The Ultimate Guide to Financial Freedom

How to reach financial freedom? This is the ultimate guide to financial freedom compressed into a short post. This should contain everything you need to get started with your journey towards financial freedom.

The timeline is up to you and how much you are willing to commit. This should be doable for everybody, if you are working at Starbucks or own your own company, I think this can help you out.

Table of contents

  1. What is financial freedom
  2. How much is needed to achieve financial freedom
  3. How to achieve financial freedom

What is financial freedom

What is financial freedom and what does it mean to you? When talking about financial freedom, it usually means having enough assets, so you don’t have to work your 8-5 job anymore. This means you have enough investments or savings to cover your costs for the rest of your life.

The amount of money needed for this can differ a lot depending on different countries and people’s habits. Some might need just a thousand US dollars, while others will need ten thousand per month.

When calculating how much assets you need in order to achieve financial freedom, we will use the average return on investment of 8%. If the return is 8%, you don’t want to take all the profit your investments are making. Instead, we will take yearly half of this to cover our living expenses. If your monthly costs of living are two thousand dollars, here are a few examples on how to calculate it and how much you would need.

How much is needed for financial freedom

Like I said before, the amount you need varies. Here are a few examples of how much you need to cover your monthly expenses.

  • 1000 dollar living costs per month 1000 / 0,04 * 12 = 300 000
  • 2000 dollar living costs per month 2000 / 0,04 * 12 = 600 000
  • 5000 dollar living costs per month 5000 / 0,04 * 12 = 1 500 000

0,04 comes from the 4% you will take from your investments annually. 12 is the number of months per year you will be needing the money.

The amounts here might seem big. But with compound interest, they are achievable for everybody. Here are some calculations on how much you should invest monthly to achieve the 2000 monthly passive income over certain periods of time. These are calculated with an 8% annual return.

  • 1100 dollars monthly for 20 years with an 8% annual return would be around 604 000 dollars.
  • 450 dollars monthly for 30 years with an 8% annual return would be around 611 000 dollars
  • 200 dollars monthly for 40 years with an 8% annual return would be around 621 000 dollars

As you can see, the more important factor is how long you will be investing. This will allow compound interest to do its job for longer and it will become much more efficient over time.

With the first example of 1000 dollars per month is still showing, that you can achieve the amount for financial freedom even in a shorter period of time. But with the downside that you will have to put in six times the money monthly compared to a 40-year plan.

The lesson is this: The sooner you start, the smaller amount you will have to put out monthly. Or, you can put more aside and start your period of financial freedom much sooner. These are just examples, if you want to calculate yourself, here is the calculator I use:

How to achieve financial freedom

When thinking about starting to put money aside monthly, you have pretty much two options. One is to cut your expenses and the other is to start earning more. If you plan on just putting aside 200 dollars per month, this can easily be done with just cutting some expenses I would say.

On the other hand, if you plan to put aside 1000 dollars or more monthly, it might be a good idea to start thinking about ways to earn a little bit more, if you can’t cut your expenses by that amount.

Earning more can mean asking for a raise, switching jobs, or starting something new aside from your day job. Internet has brought opportunities to everybody. Internet is full of information on how to earn a little bit more on a side. Not all of these are legit, but I’m sure there are some useful things out there as well.

Think about what interests you. I have made a few posts about starting your own business, you can read them here.

Final words

I made the example calculations based on stock market returns. However, there are other things to invest in as well. Let’s take real estate, for example. Buying houses, you will gain monthly rent from it. You can also calculate how many houses you would need in order to cover your monthly expenses.

Real estate investing is more complicated, I would say. You would have to find someone to live on it and take care of it. It has different kinds of risks, and it takes different kinds of effort to maintenance. But it can be fun. You can do both, real estate, and stocks. On top of that, there are still plenty of other things you can invest in.

If you just put out monthly the amount you intended to index funds, that’s it. You don’t really need to be checking how the market is doing. Just stick to your investment plan and do the monthly contributions. Also keep in mind, that even though the market has provided 7-8% annual returns in the past, there is no guarantee of future returns.

However, companies are supposed to make profits for their shareholders, so at least on paper it’s their job to try to make your investments grow.

I have made a newer post about different levels of financial freedom as well. You can read it here.

Other investing-related posts can be found here.

Thank you for reading, hopefully you can benefit from this. Have a nice day.

This is not investment of financial advice. Past return of certain instruments is not a guarantee of future returns. Always do your research before risking your hard earned money.