How Can You Achieve Financial Freedom in Five Years?

You’ve heard a lot of people talk about financial freedom. But what is financial freedom? Is it not worrying about a paycheck every month or not needing money at all? There is no single way to define economic freedom, as a millionaire, states Grant Sabatier.

Here is a comprehensive answer that can cover the majority of people. They think that financial freedom is having enough money stashed away after you have paid all your debts so that you can live comfortably even without work, for at least six months, while you hone your skills to do your job better so that you get paid better. 

Let’s break it down into smaller steps:

After Paying All Your Debts

This is a prerequisite for financial freedom. Debt is the unseen chain that binds you, hampering your freedom. So, it is recommended that you first clear all your debt. Debt means anything you owe to someone, like credit card payments, mortgage payments, loans, and any outstanding bills. Once you have cleared all these payments, you know that the money left is all yours.

Enough Money Stashed Away

The next part of the statement is, having enough money stashed away to last you at least six months. It should cover all your living expenses, even without a job. People like to call this an emergency fund. While many people would consider it the last step toward financial freedom, it should top the list, right after paying all debt.

One financial security index survey found that only 39% of people could say that they had an emergency fund of $1,000.

Take Time Off To Hone Your Skills

Financial freedom is not about retiring in your 40’s, or even earlier. Practically, it is almost impossible unless you win the lottery. So forget about retiring until you are 60. But it will help if you take time off to rejuvenate and up-skill to know what is financial freedom. 

Up-skilling means learning new skills and improving your current skills so that you can make more money. According to the World Economic Forum, 35% of essential skills are likely to phase out in the next five years.

Save and Invest Wisely

It will be easy if you never underestimate the power of compounding. Compounding is nothing but multiplication over time. Investing in deposits that pay compound interest can leave you a small fortune when you retire. If you invest $5,000 in a three-year deposit with an interest rate of 10%, compound it annually. In three years, you will receive $6,655. That’s a return of 33%. 

Financial Planning Helps

Everyone has specific goals that they would like to achieve during their lifetime. Knowing your goal is good, but creating a financial plan to achieve that goal is better. For example, you want to take a vacation abroad and will need $10,000. If you start investing $500 per month, you should make your vacation in five years. This way, you can list out all your goals and save for each of them simultaneously. 

For those of you who thought the answer to “what is financial freedom” was an early retirement, it’s not. It is being able to do many things at the same time without owing anything to anyone.