Generally, financial freedom means having sufficient savings, investments, bank balance, and cash on hand to afford your normal lifestyle. Moreover, it generates enough revenue to get out of rat race.
You can achieve financial freedom, when your money works for you. Hence, you have to create some sources of investment that generates enough income to fulfil your daily lifestyle.
Question may arise in your mind- how can I achieve financial freedom by low income? Like many others, you also can achieve financial freedom by maintaining disciplined lifestyle.
On the contrary, you are unable to achieve financial independence unless you can control daily lifestyle. This article will give you a complete guideline so that you can achieve financial freedom.
How can you understand that you are financial independent person?
Suppose, you need 3,000 dollars per month to maintain your daily lifestyle. If your investment generates 3,000 dollars each month, you are a financial independent person.
How much investment do you need to earn 3,000 dollars each month? That depends on the nature of investment. Continue your reading to get the answer.
What is the benefit of financial freedom?
Getting out from rat race is the key benefit of financial freedom. Moreover, you can quit your day job and live a wealthy life. Your wealth works for you. You need not work for other people.
How much investment do you need to achieve financial freedom?
Think about the above example. If your investment generates 5% return each month, you need 60,000 dollars investment in order to earn 3,000 dollars.
On the contrary, if your investment generates 10% return each month, you need 30000 dollars investment. I hope you can realize how much investment you should have.
Best way to achieve financial freedom
Saving is the best way to achieve financial freedom. Only you can start investment if you have saving. Before starting saving, you should get out of debt fast.
Then you can start saving for stock investing or real estate investing. You can easily save money if you can control your daily expenses.
Paying yourself first to achieve financial freedom
Paying yourself first is a widely accepted principle to create wealth. For example, you may do a low paid job. You can get out from rat race if you can pay yourself first.
Before spending, you should keep aside minimum 10% of your monthly salary for saving. For daily necessity, you can assign maximum 90% income. The more you can save, the better chance to achieve financial freedom early.
Get out of rat race to become financial freedom
You have to lead a disciplined life to maintain a full-time job. Getting up early, reaching office on time, waiting for monthly salary, maintaining daily life, remaining zero balance at the end of the month and waiting for another pay cheque.
This vicious cycle is called rat race. Only you can get out if you able to create wealth. Just control your spending habit and pay yourself first to achieve your financial goal.
11 Steps to Achieve Financial Freedom
The below 11 steps give you a complete guideline to achieve financial freedom.
1. Setup Financial Goal
First step is setup your financial goal. Define your monthly expenses. Setup financial plan bases on how much money you need each month. Your current income and current expenses are the main factor to setup actual plan.
Then, fixed time limit to achieve your goal. For your understanding, I imagine that you need 60,000 dollars to earn 2,000 dollars each month. Your monthly income is 2,000 dollars.
2. Start Saving
Secondly, start saving from current income. Try to save 10% to 15% of your salary. So, your saving should be 200 dollars to 300 dollars. Number of months need to save 60,000 dollars if you save 200 each month is 25 years.
Don’t worry to wait 25 years to save 60,000 dollars. I have mentioned your targeted saving amount. But you can start your investing journey with 5,000 dollars to 10,000 dollars. For 10,000 dollars saving, you need 4.17 years (10000/2400).
3. Control Spending
But you can increase saving by controlling your current spending habit. If you can control expenses 5%, you can increase saving 1200 dollars in a year. Then, number of years need for 10,000 dollars is 2.78 years (10000/3600).
If your salary is increased 5% each year, you can save 10,000 dollars within 2 years if you can’t increase your spending. Hence, control your daily expenses to save targeted amount fast.
4. Get out of Debt Fast
If you have any loan amount, you should get out of debt fast. You may start your investing after one or two years later. But your loan may generate interest which is more than your investing return. Try to avoid credit card loan.
If necessary, you can borrow from relatives. In many cases, borrowing from relatives doesn’t pay interest. Loan free life is the prerequisite of getting rich fast.
5. Find out Investment Sources
Now time to find out suitable platform for your saving. As you have full time job, you should start passive investing. Stock investing is the better choice for you. To start stock investing, you should learn basics information about stock market.
Later, you should choose a trading method- swing trading or investing. Learn about how to pick stock for swing trading. For long term investment, you should learn how to buy stock for long term investing.
Day trading is not suitable for jobholder. But you should apply day trading strategies into swing trading. Real estate investment is another passive investment. But initially you can’t afford high investment cost.
On the other hand, online business needs little capital and high chance to earn. For any physical business, you can analyze local need and choose a suitable business based on your available time and skill.
For your understanding, I suggest you to gather knowledge about stock market and start with stock investing.
6. Calculate Risk and Return
In this step, you need calculate risk and return of your targeted investment. Stock trading has both high risk and high return. Unless you develop trading skill, you should avoid stock investing. Let’s share another passive investment ideas.
You can hire 5 apartments by 10,000 dollars for a month. For example, 2000 dollars for each apartment. Then find out five tenants to rent these apartments with 2100 dollars each. Thus, you can earn 500 dollars each month.
Return is 5% (500/10000)*100. But it has a risk. You have to give 10,000 dollars each month. If you manage to get 5 tenants, you have to count loss.
But, if you fail to get 1 tenant for a month it will kill your 2,000 dollars each month. Risk is at least 20% (2000/10000)*100. Even it has 100% risk for 5% return. So, think before start any investment.
7. Start Investing
In this stage, you should start your investing journey. For stock investment, open your BO account and deposit 10,000 dollars. In order to succeed in long term stock investment, you should analyze top 3 fundamental indicators.
For trading, understand about the application of candlestick chart. Moreover, you should learn the best technical indicator: RSI to understand price movement. For some other investments, take suitable steps to start investing.
8. Calculate Variance
Suppose, you setup 5% return on your investment. After starting investment, you calculate your actual return is 4% gain or 1% loss. So, you should calculate variance to find out actual performance. Based on variance, take suitable decision.
Every investment has risk. You may say that fixed deposit doesn’t risk. But it has low return. Deposit in bank is not a suitable investment. Remember that you have to reach 60,000 dollars with 10,000 dollars.
So, invest 10,000 dollars and save at least 3,500 each year from salary. You may not earn any return from investment. But capital will increase unless you stop saving. Quit you day job when you have enough money to start physical business.
Don’t quit your job unless investing return is 1.5 times to 2 times of current expenditure. So, continue investing. Correct your mistakes. Learn new techniques.
9. Correct Mistakes
If your plan doesn’t work, try to correct mistakes early. For stock trading, the golden rule of stock trading is stop loss. Moreover, correct your trading mistakes as early as possible.
On the other hand, you need to apply new strategies to avoid same mistakes again. Read investing books and follow investing blog like Financial Ask to get investing tips and strategies.
10. Implement New Strategies
Final step is implementing new strategies. An investment start with idea and end with implementing ideas successfully. To succeed in whole process, you should choose new strategies. So, always search for new ideas and strategies.
11. Lead a Wealthy Life
After achieving financial freedom, you must continue wealthy life. Wastage of money can destroy your financial freedom. Safeguard your wealth and continue investing to get out of rat race.
Once you have achieved your financial goal, you try to increase your wealth. Keep in mind that money brings money.
Final Thought for Financial Freedom
I have started this article assuming 60000 dollars for achieving financial freedom. Later, I mentioned 10000 dollars to start your investing career. Let’s complete the whole process. 10000 dollars to 60000 dollars.
To earn 24000 dollars each year by 60000 dollars, you need 40% (24000/60000)*100 return on investment. This is quite impossible factor to many. Only a prudent stock trader can earn this 40% return. For general investors, yearly investment return may vary 10% to 20%.
If I count 10% return, you need 2,40,000 dollars to earn 24,000 dollars each year. In investment doesn’t guarantee fixed return. Moreover, it has risk too. When you have 60000 dollars, you can diversify capital into 3 to 5 investments.
If I count 20% return on 10000 investment each year, your capital will be at the end of the year 12000 dollars (10000*1.2). And saving 3500 dollars. Second year start with 15500 dollars.
By the power of compounding, you can earn 60,000 dollars within 7 years. See how compounding works. 10000(1+20/100) power 7=35,832 dollars and 7 years average saving is 3500*7=24,500 dollars.
Total amount is 60,332 dollars (24500+35832). So, after 7 years, your saving is enough to meet half of your daily need. And this amount is suitable for getting financial freedom. After successfully investing 60,000 dollars, you can quit your day job.
Founder of The Financial Ask
