Why Financial Freedom Should be your Goal Instead of Earning Money
Why Financial Freedom Should be your Goal Instead of Earning Money
A comprehensive article that guides you to financial freedom.
Written by: Jel Vinculado
“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.”
-Warren Buffet
Having financial freedom doesn’t mean being the richest man on earth. It simply means having the money that you need to live YOUR version of the best life. To others, it might be having their own house on the beach. While to some, it might be spending their day with their families at home. In the Philippines, it is commonly interchanged with early retirement.
As a person in her twenties, I have often fantasized about the idea of not having to work in the usual 8 to 5 shift like everyone else. To do this, I studied many successful individuals. And so, I came up with 4 simple steps to achieve financial freedom.
Step 1: Have an emergency fund.
Before taking any steps to freedom, save at least 5 thousand pesos ready-to-go cash (or more). This money should be readily available at all times and should only be touched during emergencies (ex. Doctor’s appointment when sick). Also, it should be replaced as soon as you get back on track.
Step 2:Pay your debts.
If you have any debts that you have to pay such as credit card loans, car loans, or house loans, it may get in the way of financial independence. Dave Ramsey’s famous snowball effect, states that you can start paying off the “top of the snowball tower” or the “lightest ball” before going through the bottom. Meaning, pay the smallest debt before going to the big ones. This process would give you a sense of accomplishment that could motivate you to do the same for the rest. Although of course, it might also be wise to pay off the ones with the largest interest rate.
After having in-hand ready-to-use cash and paid debts, you are now 2 steps closer to your freedom. Now for the next step…
Step 3: Have your short-term savings.
Savings are money that is usually stagnant and liquid. It might be money in your savings account that is not earning much through time, thus making it stagnant. And it can be turned in to cash anytime, hence, it is liquid. It is advised to save money that would cover 3 to 6 months of expenses, in case one would lose his or her job.
Step 4: The last step is to invest.
As they say, “Earning is good, but investing is better.” At this stage, you’ll look for ways to earn passively. This would help you exit the paycheck to paycheck living and start earning in your sleep.
To name a few investment methods, here are 4 common investment vehicles;
- CD and Annuities
- CD or Certificate of Deposit is the title you receive after lending the bank money that would be paid back at the end of the investment period with a certain interest.
- Annuities are usually offered by insurance companies, it is a series of payments that would later on result to “paybacks” or “pensions” with a certain interest.
- With these types of investment, there are low risks but also low money return.
- Stocks and Bonds
- Stocks are stakes of ownership at a certain company. When market prices are low, so is the value of your investment. Since the late 1990s, it is estimated that the value of the average stock market price rises about 10 percent yearly. It is said that in stocks, there are high risks but also high rewards.
- Unlike stock which are stakes of ownership, Bonds are commonly seen as “debt” to you by the government or any private company. It is like lending money for government projects or any project that is in need of a large sum of money. Here, money return is less volatile than stocks. Though the average increase per year is 6 percent, as compared to that of stocks investing.
- Real Estate Investing
- It is ideal for people who resourceful in terms of renovation skills and who are patient in handling tenants.
- It usually costs more, in terms of capital, than any other investment. Though it is said to be the most stable and with medium to high rewards.
- If you think you can’t start investing in real estate on your own, there are still many options available for you in this industry like joining in real estate investment groups, real estate flipping, and real estate investment trust (REIT’s). These options have different needs that could potentially fit your wants.
Although I listed about 5 types of investment, there are a lot of other strategies out there. The key is to be creative, look out for opportunities, and be disciplined.
Going back to our discussion, why do you need to focus on financial freedom instead of just earning money? One word. Motivation. Imagine going to work every day thinking about that paycheck at the end of the month. It can make you lose interest in your work. It’s exhausting having money as your motivation because, believe me, it’s never enough. Whereas if instead you focus on that long-term goal of financial freedom, it gives you the REASON to wake up every day.
End that paycheck cycle now.
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