Want to retire early? Wish you had the time and money to do what you really want? Just take these six steps to financial freedom.
On The BIGG Success Show, we discuss how to accumulate a nest egg which will support the lifestyle you dream of. Here’s a summary of that discussion.
It’s easier than you might think to achieve financial freedom – even in the midst of a pandemic.
That’s because time is on your side, when it comes to money. It’s a financial concept called the time value of money.
Let’s say you want at least $1 million when you retire at 65. We know – you want to retire earlier than that. We’re glad to hear it! But keep listening to our example so you understand the point. It’s really, really, really important!
At 25, all you need to do is invest $10 a day to reach that goal. If you wait ten years to start, you’ll have to set aside $22 a day. So our point is:
Here’s how to retire earlier – if you’re 25 and you want to retire at 55, just find $22 a day to invest. But in any case, no matter how old you are, get started right away!
In these examples, we assume you could earn 8 percent on your investments. If you can earn more, you could retire earlier. But be careful – increased returns usually carry higher risks. More about that will be forthcoming.
This Podcast Episode is Sponsored by: FinancialFreedomTool.com How do your personal finances stack up to your neighbors? The new Financial Freedom Tool shows you how your income and expenses compare to other people like you, so that you quickly see how to save more money. Learn more at FinancialFreedomTool.com.
Before we get started on the easy steps to financial freedom, there’s one thing we want to talk about. It’s important that you have a well-defined goal. For example, the goal in our example was to accumulate $1 million by age 65.
You can’t accumulate assets without income. There are two kinds of income: active and passive. Active income flows when you work for money. Passive income flows when money works for you.
At BIGG Success, we think about this way:
Your money makes money so you don’t have to. Then you’re free to do what you want.
How much money will it take for you to be free to do what you want? That’s your goal! Now, let’s talk about the six steps to achieve it.
1) Automatically pay yourself first
Many people are confused by this concept. Of course, you pay yourself first, right? After all, your money is yours to do with as you please.
However, they miss the point. Most people don’t pay themselves first. They pay themselves last. The result is, at the end of the month, they have nothing left!
Pay for your future just like you pay for every other bill.
The easiest way to do this is to set up an automatic deduction from your paycheck or your bank account. People report that if they don’t see the money, they don’t miss it! This is the most critical step because it gets everything started. Don’t stop until you reach your goal.
2) Purchase with purpose
We all make many spending choices every day. Do you really need that even bigger TV now, or could you wait awhile? If you don’t have the cash, don’t spend it. Also, look at the annual effect of your daily decisions (e.g. coffee or lunch out every day).
Can you find a way to save an extra $10 every day? As we’ve already seen, that can turn into $1 million in 40 years. As you see your accounts grow, you’ll be inspired to keep going.
Keep your financial goals fixed clearly in your mind. Picture yourself free of all financial worries. That helps you make the best choices today. Listen to our podcast on The Marshmallow Test for more tips.
And check out our Financial Freedom Tool. It will help you pinpoint places to easily save more money.
3) Own your own home
We can make a good case for renting:
Research shows that you’re better off “renting and investing” than owning your own home. Has anyone ever told you that before?
Most people have trouble believing this research. Buying a home is seared in our brains from early adulthood.
The problem isn’t the research. The problem is that, most renters never get to the second half of the phrase, the “investing” part.
So they “rent”, and “rent”, and “rent”. They don’t “rent AND invest”.
That’s one of the reasons why the net worth of homeowners is so much greater than that of renters. Owning your own home forces you to save money. It’s very much related to the first step.
Don’t become house-poor. “House-poor” means your house consumes so much of your budget that you can’t afford to do anything else.
As the research bears out, a house is not a great investment! (Buying a house to rent to others is a different story.) For your personal living space, find a house that helps you meet ALL your goals. (Review the first two points if need be.) You can always trade up when you don’t have to worry about money anymore!
4) Pay off debt
You’ve probably heard people say, “I want to buy a house because renting is just throwing money away.” It raises a question:
Why are we so opposed to “throwing money away” to our landlord, but we think nothing of “throwing money away” to our banker?
After all, the mortgage interest they charge is a rental fee on the money you’re using. There’s no difference!
So pay off your debt so you stop paying interest. Now, we’re not really talking about your mortgage here. We really want you to focus in on high-interest debt, like credit cards.
Start with one obligation, like the one with the highest interest rate. Pay it off.
Take the payment you’ve been making on that and add it to another one. Pay that one off.
Eventually you’re debt-free!
Don’t stop! Keep making those payments – to yourself! It will jump start your future! That’s another secret to reaching your goal early!
5) Invest wisely
A lot of people don’t accept enough risk. If you invest too conservatively, it’s hard to reach your goal.
There’s a basic financial principle: Increased risk deserves increased rewards. But here’s a secret – time takes away much of the risk.
If you’re investing money that you don’t need for five years, your risk is generally less than if you need it in one year. If you can live without it ten years, your risk is even lower, in general.
Don’t put all your eggs in one basket. The easiest way to do this is to invest in a balanced no-load mutual fund. Don’t touch this money until you’ve reached your goal.
6) Prepare for the unexpected
Here’s what you can expect: You will face some unexpected roadblocks on the way to your financial freedom. Prepare for them.
Make sure you’re insured properly, including disability insurance.
Stash away an emergency cash reserve. Most experts recommend that you have three to six months of living expenses in an account for unexpected events.
How can you build your emergency stash faster? Our Financial Freedom Tool will help you find money in your bills! Check it out!
You won’t get rich quick with these six steps. However, they will put you on the road to financial freedom. Enjoy the trip! It leads to BIGG success!
Here’s to your BIGG success!
George “The Professor” & Mary-Lynn
Co-Founders, BIGG Success
Direct link to The Bigg Success Show audio file | podcast: