I would like to share with you some basic steps to achieve financial freedom if you have just started or are still in your way to do it.
Five basic steps to achieve financial freedom:
1. Stay Cashflow Positive
If you have taken accounting lessons, you probably know what cash flow is. But in college, they teach that – the business has a cash flow; however, in life, we’re dealing with the same problem.
We have to manage the internal and external flow of cash. To keep your business in good condition, making sure that there is more money from abroad, or at least that the amount of money that leaves the business equal to the amount received.
No matter how much debt or expenses borne by the company. As long as it generates more money than lose it is good. Personal finance works exactly the same way. It doesn’t matter how much debt you have, mortgage, student loans, and car rental, as long as you a positive cash flow.
2. Don’t take unnecessary responsibilities
This mistake is literally one of the main reasons why so many people suffer financially. They may have positive cash flow, but they then bear the responsibility of financially they can’t afford them. I’m not just talking about getting a new car rental or credit card debt, but they get into an expensive relationship maybe or start a family. I’m not saying that a family is a bad idea. But here’s the problem, let’s say that your cash flow balanced. Start a family, raise a child, increase your expenses, get a second job or get a promotion, and your income also rises. Not bad, is it?
But as you grow older, arrange your expenses also, at some point they exceed your income, and thus become a negative cash flow, it will make all the rest of your life hard to compensate for the negative cash flow, and this is known B. generational poverty. Up to the point where I don’t have the means to build capital that will get you out of poverty. Most people cannot today get the financial stability not because they don’t work hard, but because they put themselves in a position they don’t have the choice but to spend every penny they earn.
3. Build an investment portfolio
About 4K years ago in a kingdom in ancient Mesopotamia. There was a man named Arkad who was as poor as really poor. To escape poverty, he worked hard to put food on the table; however, when he received his service payments, he put very little food on the table and lent the rest of the money to the armor maker, who then paid interest on the loan.
Instead of spending this attention to improve his standard of living, he lent it to another armor-maker, and therefore his wealth increased even more. After repeating this process for many years, his fortune grew so much that he didn’t have to work again, and it ended up being the richest man in that city, Babylon. You may not find a shield tag today to lend your money, but obviously there are other tools you can use to grow wealth.
4. Be liquid
If you pay a thousand dollars in the SP500 in June 2007 and decided to pull it after a year because you have an emergency. How much do you think you’d make out of that thousand dollars? I’m sorry to say this, but negative 50 percent. You’ll need to wait another five years (2013) just to get your money back. And that’s how the market works. Jumps up and down every day.
Sometimes a crisis occurs, and may need a few years to recover. For this reason, if you are serious about the stock market, you must be the long-term to profit. But in order to really feel financially independent, you need to be fluid. You got kicked out, businesses go south, and the recession just around the corner, no problem, I’ve covered yourself, and you have enough money to not worry about bills for at least six months.
5. Have a plan
All the things we talked about in this blog look great, but how do you get the money to do it all. It seems that the only possible option is to win the lottery. You can of course try it, good luck!
Whatever else you have, plan your spending! You will not build a 6-month cash cushion in one month. You will not build a million dollar investment portfolio in a few months.
Financial independence is not the ultimate destination. The goal is not just to make enough money and retire forever. Instead, to put yourself in a position where you can’t base all your decision on how much it costs.
You will not accept this new function just because it pays a little higher. You probably will continue to work but rather work on things that interest you more than others. With less financial problems, hopefully your life will be a little hotter. I hope you enjoyed this blog.