Financial freedom… the greatest prize of all.
It’s not an easy target to achieve, but there are some steps/habits that you can follow/use to increase your chance of getting to financial freedom earlier.
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What is Financial Freedom
First thing first.
Do you know what is really financial freedom?
Basically, it is:
Financial freedom is much more than just having a lot of money.
It’s the freedom to do what you really want in life. It’s about following your passions and your dreams, making choices that aren’t influenced by the money you have. Actually, it’s living life on your terms.
Achieving Financial Freedom
If you really want to get to financial freedom you will need to change your relationship with Money. How big the change? Well, this will be based on your actual relationship. However, if you follow these steps/advice, you will be in a much better position not only to achieve financial freedom, but also to get an early retirement and a much less stressful life.
If you are looking for a guide to become a quick millionnaire, I’m sorry but this isn’t. However, this guide can help you put into place a framework to help you take your financial future in your hand.
Also, putting these step in place and making sure to follow them will give you a powerful and tested method to achieve financial freedom, basically become financially free. As such, you better follow these simple step then try any of the get rich quick method that have no guarantee to work at all!
As such, all of these steps have a measurable output for you to follow your progression. Doing so will show you that you can achieve what you want.
Related Articles
- The basics of Emergency Funds.
- The List of Book to Increase your Financial Savyness
- Investment for the Beginners
- Increase your dividend income
- Basic Investment Terms
- Dividend Growth Strategy
- The Danger of High Yield Dividend Income
The Budget
This is really the first step you should be taking on the path to achieve financial freedom. Why? To put it simply, it will allow you to know your financial situation and will also make the other steps in that guide much easier to follow. As an example, if you want to invest your money or build an emergency fund, you need to know how much money you have left at the end of the month.
Also, knowing where you spend your money and what are your income sources, will allow you to get relevant information that will give you the required insight to take action on good opportunity. Also, they will allow you to plan ahead and be on top of it.
Where to start?
Building a budget might sound hard, but if you split it into some small steps, the task will be less frightful. The easiest line to start is your monthly income. And, it’s also the one you should know, normally.
The Spending
Once you have your monthly income, you need to identify where you are spending your money. Start to track all of your expense for this month, regardless of what it is and if is required or not. Just take note of everything. Since it’s a budget, you should identify if the expense is a Fixed Expense or a Variable Expense.
Here are the broad definitions
- Variable Expenses: All expenses that change monthly. Such as, coffee, entertainment, clothing etc.
- Fixed expenses: All expenses that won’t change month after month, such as utility payment, insurance payment, mortgage payment, etc.
There are probably good opportunity to trim some expenses here, both in the variable and in the fixed expense categories.
Recording everything
Ok. I don’t want to discredit anyone, but some people will urge you to use special spreadsheets and special software to keep track of your budget. It ls totally up to you, but for a beginner, using Excel with a simple spreadsheet you will be able to achieve the required results.
However, if you want some automation, some easy shortcuts, you can potentially use some apps and software such as Mint, Personal Capital and others these are.
You can totally check them all out before making a decision, but remember that simple and easy is the key here.
Trust me, I’ve tried some high end complex options and I’ve given up due to the time involved to make sure that such solution works correctly. You will probably end up like me , not tracking anything, which is the opposite of what we are trying to do.
Track your Complete Financial Freedom Picture
This step is working hand in hand with the previous step but it’s not actually the same. To get the complete picture of your financial life you need to start tracking your net worth, your investment, your debt.
If there is something one lesson/step/habit you need to focus on from this, it is to track everything, if you can track it, you can measure it and you can observe your improvement or make the required change to your behaviors.
Building the wealth
Except if you are lucky, acquiring any kind of wealth will require time and dedication. As such, a safe and long term planification is the key to get to your financial freedom goal.
Why? Because, as I said, by tracking all of your financials, such as debt, investment, saving and expenses, you will be able to take appropriate actions.
Now, if you are one of the lucky few who doesn’t really have to track your finance, maybe it would be good that you try it anyways. And, you could be surprised of the results!
Also, coming from a scientific background I can tell you that correctly calculated, those number will never lie.
Tracking your net worth over time will tell you if you are making progress in the right direction.
Do You Have an Emergency Fund?
Creating an emergency fund. is one of the most important step to achieve financial freedom. In this stressfull world, an emergency fund will allow you to remove a huge burden from your shoulders and will help you sleep better at night.
Why? Because whatever financial problem Life decides to throw at you, you will be prepared for it and you will be in a better position to weather the storm.
The amount you need in your emergency fund will depend on several thing and will depends vastly on your financial situation.
Saving Automation
A good plan is to automate your saving into your emergency fund account, which should be a high interest bank account.
If you want a much more detailed guide, on how to create, find money and store it, you can read a good one here.
Knowledge is Power
The previous steps/habits will set you on the right track toward financial freedom. However, you will not be able to plan for everything, you can’t control what you don’t understand.
Maybe it’s sad to say it that way, but money is one of the most important concept in our life. Like it or not, we use it to pay for our shelter, food, services, entertainment, to got to work.. And, if you don’t have money, you will need to fend for yourself in an hostile environment.
As such, everyone needs to understand the basics of money and finance. Agreed that you don’t need to do a degree or master in finance to get the basics. That knowledge can be gained by reading books, and it will be sufficient for most of you.
However, the more you learn the more you want to learn, so you will be getting in the learning cycle pretty fast and you will want more.
The Basics
The best advice would be to start slowly with some practical knowledge by reading some personal finance books. These books will help you in your day to day financial life. Once you have gained the practical day to day knowledge, my suggestion would be to move to a “higher” level by reading books on economics, market and investing. These books will help you understand basic concepts such as:
- Supply and demand;
- Interest rates;
- Risk premium;
- Leveraging risk;
- investment strategies, such as dividend Growth investment;
- And much more!
These concepts will help you understand how it all works together and it will also help you better manage your money.
An added benefit, is that you will grow more confident in your capability and it will help you set realistic expectation and will allow you to pin point fraud and scams.
- Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics by Henry Hazlitt;
- The Intelligent Investor by Benjamin Graham;
- The Little Book of Common Sense by John C. Bogle;
- Your Money or Your Life by Vicki Robin;
- The Total Money Makeover by Dave Ramsey;
- All the Money in The World by Laura Vanderkam;
- The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money by Carl Richards;
- Capital in the 21st Century by Thomas Piketty; and
- The Ascent of Money by Niall Ferguson.
Also, you can look at this list of book that will be very good to improve your basic financial knowledge.
Once you are familiar with all that you could, potentially if you want, to get to harder to digest books discussing much more technical concepts.
These books are, more often than not, the basis of some undergrad or higher finance and economic programs and courses. As such, you don’t really have to read these kind of books to get on the path of financial freedom.
Investing Is the Key to Achieve Financial Freedom
Now that you have a budget and you know how much money you can spare, you have an emergency fund set up to save your life one day, you are tracking all of your financial life metrics you are now ready for the jump to the world of investment. This world made of stocks, bonds, options and other securities, will be a great boon to your financial life.
However, you need to have some basic knowledge about economics and the markets just to understand the basics of this new world.
My first advice for your adventure would be to not try to beat the market.
What is “beating the market?”
It mean to get a higher return then the market by picking specific stocks without the diversification of a market index.
It takes years of experience for the professional manager to get to that point. And it takes many more years to be able to keep a good track record. I’m not saying that you can’t be lucky or a “prodige”, but most of us aren’t.
Here are some basic advice, and you should be looking for more here:
- Low fee diversified investment. You should try to start by investing in a diversified and low fee investment such as ETFs. Also, you should definitely try to stay away from high fees investment, they are often unjustified and will devour your return.
- You are in for the long term. You shouldn’t be trying to time the market. It’s really really hard and most fail miserably time and time again. Investing for the long run will make the most of the compounding effect.
- Do your due diligence. Knowledge is power. If you don’t understand what you are investing in you shouldn’t be investing in it. Because, you have a higher chance of missing important investing information. Also, there is a higher chance of being scammed or losing money. (I know, I’ve been there!)
For Additional Information
- Investment for the Beginners
- Increase your dividend income
- Basic Investment Terms
- Dividend Growth Strategy
- The Danger of High Yield Dividend Income
The Final Words
You now know the basics steps to set you on the path to financial freedom.Yes, it will require time to reach that point. However, you don’t need to be a famous Hockey player or a big company CEO, you can get there at your own pace.
Maybe you will feel overwhelmed by all this information and by the tasks at hand. But you don’t need to feel that way, you need to start with a budget and slowly start from there. One step at a time.
One day, you will be happy to have walked on these steps and taken the path to financial freedom.
