Financial freedom is a dream for most people. They believe financial freedom is not something for them. It is not given to them. However, those with a Happy Investors Mindset know that financial freedom is something that can be achieved by everyone. Yet they also know that it requires a certain mindset. You must be willing to work for financial freedom. This requires creative ways such as but not limited to making money online. For instance, you can earn money with online jobs. Consider this for a moment. Do you want to become financial free and work from home? Strangely enough, this combination is not rare. In fact, the combination of working from home and have financial freedom is a very strong match! In this article you will learn everything you need to learn to achieve financial freedom. Consider this as the foundation towards your journey of becoming financially free.
If you want to learn more then you should definitely read our free article about how to become financially free. This popular article contains more than 10 pages full of important insights and tips about financial freedom.
What is financial freedom?
Financial freedom is when you are not feeling limited by your financial status. This is highly subjective, and also depends on your expenditures and needs. Those who are simple and do not need luxury comforts, will have a more easier life than those who want it all. Because of this simple fact, those who have lower expenditure will achieve financial freedom more easily. But take a minute to think for yourself about financial freedom. When do you consider yourself financially free? Please share your thoughts and definitions below in the comments, so that we all can learn from you.
In general there are two ways of achieving financial freedom. The first is to reduce as much as possible your monthly expenditures. The second one is to increase your income. Monthly expenditures are very important for your financial status in the early years of your life and career. If you are still young, it is easier to reduce your monthly expenditure than to increase your monthly income. However, when you get older and get more experienced, you will be able to increase your monthly income significantly.
Financial freedom is part of our bigger vision on life. We believe in using our time, energy and money effectively so that we can achieve your desired life with more financial freedom. Our vision and way-of-living as the Happy Investors Mindset. We might offer you valuable insights, so take a moment to read about our vision and click on this article: Why is our vision Happy Investors Mindset?
The financial status of the common man
Many of us have the same financial pattern in life. You get a job, buy a house, get children, buy luxuries and so on. This is a pattern of increasing monthly expenditures. When you buy a house, you will get mortgage. Although your house is not an investment, it is one of the less worse expenditures you can do as it might can give you some cash later in life. However, many of us also buy unnecessary luxuries such as expensive cars, technology and so on. And do not forget children. Your own children will be the most valuable thing in life. That having said it is a fact that they bring additional costs with them.
So how to deal with these increasing monthly expenditures? We have designed 7 essential steps for financial freedom.
7 Essential Steps to Become Financial Free
How to achieve financial freedom can be different for everyone. Some have the ability to save a lot. Others are bad savers, but are great in earning more money. The latter is surely better! Our advice is to stick to your strengths if possible. Nevertheless, there are a few basic rules that can be followed to achieve financial freedom. You can perceive these basic rules as principles.
#1 Learn How to Manage Money
If you want to be financially free, you have to learn how to manage money. If you want to be good at something, you have to understand it. And also be able to control it. The same counts for managing money. If you can’t manage your money, then how do expect to achieve financial freedom? Nowadays there are many books available to learn how to manage money.
One essential element in understanding money and letting it work for you is mindset. What kind of mindset about money do you have? Do you have interest in it? When you read this blog, we assume you do. So let us ask you a few questions about money. When you buy something, do you ask yourself if you really need it? Is it an emotional need, or is it a functional need? Many people spend money for emotional reasons. They spend money because the neighbor has a new car and you want one as well. Or you spend too much money on your children. Do they really become more happy having 10 toys instead of 5? How much extra value will the 10th toy add towards the happiness of your kid? If you can control your emotions, then you have a strong mindset towards managing money.
Think in time, rather than in dollars
Besides emotional discipline there is another interesting mindset that you can adapt when it comes to money management. And that is the mindset of think in time, rather than in dollars. Translate every purchase to the amount of time you have to work for it. Let us explain this with an example: you currently own 15 dollars a hour. You are surfing online and you spot shoes for 60 dollars. They are perfect, but on the other hand you already have three pairs of shoes. Will the 4th pair of shoes really add much value? And more importantly: If you buy those 4th pair of shoes that you don’t actually need, you will have to work four hours for it. Is it really worth it?
You could redefine how you think about money. Think in terms of functional vs. emotional needs. Think in how much value a purchase or expenditure will add. Think in time: how much hours do I have to work for this expenditure?
#2 Evaluate Your Financial Situation
In terms of your financial situation there is only one thing that matters: cash flow. Cash flow is the amount of money that is deposit on your bank account minus all expenditures. Normally we talk about monthly cash flow. Take a look at your cash flow. How much is coming in? And how much do you spend? Do you have a positive or negative cash flow? That means, do you save more money each month than you spend?
It really is all about comparing your monthly expenditure with your monthly income. When the month is over, did you save some money or did you spend more than you had? And did you do this on a consistent base? Those who consistently save on a monthly basic will accumulate wealth. Many professionals recommend to save at least 20% of your monthly income.
In the early years it will be easier to reduce monthly expenditures. But when you get older it is inevitable that your monthly expenditures will increase. Also, you can only save costs for a certain percentage. Unfortunately you can’t save cost until you’ve reached zero. There are some basic musts in life that need to be paid (such as mortgage). So start with defining and execution cost savings, and after that, focus on increasing your income (while keeping the costs low).
#3 Determine Financial Goals for Financial Freedom.
To achieve financial freedom you have to plan for it. And planning means to set goals. Define your financial goals on both the short and long term. On the short term you will need to focus on cost savings. Within a week you can realize significant cost savings if you want to. Set a goal, and act upon it.
For the long term you can’t endlessly focus on cost savings. Thus, real financial freedom is not created by cost savings, but by increasing your income. There are many ways it increase your income. One way is to create passive income. But, be creative and use your strengths to increase your income. In most cases it is more difficult to increase your income while you are an employee of a company, compared by being self-employed. However, this requires business knowledge.
In the following article you can learn more about goal-setting and how to achieve goals.
#4 Get Your Spouse Onboard with Your Financial Goals
When you are in a relationship, it is quite simple: you can’t do it alone. You will need support, in good and in worse times. The best way to get your spouse onboard with your goal of financial freedom is to tell her why. Why do you want to cut monthly expenses? And why do you want to increase your income? That is because you want financial freedom for the both of you, to have a better life. And tell your spouse more about the why. When he or she understands, he or she can follow your think pattern and may join for a common cause.
After you have told her why, you can tell her how. How you can achieve financial freedom is what we describe in this article. After the how, you should explain your spouse what to do. What has to be done to be financially free? Explain what has to be done, and how she may support in this. And also be clear on what you expect form your spouse.
You can’t do it alone, so you will need to get your spouse onboard. One tactic approach for this is to ask your spouse for involvement. How does he or she feels about it? Does he or she has any idea how to achieve the goal of financial freedom? Let them come with ideas to reduce expenditures or how to increase income. Build on those ideas to get her motivated. You will need the support, or otherwise it will be difficult to discuss the common cause.
#5 Increase Your Monthly Income for More Cash flow
The best way to achieve financial freedom is by accumulating money (obviously). This means that you should keep your monthly expenses as low as possible, while simultaneously increase your monthly income as much as possible. The result of this is a gap between expenses and income. This gap can be described as cash flow: the amount of cash you will receive each month and that can be freely used for any cause you wish.
There are many roads to follow if you would like to increase your monthly income. It is easy to identify the most usual ways to increase your monthly income: getting a promotion, job-hopping, starting an side business, start within investing in assets and make passive income.
How to increase my monthly income?
There are several ways to increase your monthly income. Firstly, you can get a promotion if you’re an employee. But getting a promotion is not that easy of course. If you want to learn more about getting a promotion you should read this article about how to get promoted. Another way of increasing your income is an employee is by job-hopping. This is less ethical but can significantly increase your income if doing well. If you want to increase your monthly income as an employee, then you will certainty need more business knowledge so that you can add more value to the business.
You could also start your own side business. This can be done next to your current job. There are multiple benefits on starting your own side business. In example, you will learn a lot and you can apply this knowledge within your current job. Also, you will have more certainty of income. Think about it, what happens if you lose your job at this moment? In any case, starting a side business will require additional work but it has great benefits both financially as personally.
Increase my income with money
Another way to increase your income is by starting to invest. Invest in growth stocks or dividend stocks. Or invest in other opportunities that might arise. The essence here is to start invest in assets. Assets are basically ensuring that you get more income. They generate cash flow. For instance, a car is not an asset. But buying a second house and charge rent to tenants, will give you extra monthly income. That is an asset.
Last but not least is to build passive income for more monthly income. With passive income you will not have to work a lot of hours, while you can benefit from extra monthly income. Every passive income stream will start as a small side business. It takes a lot of work to build passive income, but the benefits are huge. With effective passive income ideas you can generate monthly income while working less, and thus enjoying life! Learn here for free how to build passive income.
#6 Keep Your Expenditures Low. Even when Your Income Increases
Keep your expenditures low for at least a period of time that allows you to build a big financial buffer. Keep in mind that money makes money. The more money you have, the easier it is to make more money. And this can go exponential. That is why they say it is the most difficult to make the first hundred thousand dollar, and that it is more easier to make a million after that.
#7 Buy Luxuries out of Your Assets
This is a bonus tip. When you have got to step 6, you are already in a position to become financially free. if you add step 7 to it, you will reach financial freedom even faster. The last advice that you can take into consideration is to only pay luxuries out of your assets. So, look at your assets that generate a monthly cash flow (real estate, stocks, side business, …). Let us assume you’ve got a passive income of 2000 dollar a month after a few years of hard work. In a year this is 24.000 dollar. If you have the emotional discipline, you can wait for three years and save 72.000 dollar. This is 72.000 dollar in your bank account, because it is residual income from your passive income streams or other assets. This is money that you have earned together with your normal monthly income (having a job or own business).
Buy luxuries out of your assets. After three years you can buy a really nice car of, let say, 60.000 dollar. And you have bought this with money that you have earned via assets and passive income. Yet, in the meantime you have earned much more money with your regular monthly income. So basically you’ve got a 60.000 dollar car for free within 3 years.
Become financially free
Does this sound as too good to be true? Could be. But if you want to be sure then you can check out our huge and free guide about how to get financially free.
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