So, you’ve googled ‘how to achieve financial freedom’ and landed here. Huzzah! Our website is all about exactly what you want to know – how to become financially free and stay there. It can seem like an impossible task at first – overwhelming with no starting line in sight, let alone finish line. In this post we explain the key steps you need to know and take to get started on your financial freedom journey.
What does financial freedom mean – to you?
Technically, financial freedom is when your return on investments covers 100% of your expenses. But when you ask this question on a personal level most people have to think really hard because they just haven’t even contemplated what financial freedom would look like for them. So this is the first thing you should do.
Ask yourself, How would you spend your days if you didn’t have to work? Get comfortable with that. It’s where we are headed.
Financial independence means different things to different folks. For us, it’s the freedom to do what we want when we want. And that takes resources. Money for bills, food, water, power, health care and fun. So how do we solve for money, to get the rest of the equation? We’re all about keeping it simple and actionable. Here are the three things to focus on for financial freedom when you’re starting out:
What is financial independence?
In the interest of keeping it as simple as possible, we’ve broken down down financial independence into three primary steps:
- Make sure your income is greater than your expenses
- Invest the difference (your savings)
- Maximise your assets so the income from them covers your expenses.
What is the ‘financial independence retire early’ movement?
Financial independence retire early (or FIRE) is about applying the three key concepts above… aggressively. The aim is to retire in your 30s or 40s instead of your 60s. So what’s the theory? Well, average personal saving rates are about 10 to 15 %. But that’s not enough for financial freedom. You just have to look at when Joe average retires (65) to know that. On the other hand, hard core FIRE starters aim for savings rates closer to 50 – 70% – either through frugality or by increasing their income. The FIRE movement proves that savings rates are critical to financial freedom.
FIRE investing is other big part of the FIRE journey. Actively making your money work for you. With inflation and negative interest rates one thing is for sure – sitting on your money will not get you to financial freedom any time soon. If you have your stash in cash it’s time to pick up your freedom game.
Your starting point and how aggressive you are with the three key concepts above will determine how quickly you get to freedom. That’s the beauty of FIRE – you can dial it up or down depending on where you’re at in life. You can also choose to focus on the income or the spending side of the equation, depending on what’s right for you. Although, take heed. There is a school of practice that says cutting your spending is way more powerful than upping your income because it has a tailing effect – it lowers the amount you need to live on every month for the rest of your life.
We at The Live Life Project are not here to argue one or the other. We do both, along with some clever independent wealth management strategies around the treatment of income, tax and debt. We’re certainly not about never eating out or holidaying again – life’s too short for that! We’re about finding ways to have fun and still make smart decisions every day in the right direction.
How to achieve financial freedom – knowing your numbers
If this sounds boring to a lot of people, that’s because it’s boring to a lot of people. I get it. Math was never my jam either. But with the same certainty as death and taxes I can say if you don’t know your numbers you’ll never be financially free.
Financial independence is where you control your money not the other way around. This starts with the numbers. Savings/assets, income, expenses, residual. Put these numbers in a spreadsheet or write them down. There’s also apps for this of course, but we’ll get to those later.
Next, check out this awesome calculator. Put in your numbers. Be honest. It’s not gospel, but I put in our numbers for the last few years and it’s a pretty accurate reflection.
So here comes the big reveal. This is what did to get to financial independence, without revealing all of the juicy details in one post…
- We saved from 30% to 65% of our net income each year for the last 7 years
- We invested everything but our buffer money, mostly in property
- We kept saving and invested this in maximising our assets
- We also changed the way we earned our income so that we got to keep more of it – we’ll cover this in a later post so stayed tuned
- We’ve recently made big life choices specifically to reduce our cost of living
- Our income from our assets cover our living costs 100%.
Once you’ve put in your numbers look again at your income and your expenses. Making your way to financial freedom is about jigging these numbers – income up, expenses down.
Read through some of our posts on saving, borrowing, investing, digital assets and passive income ideas. These will help you gradually move up the dial on your money management. And this is where the magic begins.
Where to learn more about financial freedom
We have published a bunch of articles that step out the different pathways that you could take to financial freedom depending on where you are in life. Take a read and we hope you can learn something from our experience.
- “”How to be financially successful in your 20s”
- “How to be financial free by 30”
- “How we 10 x-ed our net worth by learning to think differently about wealth”
The final word – financial freedom is about how to eat an elephant (figuratively of course)
When something seems massive and unobtainable just break it down into bite sized chunks. You’re already on your way. Make sure you understand the 3 key steps to financial freedom and get to know your numbers. We know these things have worked for us. Stick with it. We know they can work for you too.