There’s a lot of planning and work that goes into gaining a limited amount or full financial freedom, but it still remains an attractive goal for many. The goal of financial freedom attracts people like a beacon, as many want a chance to pursue their dream job, or just enjoy a less stressful or retired life. To get you started on the road to achieving financial freedom in 5 years, we’ve outlined a few points below.
Why do you want financial freedom?
Before starting on the tough slog towards financial freedom, you need to understand why you want to achieve it. Most people aim for financial freedom because they want to stop doing a job they dislike and live off the money generated by their savings. Others just want a degree of financial freedom so that they can work fewer hours per day. People in their 20s want financial freedom so that they can spend time doing something creative like painting or writing a book while being able to pay their bills. However, whether aiming for complete or partial financial freedom people want to achieve their goal within a specific period such as 5 years or 15 years.
Make a Plan to Achieve Financial Freedom
Getting onto the path towards financial freedom and staying on it is not easy, as it takes several years for people on a monthly salary to achieve this goal. People who have successfully achieved their goal have done so with a plan which helps keeps them on track and focused. Any plan however should be adaptable to take into account changes such as a new job or a downturn in the economy. Plans also differ according to the time period during which you want to achieve financial freedom. Five year plans for instance are ideal if you have a high paying job, or can save up to 90 percent of what you earn per year. Also in your plan you need to put aside enough for major expenses such as putting children through college.
Save a Major Portion of What you Earn
Saving up to 80 percent of what you earn per year is often a key element when you want to achieve financial freedom within a short period of five years. Generally plans to achieve financial freedom within 10-15 years involve less saving less, but you should aim to save around 50 per cent of your total earnings per year.
Pay off Debts and Mortgages
Steering clear of new loans and reducing debts until you have none is extremely important. Start with paying off existing debts and student loans and put into place a plan so that you complete payments on a mortgage. Interest paid on loans and credit card debt can quickly eat into what you are earning per month so ensure that your debt burden is zero.
Live According To a Budget
Saving to achieve financial freedom often involves not eating out at all and not going for vacations. So create a monthly budget for groceries, utilities and cut out expenses on cable and Netflix. Importantly once you make a budget stick to it and do not deviate or exceed it one month by eating out, and hope to make up the next month by saving more. If you are paying more on house rent look for creative ways to reduce the amount that you are paying per month by getting a roommate. Also ensure that spending during holidays does not eat into your savings.
Get your Money to Work for you
While saving what you earn should be a priority you also need to make your money work for you. So invest in high interest earning term deposits which can be rolled into new ones as soon as they mature. Putting any emergency money that you have into a savings account that provides good interest rates is also advisable, instead of keep it in an envelope at home.
Bring Down the Amount of Taxes Paid
Paying taxes cannot be avoided but there are several methods available, which allow individuals to reduce their tax burden legally. So take advantage of these methods as money saved on taxes allows for increases in savings.
Achieving financial freedom within a period of five years is definitely doable and it is an attractive prospect especially for people in their 30s who want to travel more in future. Even millennials as they struggle in the job market are increasingly choosing to plan their financial freedom within five years, as a safeguard against a volatile economy in the future.