Money doesn’t bring happiness in itself, it’s the time, freedom, and experiences money buys that brings happiness.
Money can’t solve all your problems but it can solve all your money problems.
Money doesn’t change you, it just amplifies who you already are. If you are greedy you will just be more greedy, if you are generous you will be more generous as more money is added to your net worth.
Money is neutral, we can do with it as we please. I believe the best use of money is to buy your own financial freedom from needing to work for someone else. How much are your total monthly bills? That is the cost for you to buy 100% of your life and time back from your employer. The higher your monthly bills and debt the less freedom you have in choices. The higher your net worth and cash flowing assets the greater your spectrum of financial choices.
Financial freedom is achieved when you have a high enough net worth and/or cash flowing assets where you no longer need to work a job unless you just want to. Financial freedom doesn’t mean you stop working it means you get to choose to do the work you love. You have the ability to fire your boss when you no longer need a job as an income source.
Where do I start with financial freedom?
The best ways to start on your path to financial freedom is to start minimizing your monthly payments and debt while also maximizing your income through effort and growth.
Your financial freedom is based on how much you need to buy back your time and how much your net worth and cash flow is. The less payments you have and the higher your cash flow the quicker your freedom is achieved.
Playing good financial defense in personal finance and limiting your spending to only what is needed. Playing good financial offense is growing your cash flow and net worth as quickly as possible through compounded growth. Playing good offense is more open-ended in opportunity and more fun than being frugal. However, being frugal is much easier in effort for most people.
When your monthly cash flow exceeds your monthly bills you achieve financial freedom.
How can I grow financially from nothing?
The key to growing financially starting with nothing is first developing skills to earn money. It’s more important to work to learn when you are starting out than to work just for money.
Ideally, you can start your financial journey working at an entry level job where you will learn a skill set and gain experience that can be monetized and allow you to grow your income. You need more than a job and a paycheck you need an upwardly mobile career and to be in an industry that will grow your income with a ladder to move up.
Another key to growing your income is switching employers to get a raise. Surveys and studies show that the best way to get a raise is to get a new job that will give you one.
A survey for people that left their job in 2020 showed the following results:
- 29% say their compensation has increased by more than 30% in their new role
- 20% received a 10% to 20% increase in compensation
- 27% are earning about the same or less than they did in their previous role
ADP found that national wage growth overall was at 3.3% in the third quarter of 2021, but double that figure for those who switched jobs at 6.6%.[1]
Always maximize your income potential.
The money you earn from your job is what you will convert to investments and cash flowing assets converting earned income into capital to use for growing your net worth.
What are the steps to financial freedom?
Look for a career not a paycheck
The first step for almost everyone on the path to financial freedom is getting a job and money coming in for living expenses. Few people go straight into entrepreneurship at the beginning. However in the 21st century this is more possible than ever with the digital economy. For those that want to take the early risks they can start their own service business like lawn mowing, handy man, etc. or a digital business like a YouTube channel, blog, Amazon store etc.
It’s difficult to start out as an entrepreneur in business or investing because of a lack of capital and banks not wanting to give loans to unproven business models. So if you want to never have a job and start your own business at the beginning you will need to find businesses that require little to no capital.
Minimize your monthly bills and debt
If you get yourself trapped in big mortgages, new car payments, and credit card debt right from the start you will limit your freedom of choice and ability to take risks. The higher your debt load the less your mobility between jobs and opportunities. Travel light in your personal finances and you can choose many roads with less stress.
Grow your income as quickly as possible
Take every opportunity you can to increase your hours and pay early on to speed up your ability to save money for investing and raising capital. The higher your income the faster your journey to financial freedom not needing that income.
Convert your earned income into capital for investing
Use your paycheck as a tool for building up capital. Get the full match on your 401K. Also put money into a savings account so that once grown big enough it can be converted to a brokerage account. You want to turn your dollars into investments in stocks, good crypto assets, real estate, and bonds. You must have a strategy with an edge for these investments and convert earned income into investing capital.
Buying a house that is affordable for you is also a good investment long-term if you buy in a growing area with good schools and low crime. This will replace paying rent for owning growing equity in your home. This caps your inflation risk for growing rent payments and once paid off eliminates that monthly bill. 15-year mortgages are ideal for the speed of the payoff. 30-year mortgages can be ideal in extremely high inflationary environments.
Use leverage and debt when it’s smart
Leveraging your investments with real estate is a fast path to wealth as you control a large amount of value for a small down payment and monthly payment. Rental properties can also create cash flow above expenses.
Business loans can give you an opportunity to leverage other people’s money for profits once you qualify and have a business model.
Margin loans can leverage your bets on stocks and amplify your returns in good systems.
Leveraged exchange traded funds can multiply gains on smaller amounts of capital.
Stock options can amplify gains on positions in the stock market when timed correctly at the right price target.
Compound the growth of your assets
Compounding works like magic as your money starts making money. If you make a 10% annual return on $100,000 then you gain $10,000 and now have $110,000. Then if you make a 10% return on that $110,000 you have $121,000. Your $10,000 gain produced $1,000 compounding returns on top of returns. This is the power of compounding returns on capital.
Another example is in real estate. If you buy a $200,000 house with $20,000 down payment and it goes up to being worth $220,000 in value later then you made a 100% return on your original capital. You have $20,000 in equity due to the down payment and $20,000 in capital gains doubling your return based on the equity in the home you own.
Also you can gain financial freedom from compounding the growth in your own business. You want to grow in percentage terms in both sales and cash flow. You want to maintain your current sales and profits while continuously expanding by adding more locations, products, services, or geographic coverage. This is the fastest path to financial freedom, a business as a cash flowing asset as it provides the leverage of employees’ time and customers’ money for your products.
Your monthly cash flow exceeds your monthly bills
The formula for financial freedom is when your monthly cash flow is greater than your monthly bills.
Monthly Cash Flow > Monthly Bills = Financial Freedom
Sources of potential cash flow:
- Profits from your business
- Dividend payments
- Bond yield
- Investment capital gains
- Selling options for premium
- Trading systems
- Interest on savings
- Certificates of deposit
- Royalties
- AirBnb rental
- Turo car rental
- Website revenue
- YouTube channel
- eCourses
- Affiliate programs
Cash flow can also come from distributing an amount of your net worth to paying your bills on a set schedule.
Enjoy
Some people actually worry about what they will do after they achieve financial freedom as they spend so much time at work and derive so much meaning and purpose from their career. Working for yourself can be more fulfilling than any job you will ever have. Financial freedom is just the beginning if you have passions you want to pursue in business or life.
What do you do after achieving financial freedom? Whatever you want.
Keep building your assets and enjoy the ride.