Financial Freedom And The Value of Time

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Attaining financial freedom is an objective for most individuals. Financial freedom usually means having enough savings, financial investments, and cash on hand to afford the kind of life we desire for ourselves and our families.

It means growing savings that enable us to retire or pursue the career we want without being driven by earning a set salary each year. Financial freedom means our money is working for us rather than the other way around. Let’s find out more.

Financial Freedom Meaning
What is The Value of Financial Freedom?
Why is Financial Freedom Important?
What it Means to Have Financial Freedom
What Are The 7 Steps to Financial Freedom?
How Can I be Financially Free in 5 Years?
Is Financial Freedom Possible?
What is The Difference Between Financial Freedom And Financial Independence?
How do You Get Financial Freedom?
How Can I Improve my Financial Situation?
Is Good Credit The Key to Financial Freedom?
Why is Good Credit Important For Future Financial Success?
How do You Get Financial Freedom Before 30?
10 Steps to Financial Freedom
Financial Freedom Plan
Financial Freedom Quotes
Financial Freedom Calculator
How Much Money do You Need to be Financially Secure?

Financial Freedom Meaning

Financial Freedom is a term that we often come across nowadays. Different people come up with different definitions. Some say: It’s about buying what you want and when you want; having no debt; being able to support yourself, or simply being rich.

Well, these are just vague and half-baked answers. Though we often spend time discussing the topic and how we can achieve financial freedom, the truth is we are completely clueless about what it actually means.

What is The Value of Financial Freedom?

The path to financial freedom isn’t a get-rich-quick strategy. And financial freedom doesn’t mean that you’re “free” of the responsibility of handling your money well. Quite the opposite. Having complete control over your finances is the fruit of hard work, sacrifice and time. And all of that effort is worth it!

Financial freedom has to be personal. Dream big and get specific about your goal.

What does financial freedom look like for you? Maybe it looks something like this:

Freedom to choose a career you love without worrying about money
Freedom to take an international trip every year without it straining your budget
Freedom to pay cash for a new ski boat
Freedom to respond to the needs of others with outrageous generosity
Freedom to retire a whole decade early

When you have financial freedom, you have options. You don’t have to wonder if your bank account can handle replacing your hot water heater or buying groceries for a single mom who just lost her job.

Why is Financial Freedom Important?

Financial freedom means that you get to make life decisions without being overly stressed about the financial impact because you are prepared. You control your finances instead of being controlled by them. You are living for yourself, enjoying the life and you will be having enough time to do what you really like and explore the world.

The greatest benefit of wealth is financial freedom.
Be your own boss.
Happy life and more time to enjoy life.
Greater options and opportunities.
Increased time leverage.
Higher quality health.
Education and self-development.
Crisis management.
Join the wealthy.

What it Means to Have Financial Freedom

Ultimately, freedom means you are in control of your finances and your life choices. Too many individuals are frustrated working their tails off. Still more feel boxed in and lacking any control in their lives.

Financial burdens force us to make desperate choices. For some, this means getting trapped in golden cages—imprisoned by lifestyles they cannot afford and investments designed to erode their wealth.

For you it might mean that you don’t have to go to work anymore, or you can take a lower-paying or non-paying job to do something you love. It might mean knowing that you always have a roof over your head.

For some it means that you own your house and your cars outright. You don’t have debt. That might be what you need. Others might say they need to know that they have a certain amount of income coming in and are not reliant on others so that they can travel the world without worrying about paying bills.

Still others might want to fund charities, do mission work, or give money to help others. There are no wrong answers, but we do need a destination. Think about what it means to you to be financially free. Once you know what it means to you, it’s time to calculate how to accomplish it.

What Are The 7 Steps to Financial Freedom?

Step 1: Make the Most Important Financial Decision of Your Life. In essence, you must first decide to become an investor (not just a consumer). This means automating a specific percentage of your income that goes toward your “Freedom Fund” (i.e., your ideal retirement nest egg, which you calculate based on your desired financial outcome).

If you can’t commit the amount you need, there are great strategies, including the “Save More Tomorrow” plan, that will help you ease into the number you need to be saving every month.

Step 2: Become the Insider: Know the Rules Before You Get in the Game. Here, you shake off the nine most common myths about fees, actively vs. passively managing funds, real costs of specific investments, brokers vs. fiduciaries, target date funds, 401(k) and Roth 401(k) plans, and asymmetric risk.

By understanding these misconceptions, you can minimize your risk of losing money and over-paying fees, and create tax-advantaged investment strategies. This is the equivalent of “measure twice, cut once” in the business world. If you know the rules of the game, you’re less likely to lose when you play.

Step 3: Make the Game Winnable. This is when you calculate exactly the amount of money you will need for your financial freedom. Most people create an artificial number that feels impossible to achieve, so they delay starting their saving and investing. To make these calculations super simple, Robbins provides a companion mobile app.

You also look at your spending habits and how you can speed up your plan to achieve financial freedom faster-from limiting your daily impulse purchases (i.e. coffee, alcohol, fast food, etc.) to reducing your taxes, earning more, relocating, and improving your lifestyle. There are lots of ideas here on how to achieve your desired financial outcomes faster.

Step 4: Make the Most Important Investment Decision of Your Life. This is about asset allocation, rebalancing, and dollar cost averaging. Before you begin investing, you need to determine your own risk tolerance, frequency of rebalancing to maintain this risk tolerance, and a monthly dollar cost averaging investment strategy. One interesting idea is to not just have two categories (i.e. “Risk/Growth” vs. “Security/Conservative”) but to also include a “Dream” bucket that is clearly not about investing, but rather putting money aside for the things in life that motivate you. This can help propel you, as you save and invest more for your future.

Step 5: Create a Lifetime Income Plan. This is about understanding the returns you are currently getting on your investments compared with other portfolios and recommended asset allocations. This includes establishing a guaranteed lifetime income plan through various forms of annuities and tax-efficient life insurance strategies. These are the secrets of the ultrawealthy, as these tools are not widely known by most people and yet allow the ultrawealthy to minimize their tax exposure and protect their assets for their children, grandchildren, and great-grandchildren.

Step 6: Invest Like the .001 Percent. This is where you learn that the worst environment is your greatest opportunity: to buy when everyone else is selling in a panic, and to sell when the markets are going crazy in the positive direction. You don’t always have to be a contrarian, but pummeled markets create significant wealth, and fear and other emotions distort true values. Most wealthy investors have figured out how to make asymmetric returns (i.e., risk $1 to make $5), while the average person risks the bulk of their investments to make 4 to 8% returns.

Step 7: Just Do It, Enjoy It, and Share It! This is where Tony Robbins really shines, as these principles are core to his motivational speaking and inspirational life coaching. So much of investing is psychology. We can choose to see the world as scarce or abundant. We can see the world filled with problems or opportunities. Daily priming and the appreciation of what you already have will ensure you focus on the outcomes you truly want, as opposed to worrying about what you don’t have and not taking action because of fear and other negative emotions that are holding you back.

Perhaps the most powerful reminder is that “repetition is the mother of skill. Action is where all of your power is found…knowledge is not power, execution is.” In other words, take massive action when you learn great insights.

How Can I be Financially Free in 5 Years?

In order to be financially independent in five years, you’re going to need to ratchet your savings rate all the way up to 82% of your income.

It’s a pretty spartan life if you’re earning $50,000 after taxes. Your annual expenses will need to squeeze in under $9,000. Yes, that’s for the whole year. It is the sacrifice you’d need to make so that you can bank the other $41,000. Out of your monthly income, about $3,500 will go to savings. You’ll need to have a sharp plan to get by on just $750 a month.

Even if you earn closer to $100,000 after taxes, you’ll still be living a fairly basic existence on $18,000 a year while pocketing $82,000. Start thinking of creative living arrangements to stretch that monthly living budget of $1,500.

No matter your income, this savings rate is going to be possible only for those people with virtually no debts. That’s why many people working toward FIRE start by paying off their mortgage first, or live a car-free life.

Is Financial Freedom Possible?

There are several myths and misnomers when it comes to financial planning, and individuals can take in a lot of advice from many good and not-so-good sources. Mistakes can range from confusing high incomes with wealth to not knowing the importance of tax asset placement when choosing your investments.

Most people believe the key to wealth is a high-paying job. Yes, it’s easier to amass assets if you have more monthly income, but one key to increasing your net worth is to spend less than you make. Ultimately, spending habits are the reason a professional athlete making $20 million a year can quickly go bankrupt, while a bus driver can retire a multi-millionaire.

You need to understand the difference between income and long-term wealth in order to escape the spending trap. Income is an obvious component of wealth, but it’s not the only factor. Many people see wealth as their total net worth at any given time. In other words, wealth can be thought of as the equity on your balance sheet—your assets minus liabilities.

What is The Difference Between Financial Freedom And Financial Independence?

With Financial Independence, you’re more or less locked into your current standard of living. If that’s a barebones existence, that’s where you’ll want to stay. Yes, you may indeed be happy with that way of life for now and forever, but I don’t like to take chances. Building up a cushion is buying insurance against a change of heart or a major curveball from above.

When you have Financial Freedom, you can feel free to do some things you might have never considered when you were on that laser path to FI. For example, you could, without regret:

Order your favorite menu item, rather than the best value
Stay next to the beach, instead of four blocks up the street
Spend a year in western Europe, rather than strictly LCOL destinations
Get the motorhome with slide-outs and self-leveling features
Buy the Express Pass at the theme park
Pay for a babysitter more often
Share a bottle of Utopias or [insert ridiculously overpriced beverage of choice] with friends
Pay for the overpriced internet on the flight to see the rest of the game

How do You Get Financial Freedom?

Here is a seven-point formula that you can use to help accumulate wealth, become happier, and achieve financial freedom in the years ahead.

1. Begin to Think Positively About Money

Part of becoming rich involves thinking positively about money. Thinking negatively about money is an emotional obstacle that you must eliminate in order to achieve financial freedom.

You must eliminate the thoughts that having more money leads to evil or that money can’t buy you happiness.

When you begin thinking positively about money, you will attract opportunities and open up more doors than you ever thought possible.

2. Rewrite Your Major Goals For Financial Freedom

Set financial goals for yourself. Rewrite and review your goals on paper every day and think of how you could accomplish them. This will take you between five and ten minutes.

The very act of writing and rewriting your goals, and thinking about them each morning before you start off, will increase your chances of accomplishing them.

3. Plan Every Day In Advance

Plan every day in advance. The best time to do this is the night before. The very act of planning each day, each week, and each month in advance will make you far sharper and more precise at everything you do.

You will find yourself with better focus and a greater sense of self-control and personal power when you work from a list. When you plan every day in advance you will be better able to control and track your spending habits as well.

Plan how much you have to spend for the week, the month, the year and decide where you will be able to save.

4. The Principle Of Concentration

Concentrate single-mindedly, every hour of every day, on the most valuable use of your time. The principle of concentration is absolutely essential to achieve financial freedom.

Virtually everything you do in terms of goal setting and financial planning is aimed at enabling you to determine the one or two things that you should concentrate on more than anything else.

Your ability to develop the habit of concentration will do more to ensure your personal finance success than perhaps any other skill or habit you can acquire.

The things you focus the most on and spend the most time doing should be in direct alignment with your financial goals.

Spend your time focused on what will make you the most money.

5. Invest in Yourself

Listen to audio programs in your car. The average person spends 500 to 1,000 hours per year behind the wheel. By turning your car into a university on wheels, you can become one of the most knowledgeable and most skilled people in your profession.

Purchase courses on money management, read books on personal finance, and find articles online about money. Very soon you will have so much knowledge in the area of money that people will come to you for advice.

6. Ask Yourself These Magic Questions

Ask yourself the two “Magic Questions” after every meeting and every event of importance in your life.

The first question is, “What did I do right?” And the second question is, “What would I do differently, next time?”

By reviewing your performance immediately after every meeting, sales call, and presentation, you will become better and better, faster than you can imagine.

The answers to both of these questions are positive.

By reviewing what you did right and what you would do differently next time, you program into your mind a predisposition to be even better the next time out.

If you take a few minutes and write down everything you did right and everything you would do differently immediately after a call or presentation, you can double and triple the speed at which you learn and grow and improve in your work.

Improving yourself and your quality of work will, in effect, improve the money you make.

7. Be Generous to Others

The final point is to treat everyone you meet like a million-dollar customer. Treat every single person, at home and at work, as if they were the most important person in the world.

Since everybody believes that he or she is the most important person in the world, when you treat them as if they were, they appreciate your recognition and acknowledgment more than you can imagine. It is a proven fact that being a more generous person will help you attract more wealth and become a happier person.

We’ve often heard it said, “money doesn’t buy happiness”.

But, the truth is that:

Money is essential to happiness.
Material prosperity predicts life satisfaction,
And the more economic status we achieve, the more we’ll feel satisfied with our life.

Not only do our measurements of happiness rise as our income rises, so does our sense of well-being and life satisfaction.

So, by choosing to focus on money goals that motivate you, while also embedding a positive mindset towards money, towards yourself and life in general, you will help to achieve both increased wealth and happiness.

And when you get there – evidence clearly shows us that being generous with our money makes us happier – and richer!

How Can I Improve my Financial Situation?

If you’re like many Americans, you’re living paycheck to paycheck with almost no money in savings and a lot of credit card debt. To get on track financially and improve your financial situation, follow these 7 simple steps for getting out of debt, saving for your future, and living the life you’ve always imagined:

1. Make a new budget every month. It’s time to get serious. Sit down with your spouse and make a monthly budget based on your income, not your expenses. You are no longer going to be spending more money then you have.

Overspending is what led you to debt in the first place. Decide each month what is coming in and what will be going out. Assume only minimum payments on all debts, but whatever happens, the income must be greater or equal to the expenses.

2. Cut up your credit cards, From now on, you’ll be using cash or a debit card for everything. If you have a credit card in your wallet, you will use it, so cut it up. You don’t need it anymore.

3. Save $1,000 fast. This is your starter emergency account. No matter what other bills or obligations you have right now, set this money aside in a money market or savings account first. While you’re working to pay down debt, your emergency account will prevent you from whipping out your credit card in an emergency.

Your car breaks down, the hot water heater dies, or the roof leaks — all good reasons to access money. Your emergency account is not fun money and should never be used for anything that is predictable and not vital in your day-to-day life. Christmas, Birthday Parties, or an LCD television all fall into “budget-for” category.

4. Contribute to your 401(k) only enough to maximize the employer match. Once your $1,000 emergency fund is neatly tucked away in a safe location, adjust your 401(k) contribution at work to take advantage of all the free money the employer gives you. Usually, your employer will match your 401(k) contribution up to a certain level (typically, a percentage of your salary).

Example: If your employer matches 50% of the first 5% of contributions, contribute 5%. If your employer matches up to 3%, then contribute only 3%. The best return on your money is a risk-free match from your employer; take full advantage of the free money. If you do not have a 401(k) or an employer match, skip this step.

Remember, you should not be working on the next step until you have completed the previous one. If you are contributing to your 401(k) and the breaks on your car need to be repaired and the cost is $500, pay for your breaks but then go back and make sure you bring your savings back to $1,000.

5. Pay off your debt. Now that you have $1,000 squirreled away and are making a matching contribution to your 401(k), it’s time to tackle your debt. Make a list of all your debts, excluding your home mortgage. Your debt list should include car loans, credit cards, student loans, and so on. Then, put those debts in order from smallest to largest.

It doesn’t matter if you have a $20,000 loan at 24% and a $500 loan at 1%, the $500 debt comes first on the list. Start by making the minimum payments on all your loans, except for the first one on your list, the smallest loan. On this loan, pay as much money as you can every month and focus all your energies on getting it paid off.

Once that first loan is paid off, take that money you were paying monthly and begin to aggressively pay off loan #2. Continue right on down the list until all of your debt is completely paid off.

6. Increase your emergency savings to 3-6 months’ worth of expenses. Now that your debt is all paid off, saving money should be a breeze. Consider saving 3 months of expenses if your income is fairly secure and 6 months if your income fluctuates or is commission based. This money also should be in a savings or money market account. Don’t worry about the interest rate; just make sure it is safe and easily accessible.

7. Increase retirement savings up to 15% of income. Start with your workplace 401(k), if you have one. If not, a Roth IRA (if you are eligible) or a traditional IRA (if you are not eligible for the Roth) are the next logical steps. This savings will grow with tremendous tax advantages and help provide for your future.

Is Good Credit The Key to Financial Freedom?

If you are looking to get out of debt, there is no better place to start than your credit score. When you focus on building your credit score, you will reach financial freedom and set yourself up for better interest rates on loans that may be needed in the future.

It can be overwhelming to balance multiple credit card payments, car loans, mortgage payments, student loans, and more. If you are in over your head, it may help to seek credit repair services to help you know where to start.

Here are 7-ways that you can build your credit and obtain a good credit score:

Check Your Current Credit Score:

You’ve got to know your starting point before working to build something. Find out your current credit score. Anything 650 or below is worrisome. You want to strive for a good credit score of 700 or above.

Eliminate Errors On Your Credit History:

This is where a credit repair lawyer comes in. They are experts at spotting mistakes and know how to eliminate them from your report. Mistakes are common, including credit cards that don’t belong to you or debts from companies no longer in business.

Make Consistent Payments To Loans:

Be sure to pay all of your loan payments on time, not missing a single payment. Even if you have to pay the minimum fee, it is best to pay them on time each month.

Pay Down Outstanding Balances:

If you have a large loan that is dinging your credit, focus on paying that down. This may require making cuts in spending so that you have money for larger debt payments. Small things like coffee runs or eating out can really add up and save you a lot of money once discontinued.

Close Inactive Credit Accounts:

If you have several credit cards open with retailers that don’t get regular use, this can look bad on your credit card report. Choose wisely which accounts to close. Be careful not to close accounts with a longstanding history of consistent and timely payments. Those accounts can be good for your credit score.

Decrease Your Debt-To-Income Ratio:

It’s easier said than done, but when your debt-to-income ratio is lower, it will increase your credit score. You can lower that ratio by increasing your income. And remember not to enter into more debt as you earn more money.

Continuously Monitor Your Credit Report:

Errors can pop up on your credit report at any time, which is why it is essential not to forget about it. When you hire a credit repair lawyer, they will continuously monitor your credit report for errors.

By building up your credit score, you will automatically pay down your most troubling loans. If you have high-interest rates on some loans, you can refinance those loans once your credit is in better shape. Do not hesitate to ask for help from a credit repair lawyer as you start on your journey to financial freedom.

Why is Good Credit Important For Future Financial Success?

Building good credit is an essential part of your financial planning. In fact, good credit is key to your future success with money.

1. Save Money on Loans

First of all, good credit means you save money on your loans. Whether you’re buying a car or a house, your good credit means that you get a lower interest rate.

The lower your interest rate, the less you pay in charges over the life of your loan. When you add up all your interest savings, that’s thousands of dollars during your life.

Can you imagine what you could accomplish with that money if you weren’t just paying it straight into someone else’s pocket?

Rather than paying interest, you can instead invest that money for your future. Build your retirement portfolio. Invest. Pay down debt. There’s a lot you can do for your financial health when you aren’t paying high interest rates.

2. Access to More Financial Opportunities

When you have good credit, you have access to more financial opportunities. If you need a little extra money in a pinch, you are more likely to get it when you have a desirable credit situation.

From getting approved for the rental you want to getting a good deal on your cell phone services, good credit opens financial doors that might be closed otherwise.

Your dream home might never become a reality without a good credit score. If you need money in a pinch, you might not be able to get it because of your credit situation. On the other hand, you have greater access resources when your credit is solid.

The reality is that many people who might need a plan like that more than me wouldn’t have access. Their credit would mean interest charges.

Your good credit means more chances to negotiate and save money overall. You get access to liquidity that those with poor credit don’t end up with.

3. Access to Better Jobs

It’s true that employers aren’t supposed to look at your credit score. However, they can look at a version of your credit history in some states. If there are red flags in your credit history, you might be passed over for certain jobs.

Your credit can be part of a background check. If you have poor credit, there might be worries about the risk you pose for embezzling or for being susceptible to bribery. On top of that, in some financial jobs, they like to know that you have good credit.

When you manage your credit, you leave yourself open for more employment opportunities. You won’t always be passed over because of your credit history, but you don’t want it to hold you back.

4. Save Money on Insurance

In some states, insurance issuers are allowed to check your credit when giving you premium quotes. Over your lifetime, it can add up to thousands of dollars.

You might miss out on discounts and other savings if you have poor credit. Pay attention to your credit, and you can get the best insurance deals, and put the savings toward building your financial future. It make a huge difference down the road.

5. Set the Stage for Success in Other Areas

While a good credit situation isn’t the be-all-and-end-all of financial success, the reality is that the skills you develop while building your credit can result in success in other areas of your life.

Building a good credit history requires discipline and planning. Applying these skills to other parts of your life can lead to success later. Your good money management and credit practices can translate to business success. You can also use discipline and planning to succeed

You can also use discipline and planning to succeed in your education and relationships. Care and attention to detail, and an effort to be conscientious can pay off with more than just money. Develop and practice skills related to your credit, and you might be surprised at what else benefits.

How do You Get Financial Freedom Before 30?

Being financially secure enough to enjoy your life in retirement is the last thing on the minds of those under 30. With the stress of all the expensive “firsts” that often come about during this period, like purchasing a car, buying a house and starting a family, it’s hard to even think about saving for the future.

However, working toward financial security need not be an exercise in self-deprivation, as many people assume. Attaining this goal even has some immediate benefits, as financial insecurity can become a serious source of stress.

1. Have Fun

Enjoy yourself while you’re young. You will have plenty of time to be miserable when you’re older. Living a successful, happy life is about finding a balance between time with family and friends – and between work and leisure.

Striking a proper balance between your life today and your future is also important. Financially, we can’t live as if today is our last day. We have to decide between what we spend today versus what we spend in the future. Finding the correct balance is an important first step toward achieving financial security.

2. Your Greatest Financial Asset: You

Your skills, knowledge, and experience are the biggest assets you have. The value of your future earnings will dwarf any savings or investments you might have for most of your career. Your job and future career are the most important factors in achieving financial independence and security.

For those just entering the workforce, future career opportunities are as bright as they’ve ever been. A large number of retiring baby boomers is expected to create labor shortages, and there will be room for advancement as companies scramble to fill empty positions.

Look at yourself as a financial asset. Investing in yourself will pay off in the future. Increase your value through hard work, continual upgrading of skills and knowledge, and by making smart career choices. Efforts to improve your career can have a far bigger impact on your financial security than tightening your belt and trying to save more.

3. Become a Planner, Not a Saver

Research has shown that those who plan for the future end up with more wealth than those who do not. Successful people are goal oriented – they set goals and develop a plan to achieve them.

For example, if you set a goal to pay off your student loans in two years, you’ll have a better chance of achieving this goal than you would if you merely said you wanted to pay off your student loans, but failed to set a timetable.

Even the process of writing down some goals will help you to achieve them. Being goal-oriented and following a plan means taking control of your life. This is an important step toward improving your financial independence and security.

4. Set Short-Term Goals to Achieve Long-Term Ones

Life holds many uncertainties, and a lot can change between now and 30 years from now. As such, the prospect of planning far into the future is a daunting task for young investors.

Rather than setting long-term goals, set a series of small short-term goals that are both measurable and precise. For example: paying off credit card debt or student loans in a matter of months; or contributing to your company’s 401(k) plan with a set contribution each month.

As you achieve your short-term goals, set new ones. The constant setting and achieving short-term goals will ensure that you reach your longer-term goals. If your goal is to be worth a million dollars by age 40, you need to first reach smaller goals like having $10,000, $50,000 and $500,000.

5. Planning for Retirement

Just out of school, retirement planning is the last thing on your mind. So if you have to, for now, just fuggetaboutit. If you follow the other tips, you will not only be more financially secure and prepared in the short-term, but you will also be financially prepared for the distant future as well.

However, if you can take a few steps now to start saving, try setting up automatic monthly contributions to a retirement plan like an employer-sponsored 401(k) or your own Roth IRA – compounding will work in your favor, which makes reaching your goal much easier.

If you implement this “pay yourself first” ideal, you won’t have to worry about how much you’re contributing. The most important thing is to develop the habit of saving. You can increase your contributions when your income rises or when you’ve achieved more of your short-term goals.

6. Modest Lifestyle Costs

Many new graduates find that in the first couple of years of working they have excess cash flow. Still used to their frugal student spending habits, they find it easy to make more money than they need.

But rather than using this excess income to buy new toys and live a more luxurious lifestyle, the best move is to put the money toward reducing debt or adding to savings. As you advance in your career and attain greater responsibility, your salary should increase. If the cost of your lifestyle lags your income growth, you will always have excess cash flow that can be put toward financial goals.

Where people get into trouble is by feeling entitled to a standard of living that exceeds what they can afford. However, if you keep your standard of living below what you earn, you won’t have to cut back to accumulate money.

7. Become Financially Literate

Making money is one thing, but saving it and making it grow is another. Financial management and investing are lifelong endeavors. Making sound financial and investment decisions is important for achieving your financial goals.

Research has shown that people who are financially literate end up with more wealth than those who are not. Taking the time and effort to become knowledgeable in the areas of personal finance and investing will pay off throughout your life.

8. Seize the Opportunities: Take Calculated Risks

Taking calculated risks when you are young can be a prudent decision in the long run. You might make mistakes along the way, but remember, mistakes are the lessons of wisdom. You often learn more from your mistakes than from your successes. Also, when you are young, you can recover faster from financial mistakes.

Examples of calculated risk include:

Moving to a new city with more job opportunities
Going back to school for additional training
Taking a new job at a different company for less pay but more upside potential
Starting a new company or working for a small startup
Investing in high risk/high return stocks

As people get older and assume more family responsibilities like paying off the mortgage or saving for the kids’ education, many are forced to play it safe and are unable to capitalize on riskier opportunities that present themselves.

9. Borrow Money for Investments – Not to Finance a Lifestyle

Using credit for a life you feel entitled to is a losing proposition when it comes to building wealth. The constant borrowing will assure that there is no money available for investing, and the added interest expense of borrowing further increases the cost of the lifestyle.

Borrowed money should be used only for investing – where your gain will outrun your borrowing costs. This might mean investing in the literal sense (stocks, bonds, etc.), or it might mean investing in yourself – for your education, to start a business, or to buy a house. In these cases, borrowing can provide the leverage you need to reach your financial goals faster.

10. Take Advantage of Financial Freebies

Not many things in life are free. If you belong to a company pension plan, take the free money it offers and also make sure that you contribute at least up to the maximum of what your company will match.

You can also look for (legal) ways to take advantage of tax laws. For example, contributing to an individual retirement account (IRA) will result in tax savings; in effect, the government is giving you free money and providing you with an incentive to contribute. There is also an incentive to invest in stocks due to the favorable tax treatment on capital gains and dividend income.

10 Steps to Financial Freedom

Unless you’re holding out for some future inheritance or you’re one of the lucky few who wins the lottery, you’re going to have to do it the old-fashioned way. Hard work and discipline. Here are 10 basic steps to financial freedom:

1. Find Gainful Employment

Income is a huge part of reaching financial freedom. Paying off debt gets a lot easier if you have a job that pays well. If your current job pays very little, you may want to consider a side hustle or pursuing a more lucrative career field. In the future, once your savings reach a certain point, you will have more job options that aren’t so dependent on income.

2. Become a Budgeting Expert

Before you can start paying off debt or saving, you need to master budgeting. John Bogle, founder of Vanguard says you can triple your returns if all you do is control your expenses and emotions. Budgeting can be difficult. Many times it involves a great deal of sacrifice. But budgets aren’t all bad.

Make sure to include some flexibility in your budget or you might risk burning out before long. Put your budget to work for you and it will be your best friend.

3. Manage Your Credit Pay off your credit cards every month.

Many people say to completely get rid of credit cards, while others maximize their benefits with rewards programs. There are many approaches to managing credit. Managing your credit is huge step towards financial freedom.

4. Pay Down Debt

The first step to paying off debt is to make a list of all of your debts. No matter how big or small, any money you owe someone else should be on this list. There are many types of debt that you may have. Here are some of the most common:

Credit card debt

Car loan debt

Student loan debt

Medical debt

Personal loan debt

Mortgage debt

Home equity debt

5. Create an Emergency Fund

Having an emergency fund means you have enough money on hand when an unforeseen event occurs. Think of it as a financial safety net. In a perfect scenario you should have at least three months of income saved. This will allow you to continue to pay the bills if you or a family member loses their job, gets sick, gets fired or if you have a car or a new roof that needs to be replaced.

There are many things that happen in life that are unexpected. You will want to be prepared when the time comes. DO NOT TOUCH THE EMERGENCY FUND. It is there for an emergency… not so you can take a nice vacation.

6. Maximize Retirement Funds

Tax advantage vehicles like Roth, IRA, SEPs and 529 accounts are a crucial step in reaching financial freedom and building wealth. If your work offers a 401(k) or a 403(b) retirement account, take full advantage of it. Not only are these funds tax advantaged, they’re also a source of free funds if your company matches.

7. Invest Extra Funds

Anyone can be an investor, no matter the size of your bank account. And the longer you wait, the more you miss out on compound interest, which can grow your original investment exponentially. Take those extra funds and put them to work.

Many people are so intimidated by the idea of investing, that they put it off or even worse… don’t do it at all. The sooner you start investing, the sooner you’ll reach financial freedom. We’re here to help!

8. Create Passive Income

Many of the people who have reached financial freedom have done so by creating passive income streams. This can be done in many ways. For instance, on the investing side you have dividend stocks, bonds or real estate.

But you can also create passive income by creating goods or services that continually generate sales. Digital artwork, books and music royalties are all examples of this. Whatever your method, passive income is a hands-off way to let your work, work for you.

9. Tax Planning

Understanding taxes is a huge step towards financial freedom. Working with a tax professional can save you thousands of dollars each year. Contribute to retirement accounts. Donate to charities with retirement funds. Also, arrange your investments based on tax efficiency.

10. Stay Financially Engaged

You know the old saying… “you can do anything you put your mind to”? It may sound silly, but it’s as true as it ever was. Being actively engaged in your financial future is our last and arguably most important step to financial freedom. The hard work and discipline you show now will lay the buildable foundation for wealth creation and your financial freedom.

Financial Freedom Plan

Having financial independence allows you to live your life to the fullest and do what you want.

We will now share four steps that you can start today that will help you become financially free:

1. It’s all about the plan

First thing’s first, you need to get organized and do a comprehensive overview of your finances. You should put together a monthly budget and figure out how much you can save. Then, spend some time thinking about your goals. What is your primary financial goal? Is it to buy a home? Retire by age 55? Pay for your children’s college?

2. Open an investment account

Once you figure out your goals, you will want to open an investment account. Different types of accounts are useful for different reasons, depending on your situation and goal for the money. For example, if you are looking to save for retirement and you qualify, you might consider opening a Roth IRA.

This account will allow your post-tax contributions (money in the bank) to grow tax-deferred and the gains are not taxable at retirement. This is the only account where an individual can get tax-free money at retirement.

3. Contribute on a regular basis

Now that you have an investment account, you will want to contribute to it on a regular basis (that is why you do a monthly budget)! A good starting point is to contribute 10% of your gross income. This means if you have a $75,000 salary, you should aim to save $625 per month for investments.

If you live a comfortable lifestyle saving 10% of your income, bump it up to 15%, and then 20%! By adding to your investments on a regular basis, you can take advantage of a strategy called dollar cost averaging. This is a method that takes advantage of fluctuations in the market and allows you to build an asset base for the future.

4) Live a balanced life

Lastly, make sure that you are living a balanced lifestyle. If you don’t save at all, you will never have financial independence. If you save every penny you make, you will probably not enjoy the fruits of your labor. There must be a balance. It’s okay to have fun, just make sure you are living within your means and not overspending at the expense of your long-term financial goals.

Financial Freedom Quotes

If your goal is to achieve financial independence, you’ve got to start taking steps to achieve your goal – right now. Here are 10 quotes to inspire you. Take a look:

“Rich people believe ‘I create my life.’ Poor people believe ‘Life happens to me.’”

— T. Harv Eker, Secrets of the Millionaire Mind: Mastering the Inner Game of Wealth

“Your assets are your employees. Invest more on those performing well. Let the non-performers go.”

― Manoj Arora, From the Rat Race to Financial Freedom

“Money is something we choose to trade our life energy for.”

― Vicki Robin, Your Money or Your Life

“The secret to wealth is simple: Find a way to do more for others than anyone else does. Become more valuable. Do more. Give more. Be more. Serve more.”

― Tony Robbins, Money Master the Game: 7 Simple Steps to Financial Freedom

“Being rich is having money; being wealthy is having time.”

— Margaret Bonnano

“To get rich, you have to be making money while you’re asleep.”

— David Bailey

“Risk comes from not knowing what you’re doing.”

— Warren Buffett

“A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life.”

— Suze Orman

“Financial freedom is freedom from fear.”

— Robert Kiyosaki

“It is not the man who has too little, but the man who craves more, that is poor.”

—Seneca

Financial Freedom Calculator

We achieve financial freedom when our investments can generate sufficient income to meet our living expenses. For most people, this occurs at a traditional retirement age, if at all. Others, like Mr. Money Mustache, achieve financial freedom at a very young age. The idea behind the Financial Freedom spreadsheet is to estimate how many years it will take you to achieve financial freedom.

The spreadsheet uses the following assumptions and inputs:

The Number: The spreadsheet assumes that financial freedom occurs when we’ve saved 25 times our annual spending. For example, for a family spending $75,000 a year, they would need to save 25 times this amount, or $1,875,000 to achieve financial freedom. This is based on the well known 4% withdrawal rate in retirement. You can change this assumption in the spreadsheet. Raising the withdrawal rate reduces the number you’ll need to save while lowering the withdrawal rate raises it.
Rate of Return: The spreadsheet provides results based on annual returns ranging from 5% to 9% in 1% increments. As you’ll see, the rate of return significantly affects the time it will take to achieve financial freedom. In the section of the spreadsheet labeled “Have Fun With Your Own Numbers,” you can enter any rate of return you’d like.
Inflation: The calculator does not adjust for inflation. However, you can factor in inflation based on the rate of return you choose.
Income: The assumed annual income is $100,000. It was chosen as a nice round number. You can of course change this input once you create and save a copy of the spreadsheet. Note, however, that changing the annual income does not change the time it takes to achieve financial freedom. This may seem counter-intuitive at first, but remember that saving and spending are based on a percentage of income. Saving 10% of your income, regardless of whether you make $50,000 a year or $5,000,000, means that you are spending 90% of your income. Given an assumed annual return on investments, the time to save 25 times 90% of your income is the same.
Saving/Spending: The spreadsheet assumes that your saving and spending added together equal 100% of your income. In retirement, however, you may spend significantly less than you spend during your working years. This could be the case for several reasons, including having a paid off mortgage, moving to a less expensive area of the country or providing for fewer family members (at least one hopes the children eventually move out!). For this reason, the “Have Fun With Your Own Numbers” section enables you to set specific dollar amounts for your savings and income, which together may not equal your current income. For example, a family making $100,000 and saving 20% today is spending 80% or $80,000. But in retirement they may plan to spend only $50,000.
Current Savings: You can enter your current savings. Of course, the more you already have saved, the closer you are to financial freedom.

How Much Money do You Need to be Financially Secure?

The concept of financial independence, meaning to have enough savings that you don’t need to work anymore, has become increasingly popular in recent years. This is in large part due to the FIRE movement, an acronym for “financial independence, retire early.” A growing group of Americans are calculating their “FI numbers” and figuring out exactly how long it will be until they can call it quits at work.

Whether you’re interested in early retirement or you just want to be able to retire comfortably at 65 or 70, it’s important to know how much money you’ll need. By calculating the amount you need to save for financial independence, you can ensure that you’re on track to retire when you want.

So exactly how much will you need?

If you’ve read much about financial independence, you’ve probably come across the 4% rule. It claims that 4% is a safe withdrawal rate from accounts with a mix of stocks and bonds. That means once you’ve saved 25 times your annual expenses, you’ve presumably reached financial independence.

The evidence behind this rule is the Trinity study. Three finance professors at Trinity University tested potential withdrawal rates for various ratios of stocks and bonds using market data from 1925 to 1995. Ultimately, they found that withdrawal rates between 3% and 4% were unlikely to deplete a person’s retirement portfolio over a 30-year period.

Now, there are some issues with how that study has been interpreted in the 4% rule:

The study covered withdrawal periods of up to 30 years. If you want to retire at 50, 40, or even younger than that, you may be withdrawing from your retirement portfolio for well past three decades.
It didn’t find 4% was always a safe withdrawal rate. With the right mix of stocks and bonds, a 4% withdrawal rate over a 30-year period was successful between 95% and 98% of the time, when adjusting for inflation.

The 4% rule is a good starting point and it’s simple to understand, but it’s not necessarily safe.

To be financially independent, a smart savings target is between 28.5 to 31 times your projected annual spending. That range allows you a withdrawal rate of about 3.25% to 3.50%, both of which are proven to be successful even over periods of longer than 50 years.

Let’s say you want to be able to spend $60,000 per year in your retirement. You’d aim to save anywhere from $1,710,000 (and take a withdrawal rate of 3.51%) to $1,860,000 (and take a withdrawal rate of 3.23%).

You can never be completely sure how long your savings will last. There’s always the possibility of a worst-case scenario that takes out a huge chunk of your portfolio. But once you’ve reached the savings target above, you’re in excellent shape if you decide to live off your nest egg.