3 Steps on How to Reach Financial Freedom


How do you reach financial freedom?

Anyone who wants to save for financial freedom should create a free home as soon as possible. The benefits of this are low taxation on private rental income, leverage through mortgage lending etc.

you can increase your monthly savings towards financial freedom. you can reduce your capital needs and savings goals by 25 times the housing cost. Both effects reduce the number of years it takes to achieve the goal of becoming financially free.

What does it mean to reach financial freedom?

The term is often mentioned and appears from time to time during conversations – Being financially free does not mean that you are or must be rich, even if rich people are certainly financially free.

In short, being financially free means that you are not dependent on any other income to live.

You are your own financial source and you are not dependent on a salary to live your life.

Although this may seem unattainable to many, financial freedom is something that is possible for everyone if they make the right decisions and put time and effort into achieving the goal.

How to reach financial freedom in 3 steps

There are dozens of different ways to achieve financial freedom.

The most common ways are achieved through savings, dividends or through a source of income that is not linked to the work you do, but by the number of jobs you did to create an income stream.

1. Savings

Savings are certainly the most common path to financial independence, although they are also the slowest path.

By saving over a period of time, usually with a certain degree of investment, you can invest enough to gain financial independence later in life.

The problem with this method is it depends on the value of the currency you keep your savings in. If you have invested smart, this method is much safer even if it takes a longer time to implement.

2. Investments

Consistent dividends from investments or businesses are another way, while it is more difficult to set up it will be much safer (depending on where the investment is / what the business is) and it can be achieved within a shorter time frame.

3. Passive income from own projects

By running your own projects, you can get enough passive income to live without a real job. However, this requires a lot of work as a start in order to be able to earn enough.

The most common way is to create your own website and then drive enough traffic in the hope that ads or collaborations pay off your livelihood.

Worth thinking about, this is extremely difficult and few succeed. Building the website (or websites) requires thinking long-term and not giving up along the way as it usually takes several years before it actually generates a respectable amount of money each month.

How much do you need to reach financial freedom?

This is the key question – There are many factors that come into play in this, so you need to customize this section according to your own needs, but for simplicity’s I will create an example:

Calculation example

Let’s say there’s a 23 year old man named Smith. Smith has just graduated from university and has started working for a company that gives him $30,000 per year after taxes.

Now if he were to start saving right away – let’s say he spends 10 percent of his income, he would save 3000 his first year.

The problem with this is that as he gets older and his wages go up, so does his cost of living.

So when he reaches the age of 65, he may well earn several thousand dollars more each year and still save less from what he did in the beginning.

But Smith now has to face the fact that his savings earlier in life have little bearing on his current cost of living.

This is before we even take into account 43 years of inflation and the possibility that he may have to dive into his savings due to emergencies at some point in his life.

He may be financially independent, but he now has little in the way of income and must essentially make sure he dies before he runs out of money.

This is what happens if you just leave your money in the bank and do nothing about it, provided you earn the average salary for the rest of your life, you will not be able to achieve financial freedom in any meaningful way.

How much do I need to save then?

If I want the same standard of living with an expenditure level of $2340 / month and + $2500 / year extra for travel, my annual expenditure level in the future will be $2340 * 12 + 2500 = $30,580.

To cover these expenses with dividends, I need, with a direct return of 3.6%, to save $850,000 (30,580 / 3.6% = 849,444).

The cost of living plays a big role in reaching financial freedom

By reducing your living costs instead, you can already achieve your dream earlier.

If you assume that you need $2000 per month after tax to live comfortably, this means that you need $24,000 ($29,760 before tax) per year.

To achieve this through investments with a safe rate of 8%, one can count on an actual profit of about 6% after inflation.

This means that your cost of living requires $430,000 in investments. $430,000 may sound like a lot of money, which of course it is, but, seen over a lifetime – not as much.

It would require you to spend less than $500 every month for 26 years, which is very feasible.

Here you can also take into account that your income will certainly grow in connection with age, so 26 years is of course not set in stone, but already after, for example, 20 years, you can live on the return by setting aside a small amount each month.

This is a rough example, but to achieve financial freedom, you always work out how much you think you need to live and then find out how fast you want it.

How to use FIRE to reach financial freedom

Do you also dream of the free life? No alarm clock, avoid commuting to work and everything else that belongs to the squirrel wheel.

Imagine being able to be free and finally do what you really want. Most people think that dream is impossible to achieve, at least if they do not win the lottery.

But living a free life and jumping off the squirrel wheel is certainly not impossible. If you have a goal of becoming financially free and set up a financial plan to achieve it, you have every opportunity to achieve it.

You are not alone in that dream and that goal. Around the world, a movement called FIRE is growing rapidly.

FIRE is about saving a capital for a number of years at the beginning of working life, which you can then live on for the rest of your life.

How-to?

  • Make as much money as possible
  • Reduce your expenses as much as possible
  • Get passive income


The recipe for FIRE is simple. Make as much money as possible. Feel free to work extra or create alternative income.

Spend as little as possible. A well-thought-out budget where you have removed all unnecessary expenses and which you follow with discipline is a good foundation.

The money that is left over, which may be quite a lot every month, you invest in the best possible way. Reinvest earnings and dividends, and the fantastic interest-on-interest effect will help you reach your goal faster.

Because you are forced to live financially when you work to become FIRE, you also learn to prioritize away unnecessary consumption and unhealthy habits.

It is a healthy idea to have with you for the rest of your life when you are FIRE and it is wise for both the environment and your health.

What is FIRE?

FIRE stands for Financial Independence and Retire Early.

The basics of the concept are that you should save up an equity that you can live on for the rest of your life.

This is so that you do not have to depend on spending your time working. Once you have reached your goal of financial freedom, use your time for what you prioritize in life.

Of course, it is not necessary to retire when you reach your goal.

Maybe you want to work less or in a different form. The important thing is that you are free to control your own time.

FIRE = Financial Independence and Retire Early.

Where does the concept come from?

The term FIRE was launched by blogger Peter Adeney. He runs the blog Mr Money Mustache and managed to achieve his goal of financial freedom already at the age of 30.

He earned a good living as a software engineer, but lived financially so that he could save a large part of his salary.

Peter Adeney invested his salary in index funds and lives according to the so-called 4% rule, every year he takes out 4% of his capital to cover the costs he has.

An important part of the FIRE movement is to limit its consumption. Partly to be able to save as much money as possible, but also because it is unnecessary both for you and the environment.

The things or experiences you spend money on should be well thought out and something you want and think is worth spending money on.

Peter Adeney has inspired many people around the world to follow in his footsteps. FIRE has truly become a global popular movement. Early retirement certainly does not attract everyone.

But living by the principles of the FIRE movement is healthy for yourself, the economy and the environment.

Why should you aim to be able to retire early in life?

It takes discipline to build a capital that is large enough to retire early for. But reaching the goal of retiring early does not mean that you should not do anything.

For most people, it is important to be free. By free, the FIRE movement primarily means that you can use your time as you wish.

You then have an opportunity to do what you want. Maybe you do not want to let go of working life completely, but work when it suits you.

On the day you choose to retire early, you should enjoy the situation. You are free and can plan your everyday life and your life.

It is important that you have both a financial plan that is truly secure and a plan for how you want to live your life. The two plans must agree.

No matter what plan you have with your life, it is good to have built up a good capital. If you have saved up a larger amount, you have the opportunity to live as you want.

When you build up your capital, you also learn to prioritize in a healthy way. You prioritize unnecessary expenses and choose to save for your own freedom and choice.

The expenses you have are well thought out and go to what you must have or which you prioritize.

FIRE: How to reach finacial freedom in 6 steps

There are two things you can influence to be able to save as much as possible. Your income is your salary. You can try to work more or get an extra income to increase it.

But the easiest thing for most people is to influence their spending.

  • Make as much money as possible
  • Reduce your expenses as much as possible
  • Get passive income

Step 1: Where does your money go every month?

Do you know what you are spending your money on? Go through your bank statements and see where your money is going.

Are there expenses that feel unnecessary or not worth it in retrospect? Make a budget what you need and want to spend your money on. Make sure there is money left over for savings.

The day you retire early, you can certainly reduce many costs. Do you need the same car if you do not commute?

Instead of subscribing to the magazine, you can read it at the library. All costs must always be questioned, regardless of whether you work or have retired early.

Step 2: Reduce your fixed unnecessary costs

Do you have fixed costs that feel unnecessary? Maybe you are not subscribing to a streaming service or you can reduce the cost of your mobile subscription or insurance.

Step 3: Set up an automatic monthly saving

For many, early retirement can, after all, feel like it is a long way off. It is important to have savings even for goals closer in life.

It could be next summer’s vacation or spending the winter in the heat to celebrate that you’re halfway to FIRE?

The most important thing about saving is that it gets rid of. Start saving with different goals where the money is deducted from your account as soon as you receive a salary.

Do not wait until the end of the month, then there is a great risk that you have spent your money on something else.

Step 4: Set up a buffer saver

You may suddenly incur unexpected, tedious costs. It could be your car that breaks down and needs to be repaired or you lose your job.

You should always have a secure buffer saving. It must be easily accessible and placed in a bank account with a government deposit guarantee.

How large your buffer savings should be depends on what your finances otherwise look like and what type of unexpected expenses you may incur.

If you live in a house, more things may need to be fixed than if you rent an apartment.

Step 5: Put your money to work on the stock market

Long-term savings feel absolutely best in equities, directly or through funds. Stocks are the best long-term form of savings to make your money grow.

It is important to save regularly, then you will both buy shares cheaply and sometimes a little more expensive, but in the long run it will be a good return.

It is also important that you spread your risks between different markets and companies.

The most important thing is that you start saving today. Your savings will hopefully grow, so it’s a good idea to start as early as possible.

Step 6: Important to automate savings and investments

It is important that you really start saving immediately and it is important that your regular savings are off.

The earlier you start saving the easier and faster you will reach your goals. It is also important that you make sure you save as soon as you receive your salary.

It should be part of your budget and money for savings should be deducted while you pay your bills. Do not wait until the end of the month to save the money that may have been left over.

It’s easy to spend them on something completely different in the short term.

10 savings tips to save money in everyday life

There are many savings tips in everyday life that in the long run can make a big difference.

Some things may sound like small savings, but count on what it can do for a long time and you will see that it can be large amounts.

1. Cook in your kitchen and bring a lunch box

Bringing a lunch box to work instead of eating out is perhaps one of the most classic saving tips. The Swedish Consumer Agency estimates that a brought lunch box costs $2,9.

A lunch out rarely goes under $8,5. In one year, you then save more than $1300 by choosing a lunch box instead of having lunch at a restaurant.

It is no problem to cook a cheaper lunch box than the $2,9 Consumer Agency expects, and still eat well.

Then you still save more money. Properly invested, you will have much more enjoyment of them in the future.

2. Stop smoking

Smoking is not cheap, even if you do not do it often. Saving money by quitting smoking is just one advantage, but perhaps not the most important.

Your health will feel much better if you manage to fimble for good.

It really is not easy to quit smoking. But if you have the strength to fight the cigarettes, you have done a feat both in terms of your health and finances!

Set one or more short-term goals if you manage to stay away from cigarettes. If you succeed in quitting, it’s really worth celebrating!

3. Do not eat / eat less at a restaurant

Surely it is good and nice to eat at a restaurant? Of course you have to treat yourself to it sometimes.

But it can be at least as nice to invite your friends home for dinner.

Why not cook together or arrange a party? It will be at least as fun an evening as in a restaurant, and much cheaper.

4. Don’t buy food empty the freezer instead

Do not forget the food you have in the freezer. Maybe it’s leftovers you’ve frozen in before or from when you went shopping.

From time to time you can reduce your food budget and empty the freezer instead.

Conversely, when there is a good price for suitable goods to freeze, buy extra and do it! It is also excellent to cook a large kitchen and freeze lunch boxes.

5. Bargain on the mortgage

Right now we have a historically low interest rate situation. But if you have not bargained on your mortgage, there is probably an opportunity to do so.

Try to form an idea of what the interest rate situation is right now.

There is a lot of information about it on the internet. Then call around to different banks and others that offer mortgages and see what they can offer.

Do not take the first best, compare and call again. Bargain and negotiate as far as possible.

6. Compare petrol prices and petrol cards

The price of petrol and diesel can differ greatly between different petrol stations. Get in the habit of keeping track of the prices of different gas stations where you live and drive.

Is there anyone who is usually the cheapest? Is it possible to get an even better price at that petrol station if you get their debit or benefit card?

7. Collect your loans

It is easy to take on small loans and credits. It could be that you have bought something in installments or used your credit card more than you intended.

Go through your unnecessary small loans.

Is it possible to collect them in one place and lower the interest rate? Or bake them into the mortgage?

It is best if you can pay them off immediately and promise yourself not to take on unnecessary credits again.

8. Sell your old stuff

In the basement or garage there may be a small fortune. Not to mention in the closet. Things and clothes you do not use, others may be willing to pay for.

Put your stuff up for sale. The money you get in makes better use of well-invested for your future.

Do you need to buy something? Used is the cheapest, it is easy money to save. But buy only what you really need.

If you are looking for a special thing, check out the different advertising sites first!

9. Be energy smart in your home

Unnecessarily high electricity consumption is expensive in the long run.

Regardless of what it is that gives high electricity costs, it is usually possible to remedy. If you heat the house with electricity, there are good other alternatives.

If you have old white goods that consume a lot of electricity, there are energy-smart alternatives today.

Calculate what you can save, and think about whether it is profitable to invest in energy-smart products for you.

10. Skip over a couple of bar visits

It’s fun to go to the bar, but is it always worth the cost? If you go to the bar spontaneously and often, there is a risk that it will be frequent and expensive.

Add an item to your budget called the restaurant, and stick to the amount you budgeted each month.

Why not invite your friends home? It is appreciated by many and is at least as pleasant to socialize as at the bar.

Conclusion

Disadvantages of retiring early

Retiring early is a lifelong decision that requires discipline and sacrifice on your part.

While saving capital for your early retirement, you need to live as economically as possible. Ideally, you should also work as much as you can and can.

This means that you do not have the opportunity to hang out with friends in the same way as others your age.

Expensive interests and other pleasures should also be limited as much as possible. Are you willing to make those sacrifices?

The day you retire early, you will not have the social life that a job provides. Your friends will work when you are free.

When you meet your friends and they talk about the latest events at their jobs, will you feel left out then?

Is the capital enough to reach financial freedom?

To be able to properly enjoy your early retirement, you must be confident that your capital is sufficient. What happens if it does not? Can you get back to the job market and get a new job?

What do you do on the day you have enough capital to stop working? Do you have a plan for what you really want to do?

It’s easy to scroll away for a few hours on your mobile or postpone things until tomorrow because you have the opportunity to do so.

But is that why you have been disciplined and save money?

As part of your early retirement plan, it is good to think about what your days should look like.

Exercise, cook good and healthy food, maybe you want to study something or develop a hobby.

Sources

https://www.sciencedirect.com/science/article/abs/pii/S0378426612003640

https://www.degruyter.com/document/doi/10.1515/9781503600263/html?lang=en

https://books.google.se/books?hl=en&lr=&id=PfrX40WBgqIC&oi=fnd&pg=PR9&dq=how+to+reach+financial+freedom&ots=kpqEcQEEGX&sig=lOqGVdNyQQgYfn7ebs7jXd7XkVc&redir_esc=y#v=onepage&q=how%20to%20reach%20financial%20freedom&f=false

https://books.google.se/books?hl=en&lr=&id=mpA0YEqvH8QC&oi=fnd&pg=PT6&dq=how+to+reach+financial+freedom&ots=IkFusQPQ3M&sig=B1Y7BkKBksF0RTjXO6UGWSMH9O0&redir_esc=y#v=onepage&q=how%20to%20reach%20financial%20freedom&f=false

https://onlinelibrary.wiley.com/doi/abs/10.1111/jomf.12553

http://t.www.na-businesspress.com/JABE/SpahtC_Web16_6_.pdf

https://europepmc.org/article/med/16711098

Kevin

This article has been reviewed by our editorial board and has been approved for publication in accordance with our editorial policies.

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