Who doesn’t want to achieve financial freedom? Everyone does! We know for a fact that many of us want to retire as early as possible. Some of us want to achieve success early in this lifetime. We don’t want to have an 8-5 job until the golden age of retirement. Do we have to wait until we’re age 60 to enjoy our money in savings? It’s something that we don’t want. That was the dream 20 or 30 years ago for the generations before us. This was especially true for the baby boomers who have their reasons. But right now, our generation doesn’t see it as fit anymore. We want to work smart, make our money work for us, and live in the moment. In other words, we don’t want to spend our lives working forever! Who’s with us when we say we want to enjoy life?
A huge mistake that many of us make is to work hard our entire life for money and not require money to work for us in return.” – Daniel Willey
Can you imagine if this concept was taught early in school? Or how important it was to have a frugal lifestyle? Many of us would’ve achieved financial independence as early as possible. If we were equipped with financial knowledge, it would steer us away from any heavy debt. Wouldn’t that be great? Saying ‘I want to live frugally’ and ‘I want to achieve financial independence’ is easy to say or write down in words. In reality, it’s one of those things that’s hard to apply. Believe it or not, these two go hand in hand with one another. The faster you learn about this, the faster you’ll achieve that financial independence. That’s why we’re here to help you out get started on the road to financial freedom.
“Wealth is the ability to fully experience life.” – Henry David Thoreau
Being independent can open more doors for you. It gives you stability and fewer migraines to deal with. Having that independence will improve your entire well-being. It will lead you to live the lifestyle that you want without having to make big sacrifices. Like everything else, it can be achieved by taking baby steps. If you’re ready to get started, here are 4 easy steps if you want to achieve financial independence now:
1. Start Saving
First, it would be a good idea to check on how long it will take you to achieve that. If you aim to retire early, then that would mean you would have to start as early as now. Today, you can start living below your means. Many of us realize that we are living from paycheck to paycheck. We are spending on things that we don’t need. You won’t reach your goals if you keep on spending 100% of your income. Everyone will tell you it’s easy to get rich. It all boils down to that the amount you are saving must be greater than the amount you are spending. Try to calculate your income and expenses monthly. It will give you an idea of how much you’re saving and spending. The reality is the more you save, the faster you’ll be able to retire. Wouldn’t that be great for everyone? Again, having a frugal lifestyle will help. It is the easiest way to reach your goal of becoming independent. It will teach you to live on the essentials and cut back or throw out on unnecessary spending. If you don’t, start today and make it a habit. This means you don’t need to spend on lavish things you don’t need or use. The main reason behind saving is to invest.
“If you’re saving, you’re succeeding.” – Steve Burkholder
2. Cut Back on Spending
The perfect dream would consist of having an unlimited income. This would mean we will be able to buy whatever we want. The reality is that our expenses keep us from saving money. Many of us fall into a bad habit of spending 100% of our income. Others tend to overspend on things that they don’t need. Is it necessary to buy everything so that we can show it off to others? This shouldn’t be a priority. Having a credit card is tempting to spend on lavish things that you don’t need. If you keep up this poor habit, it will keep you away from achieving true financial independence. But hey, we’re all here to learn that. Here are some of the things we should consider cutting back when it comes to these income killers:
Income Killer #1: Housing
In general, housing eats away 20-30% of your income. It will depend on which area you’re living in. If you think 20-30% of your income has to go to housing, it doesn’t have to be that way. What you can do is save 10-20% of your income until you can pay for the downpayment. It would be smart to buy a property like a multi-family home like a duplex or triplex. That way, you can live in one and have the other units rented out. This action will reduce the costs. When it is done right, it will cover the entire ownership cost. You’ll be living in your own home for free until it is fully paid for. Once it has been paid, the next step is having that rental income. It will act as passive income and it will be perfect if you plan to invest later on. By that time, you’ll have extra money to buy other properties as well but of course, that decision is up to you.
If you don’t have the downpayment yet, that’s okay too. You can start by renting a house then rent out the other rooms of the house to cover the cost. Another great idea is that you can live with roommates to cut back on rent. Either doing any of these things will cut back on your housing expense. This means you’ll have more money to save, right?
Income Killer #2: Car
You don’t have to sacrifice your entire lifestyle to accommodate your needs. You can still have the same lifestyle but. It’s about cutting back on certain things. Another item that kills your income is the car. Of course, it’s important to get around when you need to or when you need to travel to work. If you haven’t purchased your car yet, consider getting a quality second-hand car. Think twice about getting one at full price. Consider getting a Toyota or a Honda. The value of a 5 to 8-year-old Toyota or Honda rarely depreciates. It doesn’t seem reasonable to spend a fortune on a brand new car. If you still want to get the car of your dreams, you can always sell it later on if you need to. But for now, it will cut down on car costs.
Income Killer #3: Entertainment
Most of you have a social life, right? Again, you don’t need to sacrifice your lifestyle or miss out on experiences. It doesn’t mean you have to seclude yourself from the rest of the world. You can still have fun but you don’t need to spend a fortune when you’re out. Be conscious about the amount you’re spending or keep to a certain limit. An example of this instead of spending X amount on individual drinks at the bar, why not buy an entire bottle? Or do some pre-drinking before at someone’s place so that you are not tempted to spend a lot when you’re outside.
Income Killer #4: Food
Many of us love to eat in a restaurant, right? Who doesn’t? Yet, it doesn’t reasonable if you’re eating breakfast, lunch, and dinner outside all the time. If you calculate the total, most of your income will be spent on food. Don’t spend a ridiculous amount of money on food deliveries. You’ll save a great deal if you prepare food at home and bring it to the office. If you’re going out for dinner with friends, you can eat something to make you somewhat full before you go out. You can do that or order an appetizer instead of an entree. Again, you’ll have the same experience for a fraction of the cost!
Income Killer #5: Travel
A lot of us share the same passion for traveling. Who doesn’t enjoy exploring new places once in a while, right? Again, you don’t have to spend a fortune. You can start maximizing your credit card right now. Sign up for one that gives you the most benefits. Each time you use your credit card gives you reward points. When you have enough, you can redeem them for free travel. It will encourage you to use your credit card. It’s okay as long as you pay it in full when the billing statement comes to load up on reward points. Be mindful not to overspend.
Income Killer #6: Clothing
Everyone wants to look good when they’re out. Yet, think about the amount you’re spending on clothes. No one can tell the exact amount you spent on clothes. If you aren’t bothered by that, start buying clothes on sales or clearances. Opt for classic looks as they never go out of style. If you keep following the trend, it will be the fastest way to spend your income. If you buy classic clothes, no one will also know how long they’ve been in your closet. Sticking to the latest trends will make you a slave to fashion. Don’t buy new clothes or things because you can. You should spend money that matters most to you. If gaining financial freedom means most to you, that should be your main focus.
All these expenses eat away a big chunk of our income. That’s why it’s important to stick to a budget. Keeping this habit is a healthy way to keep your spending in check. Bonus points go to anyone who can underspend. The less you spend, the more you save!
“Work harder on yourself than you do on your job.” – Steve Jobs
3. Avoid High-Interest Debt
Locking yourself to high-interest debt is a big no-no. It will set you back years or decades from achieving financial independence. No one wants this to happen. If you must, don’t settle for anything except low-interest and fixed-rate mortgages. If we cannot avoid using a credit card, the most important rule is to never carry a credit card balance. Every billing statement that you receive should be paid in full. Otherwise, we’ll have to deal with the extra interest that comes along with it if it’s not paid in full. In other words, don’t finance anything that you cannot afford. If you find yourself in one of the following, don’t freak out. Find ways to pay it off quickly and you’ll be back on your journey to financial freedom.
“The goal isn’t more money. The goal is living life on your terms.” – Chris Brogan
4. Start Investing
Now that you’ve managed to save your income by spending fewer on expenses, you can start investing. First, start contributing to tax-advantaged accounts and invest consistently. As for the market forecast, don’t wait for the “right moment”. You can start buying stocks at their lowest and see things from there. Invest in a low-fee index fund. While keeping these things in mind, sit back, relax and leave it up to the market. If you have no idea what you’re doing, consider consulting a financial advisor or planner to help you out. Stay consistent in what you do. When you are financially independent, your portfolio value is 25x annual expenses. It is easy to calculate this. If you are spending X amount per year, just multiply it by 25. That’s the amount wherein you are considered financially independent.
“Financial freedom is available to those who learn about it and work for it.” – Robert Kiyosaki
As you see, there is no magic involved. This article teaches you to have a more practical approach to life. Changing the way you think today will inspire and influence tomorrow’s actions. It all boils down to you and your saving habits. Be consistent when it comes to two things – spending and saving. Don’t go overboard when it comes to spending as it will become your downfall. Everyone has different success stories. Work out something that only works out for you. Please don’t compare yourself with billionaires out there. They have different and unique approaches. Keep in mind they all had to go through this to achieve their wealth today. Most importantly, realize what’s the most important thing for you. Then, start cutting back on unnecessary things. Save money by cutting back on expenses so that you can invest and retire early.
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