The Path to Financial Freedom Rewards you Today
The benefits of financial freedom are very clear:
- It gives you the opportunity to do what you want . You will agree with me, for your personal happiness that is indispensable.
- It gives you security , because with solid finances in the back you can handle the crises of life easier. Money does not make you happy, but life is easier.
- It makes you flexible , you can free up your time and organize your jobs as it suits you. Especially if you have family that is an invaluable advantage.
However, financial freedom is nothing you can achieve overnight. You can definitely work it out with patience and discipline.
This sounds like this kind of freedom is something that you work on for 15-20 years, and in the meantime, you do without the finer things in life. But that is not the case and why this is not so I want to explain to you here.
- Financial freedom is a long-term project
- Be sure to set subgoals
- How would you change your behavior if you got € 400 more a month?
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Financial freedom is a long-term project
As I said, the road to financial freedom is long and you will need a few years to reach your goal. Depending on how ambitious you pursue this goal, this can take as long as 1-2 decades.
The following graphic shows you a small example. We assume a monthly savings rate of € 500 and a term of 20 years. Furthermore, let us assume a net yield of 5% .
That means after 20 years you have earned a fortune of around € 208,000 . All right, what does that mean?
If we assume that you want to pass on the accumulated capital to your children and only live on the continued accrued interest, that means € 10,400 interest each year. That’s € 866 per month for the rest of your life. If need be, for all eternity.
That’s a great extra income. Of course, depending on how old you will be then you can continue to work and continue to increase your income, or if you retire in 20 years, you can upgrade your pension.
By the way, if you are wondering now how high your monthly savings rate must be to come after 20 years and at 5% to 1 million , here is the answer:
This corresponds to around € 2400 per month. This may be sobering at first glance, but if you are still young and have 30 years and may even get 6% return , then the monthly amount will already be reduced to € 994. Still not very short but not impossible. The compound interest sends greetings.
But you definitely do not have to become a millionaire to be financially free, and maybe it’s not such a healthy goal to stiffen up a number. Remember, money does not make you happy, it just makes life easier. Depending on your standard of living, significantly lower sums of money are enough to be money-technically independent.
That may sound very negative now, as if you were doing without something for 20 years, only to be able to enjoy something later in the uncertain future. Even if this is the basic principle of any investment (you are giving up money today to get more money in the future), this does not quite apply to the quest for financial independence.
After only a few years , your depot already supports you with passive income . Even if you do not spend this for the sake of dear interest, but reinvest immediately. But it’s a pleasant thought to know that a certain cash flow keeps your back free.
Be sure to set subgoals
I like to set goals and compare the increases in the depot with everyday things I need. For example, after one year my depot pays me a bulk purchase a month, after 2 years my entire expenses for food, 7 food and half rent, 10 years food, rent and some spare time. And so on.
A big goal is much easier to achieve by breaking it up into many small subgoals . Reinhold Messner does not even stand in front of the K2 and says to himself, ok I have to go up there now. He looks closely at his route and divides it into individual stages. Today to camp 1, tomorrow to camp 2, the day after tomorrow bivouac under the saddle and then up to the summit.
If he only thought of the altimeters altogether the whole time, that would be an enormous mental burden. But today until camp 1? That’s possible, I can do it. And after a few days he is at the top and has achieved something that seems impossible.
You need stamina, patience and partial goals to motivate and keep you happy. Then virtually nothing can go wrong on your path to financial freedom.
How would you change your behavior if you got € 400 more a month?
In this question, I do not mean your employer, but regardless of your income from capital. And compare it to the situation where your total income depends on your employer.
I believe that the more independent you are from your employer, the freer you will express your opinion. You will also go through life more relaxed and more likely to criticize or represent your positions with more emphasis.
And, as a self-fulfilling prophecy, you’re more likely to become more successful in your job. Constrained and tense, good things rarely happen. In the end, that also benefits your employer, because who wants a gang of yes-Sagern around. Sooner or later, this will get you on your feet and that is certainly not in the interest of the employer.
These “soft” aspects on the road to financial freedom are often overlooked in my opinion. Would you be less tense if you had 30%, 40% or more of your salary, regardless of your job? I am convinced you would be it.
By the way, this is another form of diversification , because what are you doing on your way to financial independence? You invest money and receive income from capital assets. Instead of doing everything on your own, you do not have one but two types of income . You are simply broader.
Financial freedom is not a binary, black and white process . It is something very graduelle. There is no exact deadline from which you can call yourself financially free. You will gradually . An invaluable advantage, because it allows you partial goals set which in turn motivated by keeping you on your way.
Going for financial independence is worthwhile today , not just sometime in the distant future. The steady growth of your depot will make you feel much safer or freer a lot.
If you have enough liquidity on your account then nothing can go wrong on your way.