Dear reader, are you financially free? Honestly, I haven’t met even a single person around me who can answer yes to this question. Of course, there are such people; I read their blogs, but I don’t know them personally. It makes my goal of achieving financial freedom more attractive. What is the first step towards financial freedom?
My goal is to be financially free. While we are still on our journey there, I truly believe it is achievable. With a projected annual passive income of $41,500 in 2020, we’re progressing faster than we thought when we started our financial journey about six years ago.
My goal was clear: we needed to at least have the same amount of money we earn today but without having to go to a traditional job. This does not mean that we will not work. This means that we will be free and not tied to a job with the responsibility of supporting our family.
Many questions came to mind when I first started thinking about this goal. How will I create passive income streams? Am I educated enough to do this myself? Where do I start?
As an engineer, it is a very important step to synchronize expectations by setting acceptable criteria, and as I see it the first criterion is to earn a passive income equivalent to what we currently earn as a working couple. Once this is achieved, I will consider us financially free, and we will be able to spend our time as we please.
When the course of action is clear, the next questions we need to answer are: When do I start? What is the first step towards financial freedom?
The first step towards financial freedom is
The first step is to clearly see your income and expenses as they are now. This is the most important question you will ask yourself when starting your financial journey. The same question can be rephrased as follows: What is left of our income after all expenses?
Or in the words of Warren Buffet:
Do not save what is left after spending; Spend what is left after saving.
We can debate about the right way to invest, but the first step, which is saving, is inevitable.
It’s like a snowball. Saving a small amount of money regularly will increase your savings. Investing the saved money will accelerate this growth. Reinvesting profits will create compound interest, which is one of the pillars of financial success.
World of opportunities
Our world is full of opportunities, and saving money gives us the opportunity to take advantage of those opportunities by investing in businesses or any other field that may generate income. Any thoughtful investment we make is an opportunity that brings us closer to our goal of financial freedom.
Give yourself this opportunity and start saving!
How do I keep our expenses tight?
With the number of accounts we have to manage, it’s almost impossible to keep track of them without some help. In my opinion, it is not possible to track our expenses manually.
Fortunately, there are online tools available that help us keep track of our family balance sheet. Personally, I use www.mint.com Let’s see clearly how we are doing each month in terms of savings and in which categories we have mostly spent money. At the end of each month, income and expenses appear in the budget tab of the program.
Then I copy the numbers into a Google spreadsheet to visualize more of what we were able to save during the month.
The relationship between two monthly figures, income and expenses, is very important to us. It is like the revenue and expenses of any company. The more we have left, the faster we move toward our goal of financial freedom.
Just seeing these numbers helps us as a family curb our expenses, always keeping in mind the need to save to ensure our financial future. We also understand how much passive income we need to be financially free. Our goal is for expenses to be less than revenues from passive income sources.
Not seeing these numbers creates a virtual impression that you are financially healthy, which may not reflect reality. Everyone should see the real numbers of the budget accordingly, either reducing expenses and/or increasing income.
What are the next steps?
Invest the money you saved. Although how to invest is debatable, for most of us, saving is a necessary step on our path to financial freedom.
Once you have saved some money, you can check out my suggestions on where to invest in the post where you can invest $10,000.
Creating wealth must be an amazing journey
Like any other long-term activity, you have to enjoy your way towards the goal. Just sacrificing won’t work, at least it doesn’t work for me. In my financial journey, I don’t feel like I’m sacrificing anything. I’m happy not to buy unnecessary luxury items; This doesn’t make me any happier.
What is the payment? It’s time to spend it on what you love!
The truth is that the financial journey can be exciting, fun and can pay off sooner than we think. The skyrocketing real estate prices in Vancouver have helped us borrow cheap money and invest it, but this is just an example of an opportunity when you save and invest. Dear reader, you may have other opportunities, but in order to take advantage of them, you must save some money.