How to Get Financial Freedom: The Ultimate Freedom

Freedom can mean different things to different people, and it can vary greatly depending on the stage of life and personal circumstances.

For example,

• For someone living in a war zone, freedom might mean the end of conflict and the ability to live in peace.
• For a teenager, freedom might mean hanging out with friends, partying, or coming home late.
• For someone in middle age, freedom could mean finding a peaceful place to spend time alone.

When discussing freedom, each person often has a unique answer that reflects their desires and circumstances. However, in this context, we are focusing on financial freedom—specifically, time and money freedom.

Financial freedom means having enough resources to do what you love, with whom you love, whenever you like.

It means not being constrained by financial worries and having the flexibility to make choices that align with your passions and interests. Let’s delve deeper into this concept and explore what financial freedom entails and how you can achieve it.

Indeed, some people live with the kind of freedom where they can do what they want, when they want, without financial constraints. This is often a lifestyle enjoyed by wealthy individuals who have unlocked the secret ingredients to achieve financial freedom. However, the challenge is that very few people know how to reach this state of financial independence.

Example

• Imagine you are a married man with a wife and children, living a happy family life and doing a job you love. Is this the life you truly desire? Have you ever considered what it entails?
• Getting up at 6 a.m. every day, wearing an office suit, commuting to work on time, working from 8 a.m. to 5 p.m., dealing with workplace issues, enduring harsh words from your boss, not eating healthy foods, and perhaps drinking alcohol to forget about a bad day.
• Is this how you want to spend your prime years?

Accept the Truth

Some might argue that they are not in such a situation: their boss isn’t harsh, they love their job, they get along well with co-workers, they eat healthily, or they wear comfortable outfits to work.

But let me ask you one simple question: if I offered you enough money to cover all your and your family’s expenses for the rest of your life, would you still go to your job tomorrow?

Let’s be honest—most people wouldn’t. The primary reason people go to work is to earn a paycheck that covers their living expenses: food, rent, insurance, school fees, gas, clothes, and other necessities.

The Dream Life

Now, imagine a life where you could travel with your family to a luxury beach hotel the very next morning, swim, eat delicious foods, dance at a night DJ party, play tennis with friends the following day, spend a whole day reading a book, chat with your spouse while watching a film, and play with your kids. Most people dream of this kind of life, but the problem is that no one teaches us how to achieve it.

What Happened to Us?

-Our school and university systems train us to get a job, earn a paycheck, and use that paycheck to fulfill our basic needs.

-Spending 30-40 years doing the same routine job without excitement can be a miserable life for many.

So, how do we break free from this cycle and achieve financial freedom? This is where the journey towards financial independence begins. It involves understanding and implementing strategies that can generate passive income, making wise investments, and managing your finances effectively to build wealth over time. Let’s delve into these strategies and discover how you can achieve financial freedom.

In the last chapter, you encountered the term “passive income.” So, what exactly is passive income, and how can it help you achieve a life of financial freedom?

Understanding Passive Income

Passive income is money earned with little to no effort on your part. It’s income that continues to come in even when you’re not actively working. Warren Buffett famously said,

“If you don’t find a way to make money while you sleep, you will work until you die.”

Warren Buffett

This quote underscores the importance of generating passive income to achieve financial freedom.

How Passive Income Can Transform Your Life

• Passive income allows you to earn money whether you’re working or not. It is generated by assets, which produce cash flow regularly—monthly, quarterly, or annually. Let’s look at some examples to understand how passive income works:

1. Dividends from Stocks

• Example: Investing in shares of a company like Coca-Cola.
• How it works: As a shareholder, you own a portion of the company. Coca-Cola shares a portion of its profits with its shareholders in the form of dividends. Whether you work or not, you receive this profit-sharing payment regularly.

2. Interest from Bonds

• Example: Buying a treasury bond.
• How it works: When you purchase a treasury bond, you are essentially lending money to the government. In return, the government pays you interest on the bond. This interest is your passive income, earned without any additional effort on your part.

3. Rental Income

• Example: Renting out an extra room in your house.
• How it works: By renting out a spare room, you receive monthly rental payments from your tenant. This rental income flows in regardless of your daily activities.

4. Profits from a Business

• Example: Owning a website that sells goods and is managed by your employees.
• How it works: If you have an online store run by your staff, you receive profits from the sales at the end of each month. This income continues to come in, even if you’re not actively involved in the daily operations of the business.

These examples illustrate the essence of passive income: earning money without continuous active involvement. Building multiple streams of passive income can lead to financial independence, allowing you to live the life you desire without the constraints of a traditional job.

Start With This Simple Step

To achieve financial freedom, start by calculating your monthly expenses. Let’s say you need $3,000 per month to live comfortably. Multiply this by 12 to determine your annual expenses:

$3,000 * 12 = $36,000

This means you need $36,000 per year to live without worrying about money. Now, imagine getting this $36,000 annually without having a job or relying on a paycheck. Wouldn’t that be wonderful?

Generating Passive Income

Let’s explore how you can achieve this with passive income. Suppose you invest in an asset that produces a 10% annual return. This could be:

– A stock with a dividend yield of 10%

– A bond with an interest rate of 10%

– A rental property generating a 10% return

– A business with a net profit margin of 10%

No matter what asset you choose, it yields a 10% annual return. To generate $36,000 a year, you need assets worth:

$36,000 / 0.10 = $360,000

In simple terms, 10% of $360,000 is $36,000, which covers your annual expenses.

Achieving financial freedom is not an overnight game. It’s not a sprint; it’s a marathon, and building a substantial amount of assets takes serious time and effort. Sacrifices are necessary along the way. Here’s how you can start your journey towards financial independence.

The Importance of Saving and Investing

-Save and Invest a Significant Portion of Your Income

-Evaluate Your Monthly Expenses: Understand your monthly expenses and identify areas where you can cut costs.

-Commit to Saving: Aim to save and invest a significant portion of your paycheck each month. Ideally, saving 40% of your income is excellent, but this depends on your circumstances and financial commitments.

Choosing the Right Assets

-Research Thoroughly: Don’t invest based on tips or hearsay. Conduct thorough research and due diligence before buying any asset, whether it’s stocks, bonds, real estate, or a business.

-Diversify Your Portfolio: Spread your investments across different asset classes to minimize risk. Diversification helps protect your investments from market volatility.

Don’t Fall for Quick Tips

-Avoid Impulsive Decisions: If you hear from a friend that a particular stock is going to boom next month and you invest 100% of your savings in that stock, hoping to become a millionaire, this is not a winning strategy.

-Be Skeptical of Easy Money: No one in the world wants to make money for you or see you become rich and financially free. Only you can and must be interested in making money for yourself.

Educate Yourself

-Learn from Experts: Before buying a stock, apartment, or bond, ensure you gain the right knowledge. This means real-life knowledge, not just what is provided by school or university systems. Learn from those who have already succeeded.

-Follow Successful Investors: If you want to pick good stocks, learn from someone who has made billions by investing in stocks. I look up to **Warren Buffett**. His knowledge is freely available for anyone who wants to become a value investor or a good stock picker.

Consistency is Key

-Invest Regularly: Commit to investing a portion of your income every month, no matter what happens in your life, family, country, or even the world.

-Long-Term Perspective: This consistent investment will eventually help you accumulate the $360,000 worth of assets needed to generate $36,000 annually, leading you toward financial freedom.

By following these steps and staying committed, you can embark on the path to financial independence, allowing you to live life on your terms without the constraints of a traditional job.