In recent years, the subject of financial freedom has emerged. Getting into the race for financial freedom could be considered a fashion. However, the reality is such that freeing yourself financially, and no longer depending on your job as a sole source of income will soon no longer be just an additional challenge in your life, but a necessity for those wishing to ensure better days. An aging population, lower retirement age, increasing unemployment, etc. are linked to the development of robotization, artificial intelligence, and outsourcing of services to low-cost countries. Everyone is aware of the challenges that we will face in the years to come.
Life is a path lined with opportunities, but we have to be careful. Before venturing to financial freedom, we will have to define precisely the reasons that will push us to act and train ourselves. This will increase our chances to success. Here we give you 10 steps to financial freedom.
1. Defining Financial Freedom and its objectives
As we have just seen, the first step will, therefore, be to clearly define each of its objectives. Once you define the objectives, you should quantify their costs. For that you will have to find the cost of the following:
- Activities you want to carry out in the first year
- Goods you want to acquire
- Recurring expenses that you feel are necessary
Estimate the overall cost over one year. Divide this overall cost by 12 and get the Average Monthly Cost. You will be able to determine the automatic monthly cash inflows necessary to self-finance your project.
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2. Setting a maximum time to achieve your goals.
Set a goal that is achievable but not too far into the future. Five to ten years maximum. Two years if you already have a successful business. Ten years if you start from zero. Everyone will have their own timeline to achieve their personal goal. Your current salary, your motivation, your actions, and your personal situation will define this. The shorter the deadline you set for yourself, the more likely you will be to achieve your goals, because you will be able to focus on their achievements.
3. Reduction of expenses and elimination of unnecessary expenses
Once you define what your goals are and set the time, you will have to focus on reducing and eliminating unnecessary expenses. For this, you need to study all of your monthly and annual expenses and to make an inventory of the expenses really necessary for everyday life and to define the expenses that can be eliminated or reduced without impacting your quality of life.
4. Increase in your salary
Raising your salary will be an important step in your race for financial freedom. Request for a raise, grow within your company, change of company, work abroad, resume studies to develop your career, it is quite possible to increase your monthly salary by using one of these methods. Many people have succeeded in increasing monthly net salaries following these methods.
5. Managing your savings: A Key Step to Financial Freedom
One of the most important steps in this process will be managing your savings. Your money should not stay in one account. It should be divided into separate accounts, as follows:
Emergency fund: You need to fund this account first. Deposit and reserve in this account an amount representing the equivalent of 6 to 12 months of current expenses. This emergency fund will allow you to cover your daily expenses in rainy days.
Investment savings account: Reserve this account for savings dedicated to investments. For subsequent creation of the business, stock market investments, or rental property investments, funds will come from this account.
Training savings account: This account will be reserved for savings dedicated to training. The money placed in this account can be used for training in business creation, the stock market, real estate, personal development, foreign languages, etc. This training can be taken in the form of online training or via books.
Current, leisure & vacation account: Place the remaining money in this account once the monthly money dedicated to investment and training has been set aside. Use the account for all monthly expenses and also for leisure and holidays.
6. Creation of additional income
The creation of additional income will take the form of the creation of profitable businesses. We could list here some examples such as the creation of a physical business, e-commerce, online training, a blog, online services, but also in other forms such as the sale of eBook or physical books, etc.
The objective here is to create passive income. This will require upstream work on your part, but which will pay off in the long run by generating automated income.
7. Long-term investment
Long-term investments will take the form of the stock market and rental property investments.
It will be important to invest in one, the other, or both as early as possible in your search for financial freedom. Both of these investments will actually begin to generate annuities after 15 to 20 years. Eventually, you will pay off your mortgage, and investments made on the financial markets will become substantial. Thanks to the effect of compound interest.
8. Increase in turnover
Once you establish your business firmly, you will need to focus on increasing its turnover. For this, you will have to take stock of your activity, determine one or more typical customer profiles and concentrate your efforts on canvassing customers who are part of the two or three most profitable customer categories. The application of Law 20/80 will allow you to achieve this objective. Focus your efforts on the 20% of customers (or typical customer profiles) who generate 80% of your income and eliminate 80% of your problems by removing the 20% of the most troublesome customers.
You have to reduce your time fixing problems. Instead, you can use that time to work on your advertising and marketing by focusing on the customers most likely to be interested in your offer. This will allow you to increase the profitability of your business.
When this will generate income higher than your current salary and that this income alone will allow you to live with the same standard of living, it will be time to quit your work as an employee and devote yourself full time to the development of your business. This step will mark an important step in your search for financial freedom because you will now have all the keys to achieving it.
9. Automation of your business
Automating your business will be the last step before you can achieve your financial freedom. For this, it will be necessary to apply methods of concentration and focus on the tasks really important to the development of your business. You can do this by using outsourcing. It will allow you to reduce your company’s operating costs and increase your geographic flexibility.
10. Financial freedom
Financial freedom is the last step. In this step, you will no longer have any reason to spend the whole week working in your company or in your salaried job. Once all the methods presented in the previous nine points are in place, you can then live on your pensions. Thanks to the interest generated by your investments in the stock markets, thanks to the rents collected from your tenants, and thanks to the profits made by your company. We spoke at the beginning of the article about the importance of diversifying sources of income and we can clearly see in this example that rents are generated by various sources. The stock market, real estate, and business.
Depending on your current financial situation, not all of the steps in this article will necessarily be helpful. For example, an employee who already has significant savings in the bank will not necessarily need to create a business in parallel. An entrepreneur who already has an e-commerce site should focus on increasing his turnover and reducing costs before thinking about automating his business.
To conclude we can say that there is not only one way to define financial freedom, but on the contrary, there are as many definitions as people wanting to achieve it.