Imagine waking up 7am on a Monday morning.
And instead of moaning and slapping your alarm clock like you normally do before work. You wake up 5 minutes before your alarm clock and jump out of bed to take on the day however you please. No obligation to go to work to trade your time for money.
This in my opinion is financial freedom.
Financial freedom is the ability to live your life on your terms. Not having to "go to work" in order to make money to survive. The ability to go overseas or holiday whenever you would like. Sounds good doesn't it.
Now if I had to define financial freedom I would define it as above. Emphasis on how financial freedom is living life stress free when it comes to your finances.
HOWEVER there is no set definition for financial freedom. The definition of financial freedom differs from person to person. The only common between peoples definitions is that financial freedom is the overall less stress and concern you have over your money.
"The goal isn't more money. The goal is living life on your terms."
- Chris Brogan
How to achieve financial freedom?
Now this question is not that easy to answer because there is no set definition for the term financial freedom. There is however a basic process that can be followed in order to achieve it. And depending on the level of financial freedom you want to achieve it will indicate to what extent you follow this process.
In an overview the path to financial freedom involves first controlling your money and then learning to invest it. I will show you one process in which I personally look to model my own journey off.
This specific process involves using a job with a full time income to fuel your investment portfolio. Fingers crossed you have a full time income already!
First Step: Getting a grip on your finance
Quite simply it is advised you create a budget or track your spending for a period of time. Whether this be weekly or monthly. This way you can identify where your money is coming in and where it is going out.
With this information you then aim to minimise your expenses as much as you can. In particular the non necessities and wants in your life you could live without.
Start asking the question when you buy items:
"Do I need this? Will I get good use out of this?"
Another trick people use is comparing what they buy, to the amount of hours that they work for it.
Example is you are being paid from your job $15 an hour. Lunchtime comes and you go out and buy lunch for $30.
Simple maths but that lunch is costing you two hours at work. Was that lunch worth slaving two hours for?
This helps mentally to minimise your spending as you become aware of the effort you made to earn that money and where it ends up going.
Second Step: Investing
Now that extra money you free up on a weekly basis due to getting a hold of your finances should be invested into wealth creators. This is the biggest step towards financial freedom! As we love saying at Young Money Investing the biggest most trusted wealth creators that MANY people use are:
If you are unfamiliar with both these wealth creators I encourage you to click the links and to further research more about each one.
Basically once you find your wealth creator or money multiplier that you have researched and understood you should begin investing in it (of course once you have seen a financial planner first!) You then keep investing until you have met your personal definition of what financial freedom is. For example when you have invested enough money where your yearly return (say through dividends or rental income) surpasses your yearly expenses.
I personally would think that is when you have reached financial freedom. However I look to go beyond that and want to be able to have leftover money after expenses in order to enjoy luxuries and travel.
When I reach that stage! I will personally say I have reached financial freedom.
Can you achieve financial freedom?
And there's only one thing you need.
If you can master discipline in your financial freedom journey you are well on your way to achieving it. Why is that?
Well if you have the blueprint of your journey. For example as said above funnelling your full time income into your investment portfolio, if you have a strong discipline to work towards your goal over a long time span (years not weeks!) Then you have a very high chance of achieving financial freedom.
The need for discipline comes from setting a plan and sticking to it.
That being once you receive your pay check you are disciplined enough to set aside for example:
40% to Investing
40% to Needs/wants
20% to Leisure
Sticking to a blueprint like this over a long term will well and truely get you on your path to financial freedom.
What is even better is the process can be graphed exponentially hence the creation of your wealth explodes at a certain point.
How you ask?
Well let's say you have decided to invest in the stock market in a mixture of growth and dividend paying stocks. Now as you invest in dividend paying stocks they will be paying out dividends at certain periods.
Financially smart people will reinvest these dividends back into more dividend paying stocks. Therefore increasing your returns which then goes into more investing and hence the snowball affect starts to happen!
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Disclaimer: Young Money Investing is not a legal financial adviser. It is advised you seek legal advice before actually investing your money. Young Money Investing aims to help inspire, inform and reach your financial goals.
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