We give money a lot of power in our lives. And for good reason. Without money, we would not be able to survive. At the most basic level, every person needs a roof over their head, food in their belly, and clean water to drink. At a higher level, people need freedom of choice, spiritual development, safety, and the ability to know one’s family and loved ones are taken care of.
None of this is possible without money.
Most hardships come from money problems. We spend the majority of our lives going to work so that we can have money to pay our bills and survive. Yet, over 50% of Americans have less than $1,000 in their bank account.
Living paycheck to paycheck is not living. It’s slavery. And if you think having money will give you freedom… think again.
Are You a Master of Money or a Slave?
Becoming financially free requires discipline. And if you are undisciplined with your current financial situation, then it doesn’t matter how much money you make. In fact, having more money only amplifies bad financial habits.
There are countless stories of celebrities, athletes, and lottery winners who have amassed a huge fortune, only to find themselves broke just a few years later.
Look at Johnny Depp. He is one of
This sounds like a lavish lifestyle until you dig a little deeper. The truth is Depp has blown through his entire fortune. He is now completely broke.
In 2019, he’s been selling off his remaining assets to get more cash, and unless Depp makes some drastic changes, it’s only a matter of time before he completely runs out of money.
What we can learn from Johnny Depp’s Mistakes
There are simple investing habits, had Depp implemented, would have set him on the course to
After Paying taxes and fees, he probably got to keep half of it. So $325 million dollars net. Let’s say he lived off half of these earnings and invested the rest.
This would have given him $162 million to live off of, and $162 million to invest. A low
Now at this point, he can choose to live off of $9.7 million a year, or he could reinvest his earnings. If he was smart, he would live off of half and again, invest the other half.
This would give him $4.8 million a year to live off of, and $4.8 million a year added to his net worth. Compound this over 10 years, and his net worth would now be double, as well as his yearly spending money.
And this is if he never worked another day in his life.
Now that we have broken this down, we can see that even though Depp has earned $650 million dollars in his career, the most he should spend in a year, is $4.8 million.
His $2 million dollar a month lifestyle has now enslaved him and the only way he can keep it up is by continuing to work. He will never be financially free as long as he has to work to afford to live.
It’s just a bigger version of living paycheck to paycheck.
What is Financial Freedom?
Financial freedom can only be achieved in 2 ways:
- Having a net worth that will outlive you
Assume you’ll live to 90. Figure out how many years you have to live, and how much money you need to live off of every year, for the rest of your life. Now times that by how many years you have left to live and this is how much money you will need to become financially free.
For example, I’m 32 years old. If I assume I might live to be 90. I have 58 years left to live. If I want to live off of $120,000 a year, then I need $6,960,000 to work again and be financially free.
- By creating a passive cash flow that exceeds your spending
This means the money you earn every year, regardless of if you work or not, is less than the money you spend. Passive income can come in the form of dividends, real estate, stock returns, business, and other income-producing investments.
For example, if I wanted to earn $120,000 a year in passive income, then I would need $2 million dollars in a fund that generated 6%. Another example is if I had an online business that generated $10,000 a month.
The ultimate goal to achieve financial freedom is to invest your time and money till your passive income exceeds your current spending.
How to Achieve Financial Freedom
Without developing good financial habits, you will never be financially free no matter how much you earn.
It takes sacrifice to be successful. No matter what financial situation you are currently in, working toward developing good habits is the first step to achieving financial freedom.
Here are 7 habits that will start you on the path to financial freedom:
1. Create a Financial Plan
One of the biggest reasons most people fail with money is because they fail to plan. With a financial plan, you will be forced to make certain decisions and take action.
A financial plan helps you choose the right direction to achieve your goals.
When planning your finances, try to anticipate how much you will need to survive comfortably. And the amount you set aside for your old days should much more than what you have now, because you will not be working.
2. Work Hard To Increase Your Income
It’s difficult to just save, invest, and become financially free. You need to increase your monthly income and this doesn’t happen without hard work.
We have a total of 24 hours in a day. Even if you commute, work 40 hours a week, and have kids to take care of, there is still a lot of time left to work on your goals.
Arnold Schwarzenegger once said, “If you don’t find the time, if you don’t put in the work, then you don’t get the results.”
Sure you will have to make sacrifices like movie nights and family time, but this sacrifice will pay 100x dividend on the time you put in.
3. Create Multiple Streams of Income
Most people who are financially free have more than 7 streams of income. You shouldn’t relax until you have several streams giving you a stable income. Multiple streams of income set you up for long term success, should one of your streams dry up.
No matter how secure, anything can happen to your current stream of income. A bad investment, a failed business, legal battles, and getting fired from your job are just a few things that may happen someday.
If you are dependent on one stream of income, then when that day comes you will find yourself with nothing.
By creating multiple streams through investments, real estate, side hustles, and businesses, you are bullet-proofing your path to financial freedom.
4. Automate Your Savings
Saving is essential for developing good financial habits. Make sure you contribute to your 401(k), traditional IRA, or Roth IRA along with an emergency fund.
On top of this, create a separate bank account and have a percentage of your paycheck automatically go into that account. I recommend using Ally. This online bank currently pays 2.2% interest on your savings account.
It’s not much but there is no risk and you will earn interest until you decide to where to invest this savings into more wealth growing opportunities.
By automating your savings, you never see this money and so you are less likely to spend it.
5. Seek to Gain Skills and Knowledge
As Warren Buffett once said, “the more you learn, the more you earn.” Spend at least 30 minutes a day reading books, watching videos, and taking courses that will further your knowledge and skills.
Through learning new things and listening to people who have already achieved financial freedom, you will be motivated, more aware of what it takes, and know which mistakes to avoid that can derail you from your dream.
If you are unsure of what actions you should take right now to reach your income goals, then you should focus on learning until you do know.
6. Live Below Your Means and Avoid Credit
Financially free people are known to be frugal. They adopted the habit of living below their means, and it’s the reason they became successful.
Avoid spending money on expensive things like luxury brands and designer items.
Create a budget that is aligned with your financial plan and stick to it. To keep you motivated, remember that the more you sacrifice now, the quicker you will reach your income goals in the future.
7. Associate With People Who Are Financially Free
Most people have friends who are within their net worth. It is natural because you tend to have a lot in common. However, if you want to become financially free, you need to look further and try to people who are in the position you wish to be in.
These are people who are financially more successful than you, and they will help you expand your thinking and see things differently, which will only increase your income.
When they said “winners are attracted to winners,” they were right.
You start walking with financially free people, and you will start thinking like one.
Do You Have What it Takes to Achieve Financial Freedom?
Though life may seem random, things
Fortune favors the bold. I can confidently say that people who do not take action will never get the life they want.
The best time to start was 10 years ago. The second best time is right now.
The longer you put off your dreams and goals, the less likely you will reach them.
If you have what it takes to be financially free, then decide right now that you are going to make it happen no matter what.
Burn your ships, set your resolve, and get to work.