How To Achieve Financial Freedom in the New Decade
It’s the beginning of a new year- not just a new year- but a whole new decade. Naturally, we’re all making financial plans and setting goals for things like savings, investments, and wealth creationin the new year. However, here’s what’s good about this particular year: instead of making plans for just the new year, you can choose to think long term and make plans for the whole decade, yep, the next ten years.
In this post, you’ll find a couple of tips that can set you on the path to becoming financially free in the new decade.
Avoid the Lifestyle Trap
It’s natural for expenses to keep up with increases in income. You tend to want to move to a more highbrow neighborhood as soon as you get a pay raise or make a down payment on a really nice ride. This is the quickest way to not be financially free. Wealthy people are those who have learnt to keep their expenses in check while their income keeps increasing. Keeping up with the Joneses and purchasing the latest version of any gadget may be a status signal to others, but it will only keep you broke and trapped in the rat race.
Music videos and movies may depict billionaires as lavish spenders with expensive cars and houses. However, the real-life billionaires are not so flamboyant. Warren Buffett still lives in the $31,500 Omaha house he bought in 1958. Bill Gates has, among other cars, a regular looking, second generation Toyota Prius that he drives his family in. Mark Zuckerberg wears a grey t-shirt and jeans all the time. These folks have learnt to keep it simple despite all the money they’ve made, why not you?
Eliminate Unnecessary Debt
Trying to become wealthy while still debt ridden is like attempting to fill a leaking tub with water, totally futile! Except you’re funding a really profitable business with a properly structured loan facility, you should avoid debt like the plague. Student loan backlogs, huge credit card balances, outstanding installments on vehicles and other toys, or accumulated mortgage payments will definitely slow you down on the path to financial freedom. You can find more details about getting out of debt here. You need to sort this major hindrance and get it out of the way before even thinking of being financially free.
Figure Out Exactly How Much Financial Freedom Means To You
It’s easy to say “I want to become financially free”, but like a mirage, this goal will keep being elusive if you leave it at making a vague statement. It’s important that you put pen to paper and decide on a specific amountthat you wish to make to consider yourself financially free. In Think and Grow Rich, Napoleon Hill asks readers to choose a specific amount of money they wish to make, write it down, and place it where you can always see it. While this may seem a bit extreme or sound like some motivational speaker’s antics, it does work and I’ll explain how.
When you settle on the exact amount that you need for financial freedom, over the decade, you can break it down into annual and monthly income targets. Say, if you plan to put away $1million for your retirement, obviously, that gets broken down to $100,000 per year (for 10 years) and roughly $8,350 monthly.
Putting it in figures like this makes it easier to plan and decide the exact steps you need to take. Maybe you already have $50,000 in savings and you’re earning $1,000 monthly. Then you have to make almost $7,000 extra every month either by starting a business on the side, freelancing, or creating passive income streams through investing. You may even need to extend your plans to cover 15 or 20 years instead of 10 before achieving financial freedom.
Of course, the exact amount will vary from person to person depending on various factors such as how many years you plan to keep working for, the extent of your financial commitments and responsibilities (parents to support, kids in college, etc) but you really need to pin down a specific figure that works for you.
Read and Learn about How Money Works
Beyond Bloomberg and the Financial Markets News on CNN, a lot of us really don’t know how the economy, investments, and money generally works. Being ignorant about things like this leaves you groping in the dark and making blind guesses about which stocks to invest in, whether to set up a registered company or even filing tax returns. If you’re going to be rich (A.K.A achieve financial freedom), you need to really get a feel for how the financial system as a whole works.
No, this is not as difficult as it seems at first glance. There are books, materials, and even articles like this and this that can give you a quick grasp of these concepts. Think and Grow Rich by Napoleon Hill, The Richest Man in Babylon by George S. Clanson, and Rich Dad Poor Dad by Robert Kiyosaki among others, will all give you a good introduction. Also, check out this list of the best audio books on money.
Take Calculated Risks by Speculating
This may sound sort of counterintuitive as most of your previous knowledge about investments and finance may have centered around avoiding risk. Well, sorry to burst that bubble but risk, if properly managed and taken with the appropriate precautions can lead to huge payoffs, and in the event that the risk crystallizes, minimal loss.
High risk assets like cryptocurrencies have given huge returns (10,000 bitcoins could only buy 2 pizzas in 2010, now they’re worth almost $74 million) while some investors lost thousands of dollars when the price dropped sharply in December 2017, November 2018, and recently towards the end of 2019.
The question now, is, how do you invest in such a volatile instrument without getting burnt? For the risk averse investor, the logical answer is to avoid it. But really, what’s life without some risk? The trick is to position yourself to gain from the upward swings and reduce exposure to the dips by investing only a tiny part of your portfolio and playing for the long term. A rule of thumb is to invest not more than 5% of your portfolio in such a highly volatile instrument. You can decide to even make it a bit lower, say 2%, and purchase on a regular basis (monthly or quarterly), applying the concept of Dollar Cost Averaging to hedge against volatility. By using this strategy, you’re not too worried if the price comes crashing down as it’s money you can afford to lose. And if the price goes skyrocketing, you’re smiling to the bank and can achieve financial freedom much faster.
You won’t figure out how to become financially free just by reading this one article, but this is definitely a good place to start. By putting these tips into practice and actively expanding your mind by learning more, this might just be the decade where you finally achieve financial freedom. See you in December, 2029 with those stacks of cash in the bank and assets all over the world. Cheers to the new year and decade!