10 Steps to achieve financial freedom from scratch

10 Steps to achieve financial freedom from scratch
Do you want to achieve financial freedom and not have to go back to work?
When we hear the term financial independence, the first thing we imagine is generating income no matter where we are in the world, sleeping or not, and more importantly, whether we are working or not.However, in this article, I want to propose something different…

I am going to be bold enough to suggest that achieving financial freedom does not mean stopping working.

Why? Very simple, because I don’t want to stop working. And if you’re wondering why I’m not going to stop doing it, I want you to think about the following:

Why would I stop working on something I’m passionate about?
Will not one get tired of the holidays? Won’t it become routine to travel the world?

The financial freedom to work on what you are passionate about:

 

With this, I am not saying that my only source of income is my job, or worse still, that I am not interested in generating passive income while I am working, traveling, or sleeping.

I have them and I want to share with you in this article some principles and techniques for you to achieve your financial independence, not in order not to work, but so that you have the time and peace of mind to do something that you are passionate about, and thus discover your life purpose.

To begin, let’s define financial freedom as “the ability to generate enough income so that you don’t have to worry about money anymore.”

Now, is it possible to achieve financial independence? The short answer is yes, and the key lies in passive income. So if you want to be a millionaire you must work to create assets that work for you.

However, to achieve it, we must first review those behaviors that are preventing us from achieving it.

Why don’t you achieve your financial freedom?

Here are two examples of the poor decisions people make when managing their money, which prevents them from achieving financial independence.

Mortgage your life:

One of the most common dreams of people is to buy their own house.

The point is that most do it through a long-term loan or mortgage. Which, according to statistics, in 30 years you can pay up to double for a house.

To give you an idea: If your mortgage is for $137,000 at an interest rate of 5%, at the end of that period you will have paid the bank $290,640 and $153,540 will be just interesting.

So before making such an important financial decision, such as incurring a mortgage for your life, which will leave you in debt for a long time, consider other possibilities available.

Have a better car than your neighbor:

Ask yourself, is your goal to achieve financial independence or to look like a millionaire?

As we mentioned in the Zero Debt ebook, a common mistake that many people make is that they assume that when they earn more money they will start saving money, when reality shows that as people earn more, they tend to spend more.

This is known as the rising spending trap: you systematically match your spending to your income, and the more you have, the more you spend.

This is evident in the car that people drive, which seeks to demonstrate a level of successful status or economic success.

If you want to achieve your financial freedom, stop thinking about the rest and focus on building assets. That Audi or BMW can wait a few years when your passive income pays for it without you even realizing it.

These two examples demonstrate that if you want to be financially independent you will have to make some tough decisions.

Steps to achieve financial freedom:

Steps to achieve financial freedom

 

Once the necessary mentality has been defined, you should look at the steps and factors that influence when it comes to achieving financial freedom.

1. Understand the importance of time

To get money, time is essential. Especially if you are young now, since you may have an infinity of business opportunities ahead of you.

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The little money you have now can be multiplied tomorrow thanks to the factor known as the “compound interest formula”; which consists of your money multiplying with little effort from you.

In this article, we talk about what this magic formula of compound interest consists of.

If you want to achieve financial independence, you must put money to work for you, so that the interest or profits it generates are added to your investment capital, turning it into a cycle that repeats itself, and the profits grow exponentially.

For example, if you invest $1,000 at an annual interest rate of 10%, a year from now you will have $1,100. For the following year, with compound interest, your investment capital will no longer be 1,000 dollars, but 1,100 which in a year will be 1,210 dollars. And so on.

What makes compound interest, or compounding, attractive is that you have time on your side, which is a key element in achieving financial freedom.

To give you an idea, an investment of 1,000 dollars, at an annual interest rate of 8%, after 50 years is around 46 thousand dollars.

2. Master the science of making money

Master the science of making money

 

You can start by reading some finance books that teach you how to invest your money.

Although you will not become an expert with a few books, they will give you the clarity to understand how money works, it will give you an idea of ​​what types of assets exist and what some investment strategies are.

Financial independence requires you to have a beginner’s mindset; that you look for courses, seminars, workshops, and events that enable you to learn the fundamentals of investments.

Benjamin Franklin rightly says that an investment in knowledge pays the best interest, and in the world of finance, it applies even more so, since when you learn to invest your money, you will be able to increase profitability and reduce the associated risks.

Here is Rich Mind ebook, so you can review the best tips and strategies to change your mindset about money.

3. Invest in yourself first, then spend

Here comes one of the less attractive, or sexy, topics in personal finance, but fundamental to achieving financial independence:

Save money. 

To achieve your financial goals, you must first invest in yourself and then assume all the expenses you have. And when I talk about investing in you, I mean that every time you receive an income, the first thing you will do is save for your future.

Most financial experts agree that saving is the foundation of financial freedom, so the sooner you learn how to save money, the better since you have time on your side.

What is the financial reality of most people?

I firmly believe that the amount of money you have in your bank account is nothing more than the result of your mentality regarding money.

So, if you don’t have a long-term mentality, and as you earn money you start spending, it will be difficult for you to achieve financial independence.

If you want to live differently from how most people live, you will have to change the order: first, you pay yourself, and then you can spend what you have left.

And the best thing is that you can do it without much effort. You can create an automatic order in your bank so that a percentage (ideally 10%) of your income is transferred to a savings account each month.

An additional benefit of this savings method is that, since the money is not in your daily use account, it will be more difficult for you to spend it since you will not have it.

Saving money is not enough:

Now, saving is just one of the pillars of financial independence. The investment of said savings is the second pillar that most people do not apply.

To understand the difference, think about the following: If you save $250 every month, in a matter of 27 years you will have around $81,000. Now, if you invest this money at an interest rate of 5% per year, you will have around $172,000. A big difference.

This shows the importance of money working for you since to be financially free, you will not only have to work to earn money, but once you have it, it will start working for you.

Investigate what you can invest your money in, analyze what possibilities you have for your money to move and not remain stuck in a bank account, where each year it loses its value due to inflation.

4. Create different sources of income

Create different sources of income

The more cash flows you have, the greater your financial independence and the more economic freedom you will have.

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This is the reason that motivates me to generate different sources of income so that I can work because I enjoy what I do, and not because I have to generate income to meet my commitments.

In addition, having a single source of income is quite dangerous, since the moment it disappears, is reduced, or is lost, your economic stability will go with it.

If you are an employee, create a new source of extra income . If you are an entrepreneur, look for a new way to create income with your business. The idea is that you do not depend on someone who wants to hire you or not, or who can fire you.

Find your sources of income, create them yourself and get them to provide you with constant and fluid cash. For example, there are many ways to earn money from home with little investment that you can do in your spare time.

Use the Internet to generate income:

Internet is a lifestyle nowadays and it can help you achieve financial independence. You will be able to make connection points that expand and that can give you great power.

Within the world of possibilities, there are many viable ways to earn money online that were not possible before. Some ways to earn money online are:

  • Create an online store and sell your products and services.
  • Have a website and monetize it with Google Adsense advertising
  • Become an Airbnb host and earn money with those spaces in your house that you don’t use.
  • Offer your services on freelance platforms such as Fiverr, and Upwork, among others.

As you will see, most of these business ideas do not require your physical presence to generate money, which represents our next point in the search for financial independence: create passive income.

5. Get passive income

As I mentioned in the previous point, passive income is that which is generated without the need for your physical presence. That is, they do not depend on your work and they do not depend on you being in a certain place doing something.

They only require the creation of something, be it a product or a service only once, and from this profits are obtained.

Some examples of passive income are:

Here is a list of passive income that could turn into great profitable businesses that not only bring you interesting income but ensure your financial freedom:

  • A book that you write and that later could be selling all your life
  • Shares in commercial companies or companies
  • Invest in the stock market through stock shares and other financial assets
  • Yields for bank interest or dividends on the stock market
  • Creation of applications, templates, or online programs,

It is important to mention that passive income requires your attention and work. For example in the case of the book, although you only have to write it once and it can be sold over time; This requires that you promote it, recommend it, mention it and develop strategies to give it visibility.

This requires work, so passive income where you don’t have to work at all doesn’t exist.

6. Have a personal budget

Have a personal budget

 

Do you know how much money you spent last month? When I ask people this, most say they don’t have time to do a personal budget.

Here’s the thing: if you don’t control your finances, you won’t be able to enjoy financial independence. So you must dedicate part of your time to creating a budget, know how much money comes in, goes out, what you spend it on, and how you invest it, among other criteria.

Creating a budget is the first, but not the only thing:

Making a budget is very easy, the hard part is sticking to it and making it part of your routine. So at the beginning of each month compare how much you spent compared to the previous month and see if you stuck to the budget you made or not.

Did you stick to the budget you made for restaurant meals, grocery shopping, and going out?

If you are under budget, take this money and put it in your savings account. If not, check what you failed and avoid those situations where you assume unnecessary expenses that impoverish you without realizing it.

When you have a budget, and you update it according to your consumption habits, you will have a clear picture of your personal finances; you will know how much money you earn, how much you spend, how much you save, and finally how much you invest.

So you will be able to make decisions that lead you towards your financial independence, you will have information to make decisions and you will know, for sure, how you are financial.

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Finally, one of the main benefits of having a personal budget is that you have a record of the progress of your debts, which represents a critical point when it comes to achieving financial freedom.

7. You must get out of your debts

 

Let’s be frank: before you think about your financial independence, you should focus on getting out of all your debts as quickly and effectively as possible.

Debt that does not generate income not only affects your quality of life, but it takes you away from your financial goals. They even contribute to financial freedom, but from someone else.

There are several methods to get out of debt, below we leave you two, to know other ways I leave you a guide so you can learn how to get out of debt without dying trying.

  • Pay those debts with a more expensive interest: Organize your debts according to the interest rate and prioritize those that have the highest rate. This way you will avoid paying expensive interest.
  • Focus on paying off smaller debts: This will help you create a kind of emotional snowball, where you will feel motivated when you eliminate the first debt and move on to the next one.

Once you have paid off your debts, you will have a greater financial capacity to start saving money and moving towards your goals.

When you are in this stage, it is when you understand that many of the debts are because we lack a certain emotional intelligence to manage money, so we make decisions such as:

  • Buy things assuming they will make you happy,
  • Lead a lifestyle of appearances or worse,
  • Spending to impress people who don’t even care about us.

This brings us to the next fundamental point to achieving financial independence.

8. You must control your emotions about money

Your emotions strongly influence your financial future and specifically your goal of achieving financial freedom.

Has it ever happened to you that when you have little money you feel sad, useless, and even down? Have you ever pretended about how much money you owe and preferred people not to talk about it?

If this has happened to you, it is also possible that, when you are going through a good economic run, you assume unnecessary expenses, assume the appearance of an irrational millionaire, and embark on a lifestyle that is not sustainable in the long term.

You must learn to control your emotions regarding money, this is known as emotional intelligence. In such a way that these situations do not come to your head and you learn to make rational decisions and not based on your emotion.

9. Set a goal for your money

If you think of your financial independence as something distant, you may end up forgetting it or opting for habits that do not contribute to this goal.

Rather, establish short-term goals that contribute to your search for financial freedom, in this way, as you meet them, in the long term you will have accumulated a series of important steps towards your goal.

Here I leave you a series of examples of goals regarding money:

  • Establish that you will invest in your financial knowledge. For example, you will take a course to learn how to generate passive income.
  • Commit to saving an extra $100 over the next 30 days.
  • Make a payment to the capital of your mortgage loan, or to the most expensive debt you have.

The important thing is that you meet these goals so that you feel the satisfaction of working for your finances.

10. Have a balance in your life

Finally, you should enjoy the pursuit of your financial independence. Beyond wildly seeking money, luxuries, resources, and so on, seek balance in all areas of your life.

Achieving financial freedom implies that you surround yourself with people who make you improve, that you develop healthy habits, that you need less and less to be happy, and why not, even opt for a minimalist lifestyle.

Each of the important goals you have in your life, beyond being a place you arrive at, is a process. That is, it is not about reaching them, but about the person, you become in the process.

This is why at the beginning I mentioned that I was not going to explain to you how to achieve financial independence so you don’t have to go back to work.

It doesn’t make sense to stop working if you enjoy doing it, it doesn’t make sense to live constantly on vacation if you don’t have a purpose or don’t know how to be happy. So define what life you want to lead, and how you want to live and define a plan that allows you to make this goal a reality.

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