loans with much lower interest rates, such as student loans and mortgages,… may provide certain tax benefits, being debt-free is even a better option than having a good loan. Paying these lower-interest loans is essential since on-time payments will build a good credit rating.
“Pay yourself first.”
If you haven’t heard the expression “pay yourself first” before, it means putting a specific amount of money in your savings account before paying other things, such as bills.
Many people only use whatever is left over after paying all expenses to invest, which usually isn’t substantial enough to help you experience financial freedom. The act of “paying yourself first” as you deal with it by making you guarantee that you’re always putting money aside to invest in yourself. After that, if you don’t have enough to cover those bills after investing, you’re forced to pick up a side income to make up the costs, or you have to limit your daily spending.
You can pay yourself first in other ways too. For example, if your company has a retirement savings program, you can ask to have money withdrawn for your retirement. That way, you’re investing in yourself and your future first. The money gets deducted from your pay, so everything left over is money you can put aside for your bills and expenses.
Increase your passive incomes
Fortunately, your 9 to 5 can afford savings, daily expenses, and emergencies. But if it is not, you should look for money outside your current job to increase your income streams with passive income such as: selling good content (blog, ebooks, courses), becoming an affiliate marketer, buying properties and renting them out, investing in stocks, invest in construction asset,…
You may get interested: Passive Income, How To Get It Working For you.
Financial freedom can be difficult due to growing debt, cash emergencies, medical issues, and overspending. But with discipline and careful planning, you can make it possible.
Stay Educated on Finance
Remember to follow and review relevant tax law changes to ensure all adjustments and deductions are maximized. You also need to keep up with financial news and developments in the stock market or other investment types and adjust your investment portfolio accordingly. Knowledge is the best defense against scammers who prey on unsophisticated investors to turn a quick buck.
Once you’ve gotten to a point where you’ve amassed a decent amount of wealth, either liquid assets (cash or anything quickly converted to currency) or fixed assets (property or anything not easily converted to cash), do not hesitate to get a financial advisor to help you stay on the right path.
Live Below Your Means
Financial freedom requires you to develop a mindset focused on living a good life with less. Many wealthy individuals developed the habit of living below their means. For example, in 1958, Warren Buffett bought a five-bedroom home for $31,500 and hasn’t gotten rid of it since. His frugality might very well be one of the reasons why he’s one of the world’s tttttttttt people.
There are many books, instructions, and programs to help people adopt a minimalist lifestyle. When you don’t have enough to afford all you want, it’s time to focus on the things you need. It can drive significant gains for your financial health.
You can also follow the 50/30/20 budget rule, popularized by Senator Elizabeth Warren. It is a guideline to achieve financial freedom by dividing income into three categories of spending: 50% for needs, 30% for wants, and 20% for savings and paying down debt.
An online data analysis and reporting tool may help. You can know how much money you’re spending, which categories you’ve overspent in, how much you have in your accounts, or how much debt you have.
Take Care of Your Well-being
This is a rule which not many people have thought about when it comes to financial topics. The principle of proper maintenance also includes taking excellent care of your physical health. Robust health has a significant positive impact on your economic life as well.
Poor health maintenance has negative consequences on your financial goals. Some companies have limited sick days, which means you may lose some income once paid days are used. Obesity and other dietary illnesses also make insurance premiums skyrocket. Poor health may force early retirement with a lower monthly payment for the rest of your life.
Therefore, do not just focus on making money. It would help if you cared about your physical and mental health first. Spending money on regular doctor visits and following medical advice about any problems you encounter can. You can also adapt to a basic lifestyle with more exercise and a healthier diet to prevent losing money on health problems.
We hope these instructions can help you reach your financial targets. If you are looking for a way to increase passive income to assure monthly savings, Foundation Capital’s investment principles may help you. Don’t hesitate to connect us to meet our financial advisors.
How to Start Investing with Foundation Capital
If you want to generate a sustainable passive income stream, Foundation Capital is one of the most reliable organizations to invest in. Our process has been refined, perfected, and proven over the past 12 years of renting our clients’ assets to the construction industry.
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