We have become accustomed to thinking that financial freedom is some kind of unattainable utopia. In fact, many people think that only a privileged few with a very high income can enjoy financial freedom.
However, this belief is completely wrong. More than anything because financial freedom does not consist so much in accumulating a lot, but in knowing how to manage.
As you will see in this post, the people who achieve financial freedom do not have to be the richest, nor those who have worked all their lives and have accumulated great wealth, nor those who were lucky enough to receive a succulent inheritance won a lottery prize.
If you want to know how financial freedom is achieved, you have to read this entire article because you will find many useful and easy to carry out tips that will allow you to look at the future without worries or stress.
what is financial freedom
Financial freedom basically consists of having enough economic means to cover all your needs in a certain period of time, without depending exclusively on a salary.
The concept of financial freedom refers above all to the feeling of not being tied to a job, simply because you need the money your boss pays you to be able to live.
It could be said that people who have achieved financial freedom have been able to face the biblical curse of earning their bread by the sweat of their brows. But they have not done so because they are rich, nor because they have understood better than others the definition and meaning of entrepreneurship, but because they have managed to save and generate a series of incomes that allow them to have their life as they want.
Here we can already see two basic elements that are essential to obtain financial freedom:
- Savings : If you are thinking about how to achieve financial freedom, the first thing you have to do is start saving. If you manage to spend less than what you earn, with the remainder you can build a heritage that will be essential to send your boss for a walk.
- Passive income : passive income is those amounts of money that come to you without you having to sell your time. They can be the returns on an investment, the benefits obtained —for example— with an info product, or the copyright that is generated when you sell a book written by you.
The formula for financial freedom, therefore, is based on this relationship: savings + income > fixed expenses necessary for living.
Only when the sum of your savings and your income is greater than the amount of money you need to cover all your fixed and variable expenses can you consider yourself financially free.
Do you understand now what financial freedom is?
Types of financial freedom
In order to achieve financial freedom, we have to assume that we must start a process that can be divided into phases or types of financial freedom.
Unless you are a millionaire by birth, it is very difficult to achieve financial freedom without first going through the following types:
- Financial security : The first phase is to move from the situation of uncertainty of not making ends meet to the situation of financial security. We can consider that someone enjoys financial security when they have enough funds to cover their basic expenses (electricity, water, mortgage or rent, food…). When you get to this point, you still won’t be able to quit your job because you have more expenses to deal with that aren’t covered by your savings and fixed income.
- Financial independence : in this second phase you have obtained a greater amount of stable income and your savings have grown to the point that you can now cover all your basic and extraordinary needs, without the need for a salary. You will not only have money to pay for the house, electricity, food, etc. but you can go out one day to dinner, go on vacation, buy a car or an appliance.
- Financial Freedom – The last step is what everyone aspires to. It consists of having so much money saved that, no matter how bad things are, you could live covering your fixed and extraordinary expenses without having to work. However, it should be made clear that, unless you accumulate a huge wealth, it is most likely that financial freedom will not allow you to live at full speed giving yourself many luxuries and whims.
How Financial Freedom Works – Financial Freedom for Beginners
If what you are reading is attractive to you, now we are going to show you how financial freedom works, because we are sure that you are not familiar with this concept.
Keep in mind that this is something that is not achieved in a few months. You have to work hard and be very frugal and conscientious for many years.
In any case, if you want to live a better retirement —without depending on state pensions (which will be reduced sooner or later)—, or you plan to “fire” your boss in the medium or long term, you should follow this plan aimed at achieving freedom. financial for beginners :
1. Analyze your starting situation
Just as a company always keeps accounting to know the economic reality of its business, you cannot achieve financial freedom without knowing your starting point.
To do this, make a list of all your debts: mortgages, school loans, car loans, credit cards, and any other debt you’ve accumulated. Don’t forget to include money that friends or family members have lent you over the years.
Now take a deep breath. One more time. Then add the total.
How much do you owe?
If it is a large amount, do not be scared, since we have written this post so that you learn to pay it all later.
If it’s a small amount, congratulations! Feel free to share your financial freedom tips in the comments at the bottom of this article.
Then take a look at all the money you’ve saved.
Make a list of all your current funds: cash, bank accounts, stocks, treasury bills, outstanding debts, retirement savings account or other retirement plans. Then add the monthly payments you receive as your salary, the income you receive from other jobs, etc.
Keep these numbers in mind as we work through the following tips for achieving financial freedom.
2. Write your goals
Why do you need money?
Do you want to get rid of your debts forever? Are you desperate to escape the routine of your permanent job? Is there a place you’ve always wanted to travel to? Do you need to save for a wedding, children or retirement?
Achieving financial freedom must be associated with an emotional goal. Your goal may be, for example, to get out of debt and save for a home you own. And when you see how the debt decreases and your savings increase, you will experience a good rush.
It’s common to get so excited to see the numbers change that almost everyone tries harder and works harder to earn more money and see a bigger change in their personal finances.
It is best to write these objectives on a piece of paper and analyze from time to time whether or not you are meeting them.
You may not achieve everything you want in a month. But a year is enough time to review your progress and add corrective measures if you are not meeting your initial goals.
It is also important that your goal is tied to a specific number that you want to achieve. Believe it or not, you will start working towards those goals without even realizing it. Knowing exactly what you want to achieve will make reaching financial freedom much easier.
3. First, financial security; then financial freedom
Even if your ultimate goal is financial freedom, you should go small. This means that, unless you hit a good pitch or win the lottery, it is not very common to achieve financial freedom without first reaching financial security.
Your first financial goal, therefore, should be so that your funds can cover your basic fixed expenses .
Start there, and then it will be easier for you to reach financial freedom.
4. Create a passive income system
Although in the next point you will see that it is very important to save, you must also start generating this type of income. Because as long as you don’t articulate this income generation system, you will be wasting your time (because in a job you sell your time to your boss, and the time available to work is limited). https://www.youtube.com/embed/PxpBoRzeDJU?feature=emb_title&v=PxpBoRzeDJU
Start thinking about how you are going to be able to periodically generate income like these:
- Interest – A good investment generates returns in the form of interest or dividends. If you buy shares, from time to time dividends are distributed. And if you buy treasury bills, the state agrees to periodically pay you some interest to remunerate you.
- Rents : if you own real estate, you can rent them to obtain economic returns in the form of rents.
- Recurring income : there are many ways to earn extra money that you can exploit. For example: if you sell affiliate products or have a membership, you will receive amounts of money from time to time as payments for the service offered in the membership or commissions for the sales you make through your website. Analyze what your competitive advantage is and take advantage of it to get more recurring funds.
- Copyright : If you write a book, every time it is sold you will be entitled to a percentage of that sale as copyright. The same happens if you compose a song, since playback on Spotify, for example, generates royalties . And if you sell a course, every time someone buys you access to that course you will be getting money almost without doing anything.
5. Save as much as you can
Remember that the one who has the most is not the richest, but the one who needs the least. For this reason, although we live in a hyper-consumerist society, we also have as a contrast a trend with more and more followers: minimalism.
Minimalists preach that it is possible to live with fewer things. It is not necessary to have 20 clothes if you can live with 5. Nor is it necessary to have two cars when with only one you would be more than served.
Learn to be frugal and live with fewer things. That way you can reduce your superfluous expenses and start saving money.
To give you an idea, in 1958 Warren Buffett bought a five-bedroom house for $31,500 and hasn’t moved since. His net worth from him? A staggering $90.3 billion. He can afford a bigger and more expensive house. But his restraint could be the reason why he is one of the richest people in the world.
The truth is, many rich people don’t look it. That would be the case of Mark Zuckerberg (the founder of Facebook) who literally wears the same shirt every day.
How to achieve financial freedom? Buying less can really help you get rich. By spending less, two things work in your favor. First, you will have more money to spend on your financial freedom. Second, you’ll learn that you actually need a lot less stuff to survive, which also helps you save more money.
How to achieve financial freedom
You have already seen what financial freedom means and how financial freedom is achieved when you are a beginner.
We’ve even given you a little plan to get you started. But maybe you find yourself a bit lost and don’t know how to start saving and generating that first income. So now we are going to give you some examples of how to achieve financial freedom.
Examples and ideas to achieve financial freedom
1. Invest your savings
Remember that your money must always be producing more money. So do not leave your savings stored under the mattress and invest everything you have leftover. In this way you will achieve two effects:
- You don’t spend your savings on unnecessary things : because you don’t have them available.
- Investments will generate more income : in the form of returns, interest or dividends.
2. Buy experiences, not things
Life is short. It’s not about saving all your money until you’re 65. You can enjoy life while you are alive.
Ultimately the things that will help you live a fuller life will be the experiences you have and not the products you own.
Do the things you buy make you happy in the long run? Does the debt you have obtained from buying so many things make your life easier?
Now let’s flip the coin.
What is your happiest memory? What were you doing? Who were you with?
Let’s create more memories like this.
Maybe you have a friend that you love to exercise with. Then invite him to train at your house with a playlist of the most viewed videos on YouTube.
Or maybe today you have a date and you want it to be unforgettable. Well, you can find an amazing activity you’ve never done on Groupon for a lower price.
Life is made of moments. The best ones come from the quality time you spend with friends and family. While some products can help you spend time with your family (video game night), most of them don’t add much value.
So don’t spend money you don’t have to make it look like you have a lot of money.
3. Pay your debts as soon as possible
After paying off their debts, most people feel relieved.
If you have a debt of 50,000 euros, even if you have 30,000 in the bank, you will not feel financially free because you still owe 20,000 euros.
And while paying someone else isn’t as satisfying as having the money in the bank, doing so will get you closer to financial freedom.
There are two main ways to pay off debt:
- Snowball Strategy : You pay off the smallest debt first.
- Avalanche strategy : you pay off the debt with the highest interest rate first.
Paying off debt takes a huge weight off your shoulders. After you pay off your debt, you’ll see the amount of money you have in the bank increase. It’s an amazing feeling to see the number go up (even if you saw it go down at first), and it keeps you motivated to keep growing.
4. Create additional sources of income
Well, at this point you are probably thinking: “my debt is much higher than my salary, so how can I pay it if I do not earn enough?”.
If you really want to have financial freedom, it will cost you blood, sweat, and tears.
If your usual job is not enough, you should look for money by doing more jobs in the time you have left.
Some experts recommend having seven sources of income.
We never tire of repeating that if your income is based on the time you work, you are limited by the hours of the day. We give you some ideas to start a profitable business with which to obtain additional income:
- Become a freelance writer and look for work on platforms like Twago.
- Help a business owner as a virtual assistant with jobs on Upwork .
- Become an Uber or Cabify driver.
- Help with chores at Task Rabbit .
- Get an occasional job on Craigslist or Fiverr.
- And you can do many more things to earn money from home !
If you don’t have a lot of time to pursue one of these ideas, you can focus on increasing your income stream by doing the following:
- Start a dropshipping business with Oberlo.
- Set up an online store on Shopify .
- Sell info products (blog, ebooks, courses, webinars, audiobooks, podcasts, apps).
- Do affiliate marketing .
- Buy properties and put them up for rent.
- Invest in stocks.
Fortunately, all seven of your sources of income can come from the same source.
For example, if you are an expert in e-commerce, your seven sources of income may come from the creation of seven different virtual stores. Don’t underestimate this business model; You have no idea how much you can earn with an online store.
And remember: you don’t need to start with all seven at once, you can build them over time.
5. Move to a poorer country
In addition to these business ideas to earn money, there are other alternative ways to save. One of them may be to move to a poorer country than yours. This makes sense because the cost of living in rich countries can mean a considerable loss of income.
Although salaries are usually higher, so are all fixed expenses. In addition, now that more and more people are telecommuting, you can continue to provide your professional services in a rich country —with a high salary— while you live in a poorer country, where expenses are lower because the cost of living is lower.
Since the lockdown caused by the coronavirus pandemic, many workers have discovered the virtues of telecommuting. This has led to more and more people working in countries like Germany, Sweden, or Norway, and who are considering moving to countries with a lower standard of living, such as Spain.
The reason is easy to understand: to work from home, it doesn’t matter if you do it in Berlin or Palma de Mallorca. And the quality of life, together with lower prices, are ideal for these teleworkers who are going to obtain economic benefits with the move.
There is also a significant trend towards what is called digital nomadism. Digital nomads are people who travel all year round, spending long periods in exotic countries such as Thailand, Indonesia (especially on the island of Bali), Panama, or Costa Rica.
While visiting these countries, they continue to run popular online businesses or provide services in professions such as SEO consultant, copywriter, or web designer, as these are jobs that can be done with a computer and Internet access.
6. Invest in the stock market
Investing in the stock market is based on the fact that you buy shares of a company, and this company gives you a part of its profits in the form of dividends.
If you buy a lot of shares, you will get juicy amounts for dividends.
But we do not recommend, unless you know the mechanism of the stock market well, that you speculate by buying shares and selling them more expensive, because it is easy for you to end up losing a lot of money.
There is a technique called buy and hold that consists of creating a portfolio of securities made up of shares of stable and consolidated companies. The system is based on buying more shares every month with the money you have available so that the portfolio grows and the dividends grow to the same extent.
As it is a long-term strategy, it does not matter if the shares go up or down, because what matters is getting dividends.
7. Invest for the future
Our last tip on how to achieve financial freedom is very important.
Suppose you follow the advice and recommendations in this article, pay off your debts and increase your savings. That might be enough to help you right now. But what if something unexpected happens? Would you be prepared?
It’s important to set aside money for the future, and you shouldn’t think retirement is too far away because you’re still young. Time passes very quickly and if you don’t start planting now, you won’t be able to reap the fruits of your labor tomorrow.
If you have a permanent job, one of those 9 to 5 jobs, talk to your company about the possibility of signing up for a retirement plan or check if you already have one in place.
In addition, it is good to review it periodically so that you can see your savings grow.
You should also save enough to have an emergency fund.
Some experts say that you have to save the equivalent of 3 months of salary, although others extend it to 6 months. However, for those who do not earn very high salaries, saving the equivalent of 6 months of salary for an emergency fund can be a complicated task. Therefore, it is better that you start with a goal that you can achieve.
If you’ve spent too much on credit cards, don’t use your emergency fund to pay off that debt—focus on finding money-making business ideas that will help you pay off faster.
The emergency fund is for emergencies only. Something unexpected and unplanned, like a tree falling on your house, a car accident, or a visit to the hospital.
Financial Freedom Calculator
Now that you know what financial freedom is, let’s do a calculation to find out how to achieve financial freedom and how to answer the question “how much money do I need to live without working?”
This financial freedom calculator is based on three elements:
- Find out how much money you have : first you must know how much money you would have right now if you stopped working. To do this, add the cash you have at home, the one that is deposited in your current accounts, deposits and very liquid investments (that you can recover in less than a week). What it is about is knowing what state your finances are in in case you suddenly stop receiving your salary.
- Calculate your monthly expenses : analyze in detail all your fixed and variable expenses. To do this, you must think that there are payments that are made monthly (such as electricity, gas or the mortgage) and others that can be annual (such as insurance policies). Only with this information will you be able to know if you spend more than you earn or if you have the capacity to save.
- Calculate your financial freedom – The financial freedom calculator helps you find out how many months you could live if you lose your job and therefore your income stream is interrupted. For example: if you have 20,000 euros, and your monthly expenses are 1,000 euros, in the event that you quit your job right now you have 20 months of financial freedom.
Books on financial freedom
There are several ways to earn quick (and easy) money. But if what you want is to improve your future in a definitive way, you should read one of these financial freedom books that in our opinion are essential to start achieving your long-awaited goal:
- Rich Dad Poor Dad : Robert Kiyosaki is the author of this reference work that explains the attitude that one must have towards money and investments, in order to achieve financial freedom. In fact, the message that emerges from this work is that people work for money, while great fortunes make money work for them.
- Think and grow rich : Napoleon Hill spent several decades analyzing the behavior of the great American millionaires. All that observation allowed him to obtain patterns and draw conclusions about what needs to be done so that money is not a problem (thanks to financial freedom).
- The code of money : Raimon Samsó is the author of this book on financial freedom in which some concepts are shown that should be learned in school, but that are not taught in regulated plans. For that reason, so many people feel trapped by debt and financial dependency.
- Become independent from dad state : Carlos Galán explains in this book on financial freedom his intelligent investment system in investment funds to generate enough money to obtain financial freedom.
- Little Capitalist Pig : Sofía Macías clarifies in this financial freedom book what the true importance of saving is and how to create financial goals and budgets that limit spending.
Advantages of financial freedom
Financial freedom can help you take ownership of your finances and, more importantly, your life.
It’s about living within your means and making sure you spend money on things you really need, like food, housing, and even vacations (relaxing is also important).
Following the financial freedom tips in this article will bring you closer to achieving the financial freedom you deserve. So take a look at those finances, create additional income streams, pay off your debts, and before you know it, you’ll be free.
How close are you to achieving financial freedom? Tell us about it in the comments below!
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