Financial freedom is the state where you have enough wealth or cash flow to live the life you desire without being bound by the need for a regular paycheck. It’s a goal many aspire to, but few achieve. What sets those who reach this coveted status apart?
A recent National Financial Educators Council study found that only 57.35% of Americans are financially literate and prepared for their future. This statistic underscores the importance of understanding and implementing key strategies for financial success.
In this post, we’ll explore five crucial things successful people do to achieve financial freedom. These aren’t just theoretical concepts but practical, actionable steps that have been proven time and time again by those who have reached the pinnacle of financial success: independence from a job.
1. Invest in Continuous Education
Successful people understand that knowledge is power, especially regarding finances. They prioritize ongoing education in various areas that contribute to their financial growth.
Financial literacy forms the foundation of this education. Understanding concepts like budgeting, investing, and tax planning is crucial. Warren Buffett, one of the world’s most successful investors, is known to spend up to 80% of his day reading and learning. He attributes much of his success to this habit.
But it’s not just about financial knowledge. Successful individuals also focus on developing career-specific skills to increase their earning potential. They stay abreast of industry trends and continuously upgrade their skill sets.
For example, tech mogul Mark Zuckerberg set himself a new personal challenge each year for a decade to learn and grow.
Technical skills relevant to the changing job market are also on their radar. With the rapid pace of technological advancement, staying relevant is critical to maintaining and increasing your value in the job market.
Lastly, people skills are not overlooked. The ability to network effectively, negotiate confidently, and communicate clearly can open doors to opportunities that directly impact financial success.
Warren Buffett enrolled in a $100 public speaking course at Dale Carnegie Training, an institute named for the influential speaker and author of “How to Win Friends and Influence People” and other bestsellers. “[The class] certainly had the biggest impact in terms of my subsequent success,” Buffett said in an interview.
These soft skills often make the difference in climbing the career ladder or securing essential business deals. By investing in continuous education across these areas, successful people equip themselves with the tools to make informed financial decisions and capitalize on opportunities others might miss.
2. Live Below Their Means
One of the most common traits among financially successful individuals is their ability to live below their means. This doesn’t mean they live poorly; instead, they make conscious choices about their spending, ensuring they have a surplus to save and invest.
Creating and sticking to a budget is a fundamental practice. This involves tracking income and expenses, setting financial goals, and allocating resources accordingly. It’s about being intentional with every dollar.
Successful people are adept at distinguishing between needs and wants. They understand that not every desire needs to be fulfilled immediately and are willing to delay gratification for long-term financial gain. This mindset helps them avoid unnecessary expenses and impulse purchases derailing financial progress.
They also focus on reducing significant expenses. Housing, transportation, and food often constitute the most essential portions of a budget. By making wise choices in these areas – perhaps choosing a modest home over a mansion or driving a reliable used car instead of leasing a new luxury vehicle – they free up substantial amounts for saving and investing.
Take, for example, billionaire Warren Buffett, who still lives in the same house he bought in 1958 for $31,500 and has preferred used or hail-damaged cars. Despite his immense wealth, he chooses to live frugally in comparison to his net worth, demonstrating that living below one’s means is a principle that applies at all income levels.
This habit of living below their means provides financial flexibility and reduces stress. It allows for building an emergency fund, handling unexpected expenses without panic, and consistently investing for the future. It’s a powerful tool in the journey towards financial freedom.
3. Consistently Invest in Diverse Assets
Successful people understand that building wealth is about earning money and making it work for them. They commit to regular, consistent investing as a cornerstone of their financial strategy.
Diversification is critical in their investment approach. They minimize risk and maximize potential returns by spreading investments across various asset classes. This might include a mix of stocks, bonds, real estate, and even alternative investments like startups or cryptocurrencies.
Many successful investors advocate for index funds as a core part of their portfolio. These provide broad market exposure at a low cost. Real estate is another favorite, offering both potential appreciation and rental income. Some invest in their businesses, leveraging their skills and experience to create value.
The power of compounding gains is not lost on these individuals. They start investing early and stay committed to their strategy, understanding that time in the market beats timing the market. Even small, regular investments can grow significantly over time due to compounding.
Consider the example of Microsoft co-founder Bill Gates. While much of his wealth came from his Microsoft company stock, he’s known for having a diversified portfolio managed by his investment firm, Cascade Investment. This diversification has helped him maintain and grow his wealth even after stepping back from active management at Microsoft.
By consistently investing in diverse assets, successful people create multiple income streams and build wealth that can eventually support their desired lifestyle without the need for a regular paycheck.
4. Embrace a Strong Work Ethic
Financial freedom rarely comes without effort, and successful people are known for their strong work ethic. They understand that achieving their financial goals often requires going above and beyond, especially in the early stages of their journey.
This might mean putting in extra hours at their current job, taking on additional responsibilities to increase their value to their employer, or even starting side hustles to generate extra income. They’re not afraid of hard work and see it as an investment in their future financial freedom.
Successful people also continuously work on improving their skills to increase their value in the job market. They understand that standing still is equivalent to moving backward in today’s fast-paced world. By staying ahead of the curve, they make themselves indispensable and open up opportunities for career advancement and increased earnings.
It’s important to note that embracing a solid work ethic doesn’t mean working endlessly without purpose. Instead, it’s about working smart, being efficient, and focusing on high-value activities, moving the needle toward financial goals.
Take Elon Musk as an example. Known for his intense work schedule, particularly when launching new projects or facing challenges, Musk’s work ethic has been a critical factor in his success across multiple industries. While his extreme approach isn’t for everyone, it illustrates the level of commitment successful people often bring to their work.
5. Build Cash-Flowing Assets
A critical strategy financially successful individuals employ is the creation or acquisition of cash-flowing assets. These investments generate regular income, providing a steady stream of cash that can eventually replace or exceed earned income from a traditional job.
Rental properties are a classic example of cash-flowing assets. Investors can generate monthly income by purchasing properties and renting them out while benefiting from potential property appreciation. Real estate investment trusts (REITs) offer a similar benefit with potentially lower barriers to entry.
Dividend-paying stocks are another popular choice. Companies that consistently pay and increase their dividends can provide a reliable income stream that grows over time. For instance, Warren Buffett’s Berkshire Hathaway holds significant positions in many dividend-paying stocks.
Online businesses like e-commerce stores or content websites can also be significant passive income sources. Once set up and running efficiently, these can generate income with minimal day-to-day involvement.
Intellectual property can be a valuable cash-flowing asset for those with specialized knowledge or creative talents. This might include royalties from books, music, or patents.
The key is to focus on assets that generate income without requiring constant active involvement. As these assets grow, they can produce enough revenue to cover living expenses, leading to financial freedom.
Conclusion
Achieving financial freedom is not an overnight process but rather a journey that requires discipline, patience, and strategic action.
Successful people create a blueprint for financial success by investing in continuous education, living below their means, consistently investing in diverse assets, embracing a strong work ethic, and building cash-flowing assets.
These five strategies work together synergistically:
- The knowledge gained through continuous education informs better financial decisions.
- Living below your means frees up capital for investments.
- A strong work ethic provides the drive to persist when challenges arise.
- Building cash-flowing assets creates the passive income that ultimately leads to financial freedom.
While the path may seem daunting, it is essential to start where you are with what you have. Begin by implementing one or two of these strategies in your life.
As you gain momentum, you can gradually incorporate the others. With consistency and determination, you can join the ranks of those who have achieved true financial freedom.