We all dream to have a comfortable life and be able to do the things we desire without having to be concerned about money and how we will pay our bills.
The decisions we make are often influenced by the money in our accounts.
There are times when we receive a bill and the amount surprises us. It makes us wonder how we are ever going to pay for it, but after a week or two, you gain back the money you spent on it and forget your earlier troubles.
This relief is what financial freedom feels like.
What Does Financial Freedom Mean
Financial freedom is more personal than something of value. It is when you can make decisions without stressing over the impact it makes financially because you are prepared to face these situations.
It doesn’t necessarily mean the ability to retire earlier or gaining a lot of money. It focuses more on your freedom to make choices for yourself rather than for the safety of your bank account.
Financial freedom is not having to be tied down to your job or current location due to financial reasons.
Some people are hindered from enjoying their lives because of their finances. They have to avoid tasks that might make a dent in their finances to make room for other priorities.
If you’re financially free, this wouldn’t be a worry.
Although it takes time, it’s not impossible to achieve this freedom if you’re willing to make some changes in your spending habits and mindset.
There are a few factors that help you determine whether you have financial freedom:
Being debt-free.
This is if you have zero debt and the money you make goes only to yourself, instead of going to other payments.
Having a good amount in your emergency fund.
The rule of thumb when it comes to emergency savings is at least six months of living expenses.
However, your goal should depend on your own circumstances like comfort, income stability, and the strength of your earnings.
Having enough retirement savings.
Your retirement savings will help you live comfortably without having to make a big adjustment from your current lifestyle.
The amount you receive when you retire can depend on how much you save within the period of time you are making money.
Insurance
There are different kinds of insurance choices available from health to auto and the like.
Getting enough insurance to shelter you from a great loss can do you a lot of help, especially when you’re no longer making money.
Getting ready for long-term care.
As you age, your need for health care will gradually increase. Although this expense is worthwhile, it could take away a huge chunk of the money you own.
You can get ready for this as early as now or when you’re capable of handling it.
If you rely on your family to deal with these expenses for you, take note that this could impact their chances of achieving financial freedom sooner.
Planning an estate plan.
Whether you’ll be needing it or not, having a plan already set up for the worst-case scenario will make it easier for relatives to handle your legal documents.
Financial Freedom vs. Financial Independence
When you reach the state where you are debt-free and financially stable, this means you have financial freedom.
By being financially free, you are able to live the lifestyle you want to achieve.
People who have financial freedom are usually those who are prepared for a comfortable retirement, although this doesn’t always mean you no longer need to make money.
Some people continue to make money even when they are financially free. But now, there are fewer obstacles in the way of them achieving comfort in the long run.
Financial independence is similar to this. However, the goal is usually to retire early without worrying about whether or not their money can sustain them.
This means you no longer require a job in order to pay for your living expenses, which happens by replacing active income with passive income, often in the form of investments.
The cash flow you receive from your investments will take the place of your working income, allowing you to free yourself from relying on a job to make money.
How to Get Financial Freedom Fast
While financial freedom doesn’t sound too complicated, it can take a lot of time before you successfully achieve it.
To be able to achieve this faster, you must be willing to save more than you spend.
This will require you to make changes in your lifestyle, especially if you’re the type who tends to spend over your budget.
Depending on how much you can save, you can achieve financial freedom fast and possibly retire earlier while still living comfortably.
Say you make $80,000 a year and cut your expenses in order to save more. After making calculations, you will need $24,000 to maintain comfort for a year. With a 5% return on your investments, you’re likely to achieve financial freedom in about five to eight years.
How to Achieve Financial Freedom in 5 Years
Although it takes a while to achieve financial freedom, there are ways to make the process quicker.
If you want to be financially free in five years, you can follow these simple steps:
Plan out your goals.
Most people who are financially free have reached their goal by planning ahead of time.
By making a plan, you will be able to keep yourself on track and focused on your goal.
A lot of changes can occur in five years, like getting a new job or receiving a big blow to your financial state. It’s important to adjust your plans to these changes to see how much farther or closer you are getting to your goal.
Save a large portion of your income.
It’s likely for you to achieve financial freedom within five years if you have a high-paying job or are capable of saving 80% to 90% of your income.
However, the time you spend trying to achieve financial freedom will vary, depending on how much you can save.
Saving at least 50% of your income in a year is ideal if you want to achieve financial freedom within a short period of time.
Get rid of debt.
Debt is one of the reasons people have trouble saving the money they make.
When you have a lot of debt to deal with, you have to continue earning to pay it off.
Getting rid of debt will be a great help if you want to achieve financial freedom within five years. Depending on how much you owe, this is possible through different methods of dealing with your payments.
A helpful method to pay off debt is the snowball method, wherein you put money toward the debt with the smallest balance and work your way up.
Stay within a budget.
Sticking to your budget will help you maintain the amount of money you are able to keep and regulate the amount you spend.
Your budget should afford your fixed expenses and allow you to put money away to savings rather than blow it off on flexible expenses that are not necessary.
Start investing.
Investing is a great way to grow your earnings and eventually take the place of your income.
However, recklessly putting all your money toward investments isn’t the proper way to do it.
The money you put into investing should be separate from your emergency fund and savings since these will shelter you from damage if your investments take a wrong turn.
Patience is vital when it comes to investing, especially if you want to see long-term results.
How to Get Financial Freedom
Like other money-related processes, being financially free doesn’t happen overnight.
Here are some things you can consider implementing to get financial freedom:
Cut your expenses.
Decreasing your expenses doesn’t have to be taking things out of your budget.
You can cut expenses by making small changes to your daily routines that can give you the ability to spend less.
For example, instead of buying your morning latte, you can by a bag of coffee and brew it at home. This saves you more than 80% of what you would normally pay if you bought a coffee every day.
Another example is by regularly checking on your utilities, which includes getting small repairs fixed before it turns into a bigger casualty.
Fixing up leaking pipes, taking a shorter time in the shower, or installing lights that are dimmer are some of the minor changes that can help you cut your energy costs.
Another tip is to focus more on your major expenses than the minor so that you won’t spend too much on things that could potentially hinder you from being financially free.
Increase your income.
By raising your income, you will have more money to put toward living expenses and paying off debt.
If you’re aiming to have financial freedom, the extra money that’s left from your net income should go toward your debts.
Once the debts have been paid off, the money can go to your emergency fund, savings, or investments—whatever is the higher priority for you at the time.
If you have enough time on your hands, you can increase your income by taking on other jobs or starting a small business alongside the job you have.
Save for investing.
The sooner you start investing, the more time your money has to grow. Likewise, the earlier you start saving for investments, the sooner you can start investing.
While you save for investing, you can also look through your investment choices.
There are a lot of options, but some are better than others. Stock market and real estate investments are the most convenient, although you can also do business and private equity investments.
Buy assets that make you money like real estate.
Having more assets of value can also help you build your wealth. These can be stocks, rental properties, bonds, businesses, or the personal items you own that have a high value.
Although these are helpful, this is something you should work on after you have finished paying off debt and building your emergency fund.
Building your assets will not be efficient with debts and the like in the way. It will only balance out your wealth instead of growing it.
Replace the income from your job with side hustles and other businesses.
You can work extra businesses and side hustles to replace the income you get from your job.
With your main income going toward your living expenses and any debts, the money you make from these side jobs can be used to build your savings and emergency funds.
Â
Financial Freedom Conclusion
Your ability to achieve financial freedom sooner will depend on how much you are willing to make adjustments.
Whether it means clearing your debts faster or prioritizing savings more, the way you influence yourself in making these decisions will affect how long it takes to reach your goal of financial freedom.
Admittedly, it may take a few years. However, the outcome you will receive has long-term benefits, and it is definitely worth the changes you make.
It’s best to start working on your financial freedom earlier. Even when you have to spend a year or two more to successfully reach this goal, you can be financially free before you hit retirement age.