A guide to financial independence
Financial freedom is generally thought of as “a state in which an individual or household has sufficient assets to support themselves without relying on income from any form of employment.” But as Robert Kiyosaki says, “Financial freedom is available to those who learn it and work for it.”
If you were to ask your grandparents, parents, and peers about their views on financial freedom, their answers would be very different from what we think today. For older generations, financial independence is more likely to mean retirement. But for millennials, financial freedom doesn’t mean working 45 hours a week for 40 years. They want to be financially independent from the start so they can enjoy the second half of their lives with their loved ones.
Here is a guide on how to achieve your dream of early retirement and financial independence:
do the math first
You can only set up a retirement plan after you’ve calculated how much equity you’ll need to maintain your current standard of living after your regular income is gone. Start by calculating your current monthly expenses and extrapolate them into the next 20-30 years (depending on your retirement age). Don’t forget to factor in inflation.
Once you’ve found a number you think is reasonable, it’s time to look at your current savings and investments and determine how much additional money you need to generate. Once you know which corpus to target, you can easily decide on the best savings and investment options available to you.
The best day to start saving was yesterday
And the next best day is today!
As a millennial, building a physique for retirement is probably the last thing on his mind as he begins his career. But he remembers: today you are young, independent. and free from any liability. Over time this will change; Your responsibilities will increase as will your expenses. Therefore, it is easier to save part of your salary today than in the future. Even as the years go by and you get closer to retirement, the stress of building a financially secure retirement life will weigh heavily on you.
If you want to achieve financial freedom at a young age, you need to abandon the traditional approach and start planning today.
Leverage the power of compounding
As complex as it sounds, the power of compounding (or, as we like to call it, “the golden rule of financial planning”) is simply about increasing your wealth by earning your previous income. But what people don’t understand is that a small amount compounded over a long period of time can yield more than a large amount compounded over a shorter period of time.
Starting today, you can consider these recommendations, plan ahead, and redefine retirement.