How Much Money Do You Need For Financial Freedom? (Solved)
A lot of my readers ask me the same question “ how much money do you need for financial freedom?” The answer that I give to this question is always the same. It depends on a number of factors, including your age and the type of lifestyle you want to live.
If you are young and just starting in life, it will be challenging to achieve financial freedom if you don’t have any savings or investments. This doesn’t mean that you cannot do this though. Read my post on achieving financial freedom before you are 30. If you are interested in achieving financial freedom, there are some things that you should consider before making any decisions about what amount of money you need:
1. How many years do you want to work?
First, you should decide whether you want to work until you retire or if you wish to stop working when you reach retirement age. This decision will affect how much money you need to put aside each month because you will not receive an income while you are retired.
However, if you choose to continue working after reaching retirement age, you will still need to have enough money to maintain your current standard of living.
2. When do you want to start saving and investing?
Next, you should determine how long you plan on saving and investing. Some people prefer to start saving at a younger age, but others wait until they are closer to retirement age. It all depends on your situation.
My advice here is to start to make your money work harder for you right now. Look into the best investments and decide on your risk tolerance. The earlier you start, the quicker you will achieve financial freedom.
3. What are your essential expenses?
You should think about how much you spend on housing, food, transportation, entertainment, etc. These expenses add up quickly over time and can easily consume most of your monthly income. Therefore, you must make sure that you keep these costs down.
Create a simple spreadsheet budget where you can include all of your expenditure and deduct this from your income. If you do not have a lot left when you do this then critically assess what you are spending your money on. Cut out expenditure that is not totally necessary.
4. What is your current income?
Be sure to also consider how much you earn from your job or business. Determine your budget to live a comfortable life. The money you earn directly affects how much you will save and your lifestyle. The more you earn, the easier it will be to achieve financial freedom. For instance, if you earn $10,000 per year, this is around $833.33 per month.
On the other hand, if you earn less than $5,000 per year and your budget is $10,000, you will need to think of other options to survive. Working alone will not be enough; most people think of side jobs to maintain their living conditions. You should be spending no more than 50% of your income by investing in some form of passive income so you can achieve financial freedom.
5. What are your future goals?
The best way to determine how much money you will need to achieve financial freedom is to set goals for your future. Are you planning on buying a home soon? Or maybe you would like to travel around the world? In order to accomplish these goals, you will need the money to pay for them.
Let’s say that you want your own home and desire a nice car and a number of home comforts. You want to achieve financial freedom as fast as possible so calculate the amount of money that you need to achieve this.
Do not worry if you are far away from your financial target at the moment. There are many ways that you can change your current situation to earn the money that you need. Just come up with a figure and create a plan to achieve it.
What Is A Good Retirement Plan?
A good retirement plan is something that you put together in advance to help you prepare for the day when you no longer want to work. For example, you could set aside part of your income every week and use this money to make investments that will earn you a good return.
You could also use an online retirement calculator to estimate how much money you will need to accumulate to achieve your financial goals. Do whatever is necessary to decide on the amount of money that you need to achieve financial freedom and be prepared to work on this every day.
The ultimate aim should be to have a passive income strategy where your money is working hard for you and providing you with regular income. This income needs to cover all of your necessary expenses and provide you with extra money to do the things that you want to do.
How Much Money Do I Need To Retire Early?
The answer to this question is enough that you can live the life that you want through passive income. This means that you are not working for money — your money is working for you. Find out what the best investment strategies are to provide you with the income that you want every month. How much money do you need to achieve your monthly income requirements? Maybe this is $500,000 or even $1 million.
If you want an income of $10,000 a month for example, you need to find an investing strategy that will provide you with this income passively. Find out the capital that you will need so that this will work for you.
There are other ways that you can make passive income other than relying on the amount of capital that you have to invest. For example, you can invest in real estate so that your property portfolio will provide you the monthly income that you desire.
How Can I Save More Money?
The best way to save more money is by cutting back on unnecessary spending. It includes eating out, going to movies, shopping, etc. Once you eliminate some of these expenses, you will find extra money left over at the end of the month.
When I was younger, I lived a fairly lavish lifestyle and spent a great deal of money on things that I didn’t really need. I am not suggesting that you become totally frugal as this is a very big change and that you can easily give up on.
One of the best things that I did was to commit to being in control of my money. I wanted to know where every penny was going each month. To achieve this, I started to record all of my expenditure. This was a real eye-opener for me as I found that I was spending a lot of cash on things I didn’t need.
If you want to achieve financial freedom then you need to be in control of your money. I highly recommend that you start recording all of your expenditure right now. Create a simple spreadsheet of all of your regular expenses. Then be ruthless and cut out the things that you do not really need. Be honest with yourself.
How Can I Invest My Savings?
There are several ways that you can invest your savings. One option is to open a traditional investment account with a brokerage firm. Another option is to open an Individual Retirement Account (IRA). An IRA allows you to contribute pre-tax dollars to a tax-deferred account that you can access once you turn 59 1/2. You can also purchase stocks or bonds through a discount broker.
Look at what types of investment are providing the best returns. Right now, saving money in a bank is not going to provide you with a great return. It is safe but it will take you many years to achieve financial freedom this way.
Investing in real estate is a proven way to get a good return on your savings. It is not totally risk free, but if you know what you are doing then you can make some significant returns from it. With the right real estate investing strategy you should be able to achieve a better return than you can with stocks for example.
What Should I Be Saving For?
There are three main categories of saving as far as I am concerned:
- Emergency funds
- Short-term savings
- Long-term savings
Emergency funds are a good idea to cover unexpected events such as losing your job, getting sick, having car trouble and so on. It is a lot better to have an emergency fund to call upon when you need it rather than increasing your credit card debt.
Short-term savings should be used to cover bills that come due during the next few months. Long-term savings should be used to pay off debt, build up a down payment for a house, fund your child’s college education and provide you with passive income.
Essential Steps to Financial Freedom
Having been on a financial independence journey myself, I recommend that you follow these 10 essential steps to financial freedom. They worked for me and they can work for you to:
1) Start right now!
If you don’t start your financial freedom journey today, then you’ll never get started. You will get caught up in life and put off your financial freedom journey until tomorrow. I did this at first and regretted the time that I lost not being financially free.
2) Figure out what you’re willing to sacrifice to reach financial freedom
You are going to have to make some sacrifices to get to your financial freedom number. Your sacrifices may include giving up cable TV, buying fewer new clothes, or even selling your current home or your car. Do whatever it takes to get the amount of money you need to achieve financial freedom.
3) Determine how much you need to put aside each month
You can use an online retirement calculator like this to determine how much you need to accumulate. Achieving financial freedom in the fastest possible time requires a high degree of self-discipline.
4) Set up automatic transfers from your checking account to your retirement accounts
This way, you won’t miss any payments. If you start to miss payments to your investments or other passive income strategies, then you can get back into the bad habits that you had before where you were wasting your money on stuff you don’t need.
5) Make sure you have enough insurance coverage
You may not realize it, but life insurance is one of the essential forms of protection you can own. It provides an income if you die prematurely, which helps you meet your financial obligations.
6) Don’t spend more than you make
If you’re living beyond your means, you’ll only continue to dig yourself into a deeper hole. It is really easy to rack up a lot of credit card debt for example. But it is not easy to get rid of this debt so that you can experience financial freedom.
7) Pay off your debts
Debt is a huge burden. You might think that paying off your credit card balances would help you achieve financial freedom, but it doesn’t always work out that way. You need to decide if it is better to pay down your debt or to invest in strategies that will make you more money.
As you build up your passive income, you will get closer to your financial freedom number. Once you arrive at this number you can then decide to pay off all of your debts. I would always recommend making more money than spending more.
8) Find Investments with the Best Returns
Saving your money in a bank is not very effective these days as the interest rates are very low.
9) Consider investing in real estate
Real estate investments can provide passive monthly income while offering potential capital gains when you sell. I am in the real estate investing business because on average, it provides me with higher returns than other forms of investment do.
It is not easy to make good returns from real estate investing but it is certainly possible. Use the information on my blog to educate yourself about the best ways to invest in real estate.
10) Save for retirement
It’s never too early to begin planning for retirement. The sooner you start saving, the better off you will be. You do not have to wait until you reach the normal retirement age to retire. I retired a few years ago and I am a number of years from the age the government stipulates that you should retire.
How can I Develop Financial Freedom?
Financial freedom isn’t something that happens overnight. It takes time and effort over time. However, we’ve developed some tips to help you along the way:
1) Develop a budget
A budget is simply a plan for managing your money. It shows where your money goes every month. By developing a budget, you can identify areas to cut back on spending to free up extra money.
Creating a simple budget was one of the best things that I ever did. It helped me to be in control of my money which I had not been before this. Be honest with yourself when you are creating your budget. You know what you are spending each day and what you can really do without.
2) Live below your means
It’s easy to fall into the trap of spending more than you earn. To avoid falling into this trap, track your expenses for a week or two using a simple expense tracking app like Mint or Personal Capital.
Once you know where your money is going, you can adjust your lifestyle accordingly. My simple budget that I created really opened my eyes to how much I was not living within my means. You may find your current expenditure to be quite shocking too. Use this to inspire you to take action.
3) Invest regularly
Investing is another excellent way to grow your wealth. Several different investment vehicles are available, including stocks, bonds, REITs (real estate investment trusts), ETFs (exchange-traded funds), and mutual funds.
Mutual funds allow you to invest in various underlying assets such as stock indexes, bonds, precious metals, and other securities. As I have said before, real estate investing can provide you with the highest returns.
4) Focus on building your Wealth
To create true wealth, you should build your assets over time. It allows you to enjoy the benefits of compounding interest-the tendency for the returns on your money to increase over time.
I got involved in real estate investing once I had decided to focus on my wealth. Over time I acquired a number of appreciating property assets and these now provide me with the passive income that I need to be financially free.
5) Avoid bad debt
Credit cards often seem like a quick way to boost your finances, but they don’t contribute to long-term success because of the high rate of interest charged by credit card companies. Monitor your credit score and take action if this starts to decrease.
Before taking out personal loans or credit cards, assess your ability to repay them. I am not saying that all debt is bad, I use debt to purchase a number of my properties.
6) Shop around for your purchases
Auto insurance premiums have continued to rise despite steady declines in auto accidents. You can start saving money on your car insurance and other purchases using comparison shopping. There are many websites available that will compare deals.
If you have money off coupons then use them. There is nothing wrong with this. The Internet now provides us with many opportunities to save money and I urge you to take advantage of as many of these as you can.
7) Automate bill payments
There are dozens of online tools that can help you automate bill payment. Some services even offer bill reminders, so you don’t miss a payment. You may also want to consider setting up automatic transfers from checking accounts to investment accounts for example.
Is Financial Freedom Worth it?
I can tell you from experience that financial freedom is certainly worth it. These days, I do what I want whenever I want. If I want to take off to another country (covid permitting of course) then I can do that.
The reason that I keep going with my real estate investing business is because I love it. I built it up from nothing and I am very proud of that. When you are financially free it doesn’t mean that you cannot keep working. The difference is that you are not a slave to a paycheck. You are working because you want to.
How do you Develop Financial Freedom?
In this post I have showed you how to get financial freedom in life. Now that you know how to earn financial freedom you need to take action. Find out how much you need to achieve financial freedom. You can work backwards here by determining the amount of money you want to earn passively each month.
Look at ways to develop passive income streams that do not involve investment as well. For example, you could start an online business from home that will generate profits for you on a regular basis. There are many people doing this. It is not totally passive but pretty close to it.
How to build Financial Freedom at any Salary
This is not the way that I look at things, but I want to assure you that it is possible to create financial freedom no matter how much money you are earning right now. If you do not want to look at ways to earn more money, or for some reason this is not possible for you, then start putting money aside today.
You will still need to calculate the amount of money that you need to be financially free. Once you know this number, you can start to put aside a percentage of your salary into smart investments.
While it is possible to create financial freedom using your current salary, you need to accept that it will probably take you a long time to achieve this. You will need to look at your current spending habits to be able to put aside as much money as you can for your future financial freedom.
My Final Thoughts on How Much Money do you Need for Financial Freedom
Developing a sound financial strategy doesn’t happen overnight. But if you take these steps, you’ll be well on your way. The best way to save money is to make small changes in your daily life. Small changes add up quickly. Financial freedom will never come unless you work for it.
In this post I have answered the question “how much money do you need for financial freedom?” I would love to hear what you think about achieving financial freedom so please leave a comment below.
Originally published at https://freedomviaproperty.com on February 10, 2022.
