Is there a specific moment in time when you decided to take money seriously and achieve financial independence?
My financial epiphany took place in November 2017 as I was researching how to move with no money.
A helpful stranger on the internet asked me:
“How are you single, earning a comfortable salary, living in a modest apartment… and have zero savings? Several hundred dollars a month are going somewhere, do you know where?”
I realized I didn’t have the answer to the question. While it was a painful wake-up call for me, that moment marked a turning point for me: I created a budget and started learning everything I could about personal finance.
After getting laid off twice and moving back in with his parents, Grant found himself with $2.26 in his checking account and just $0.01 in his “DO NOT TOUCH” savings.
Just like my own financial epiphany, this moment marked a turning point for Grant. He found himself with two goals:
- Save $1,000,000
- Retire as early as possible
Here’s a full introduction to Grant’s story in the trailer for his book:
Today’s post is inspired by the first chapter of Financial Freedom, “Money is Freedom: How I Went from $2.26 to $1 Million in Five Years,” that outlines a simple formula for how he transformed his finances. Grant was generous enough to share a free advance copy wiith me, and I’m happy to share some of the insights from the book!
While your financial journey will be your own unique story, you don’t have to do it alone.
In this post, you’ll learn what financial freedom means, how it can change your life, and how you can achieve financial independence through a seven-step financial freedom plan from Grant’s book.
What is financial independence?
Before you can achieve financial independence, you’ll have to define what financial freedom means to you.
It’s not about having the highest credit score possible.
It’s not about earning a six-figure salary.
It’s not about owning a large house or a fancy car.
So what is the definition of financial independence?
Financial independence is having enough money for the rest of your life.
You don’t need to have millions of dollars in your savings account.
Instead, being financially independent is about reaching a point where you can live off your investments and income streams indefinitely without needing to work.
These financial freedom quotes will inspire you
Having so much free time that you don’t know what to do when you’re bored…
That’s a problem we’d all like to have, right?
Actually, achieving financial independence can take on many different forms.
Maybe you want to live in a tiny home off the grid. Maybe you want to travel the world. But maybe you want to live a life that looks awfully close to the one you already have now!
As part of the Beginner to Blogger series, personal finance bloggers answer the question:
What does financial independence mean to you?
Here are a few of the responses. See if you can spot a theme!
“To me, (financial freedom) means being in a position where I don’t have to worry about money, and I can live a lifestyle that I want.” – Marc from Vital Dollar
“My ideal situation would be that my husband can get out of the 9-5 entirely, and we can live solely on passive income streams that we have set up or revenue from any side hustle-type odd jobs that we may pick up (such as blogging for me). That way we can own our time completely.” – Michelle of Operation Husband Rescue
“Financial independence equals freedom. I am not bound to a job because my bills will not get paid or my family will not eat unless I earn a paycheck. It is truly a wonderful place to be. I cherish it every day. My life has always been very good, but this dimension of living is just different from how the masses live.” – Dave of The Financial Journeyman
While a specific financial freedom plan might look a little different for everyone, most people want one big thing: the ability to reclaim their time for activities that are truly meaningful to them.
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Seven steps to achieve financial independence
In Financial Freedom, Grant lays out seven financial independence steps that will help you get started on your path toward the abundant and prosperous lifestyle of your dreams.
Each of these steps could justify a blog post of their own. While reading an advance copy of this book, I was impressed by all of the actionable steps in each chapter.
If you decide to buy the book (it’s well worth $10-20 if this 7-step framework speaks to you), you’ll want to take lots of notes. Even though achieving financial independence is a long journey, Grant shares lots of insights and tactics that can be used immediately!
Step 1: Figure out your number
If you’re seeking the holy grail of financial freedom, “your number” is the amount of money you need to quit your job and never work another day in your life.
The general rule-of-thumb is that your number is 25 times your annual expenses. This amount allows you to safely withdraw as much as 4% of your nest egg’s value indefinitely (while also adjusting for inflation).
You’ll need more money if you’re chasing generational wealth that can also provide for your future children and grandchildren…
But your number might also be less if your financial freedom goal, for now, is getting out of debt or your retirement plan involves moving to a much lower cost-of-living city or country.
Step 2: Calculate where you are today
You’ve identified your end goal – likely a number between $1-2 million. Now what?
Now it’s time to take a financial snapshot of where you are starting from today. In personal finance, this snapshot is known as your net worth.
You can calculate your net worth by adding up the value of your assets (bank accounts, investments, etc.) and subtracting your outstanding debts (student loans, car payments, mortgage).
If you’re a young professional, there’s likely a big difference between your current net worth and your number that represents achieving financial freedom. In fact, if you took out student loans or have credit card debt, your net worth might be negative!
Don’t despair. You may not be able to transform your net worth overnight, but by learning how to manage your money, you have the knowledge and skills needed to make big improvements over time.
Step 3: Radically shift how you think about money
For many Millennials, retiring at 65 is going to be the best-case scenario.
If you’d like to become financially independent and have the freedom to live the lifestyle you want sooner rather than later, you’ll need to shift your mindset about money while questioning beliefs and values that may be holding you back.
You don’t have to commit to a strict standard of frugal living, but if “I want it, I buy it” is your default purchase behavior, you’ll find that it’s almost impossible to your net worth any closer to your financial independence number.
Instead, these are a few of the 11 questions Grant recommends asking yourself before making your next purchase:
- How happy will this purchase make me?
- How many hours of my life am I trading to afford this?
- Can I get it for less or trade for it?
- What is the per-use cost of this item?
Some of these questions (and the others included in the book) are simpler to answer than others, but you’ll find that your financial decision-making gets easier over time.
Step 4: Stop budgeting and focus on what has the biggest impact on your savings
If you really want to know how to start saving money, start by focusing on reducing your three largest expenses:
These expenses typically make up 50-60% of a monthly budget. Rather than saving a few dollars here on there, focus on “big wins” by making smart decisions with each of those three categories.
The simplest approach is to cut down on these expenses is to simply live within your means. Avoid lifestyle inflation and don’t pay for more apartment/house, nicer transportation, or prepared meals than you need.
If you’d like to maximize the amount of money you have to save, you can trim your budget substantially by house-hacking, walking and biking everywhere, and cooking every meal at home.
Step 5: Hack your nine-to-five
You may love your full-time job. You may not.
Either way, your career will play an important role in helping you reach your financial independence goal – whether it takes you 10 years or 40 years to get there.
Rather than using your job to inflate your lifestyle, why not use it to fast-track toward financial freedom instead?
Last time I got a raise, I was able to resist the temptation to move into a larger apartment or buy a nicer car. Instead, I gave myself a modest “reward” and then bumped up my monthly savings goal.
Learn how to maximize your salary by developing the right skills and asking for a raise at the right time.
Understand how to make the most of the benefits your employer offers you. If you’ve been skipping company meetings because you find HSA’s, 401k’s, and insurance to be intimidating… It might be time to schedule a meeting with HR so you can review what opportunities are available to you.
Step 6: Start a profitable side hustle and diversify your income streams
There are many benefits to side hustling. You can:
- Increase your income to save money or pay debt more quickly
- Diversify your income in case you lose your day job
- Build new skills that can help you qualify for a promotion or earn a raise
- Discover new areas of work that may better fit your interests
- Network with different people who may be able to connect you with new opportunities
Of course, it can be difficult to find the right side hustle. Most independent distributors for multi-level marketing companies end up spending more money than they earn.
Achieving financial independence is all about creating the freedom to spend your time and energy how you please. If you’re going to invest your time (and often money) into a side hustle, you’ll want to make sure it’s worth your trouble.
Some of Grant’s recommendations on side hustling include analyzing your passions and skills, evaluating the moneymaking potential of your ideas, and focusing on building a lifestyle business (scaling to the right size for your goals).
Step 7: Invest as much money as early and often as you can
Sure, it would be much more fun to daydream about what to do if you win the lottery, but learning how to invest your money is an important step in your financial independence journey.
Investing is a tool that allows you to make your money work for you. It pays to invest early and invest often.
Historically, the stock market grows by an average of 7-8% every year. What does this mean for your financial freedom plan?
Every dollar you invest now could be worth roughly $2 in 10 years, $4 in 20 years, or $8 in 30 years. The more you can invest now, the earlier you’ll hit your financial independence number and the less of your own money (principal) you’ll need to invest later.
Don’t bother with short-term investing or trying to “pick winners.” Instead, focus on minimizing risk and fees while making consistent contributions.
Achieve financial independence with your financial freedom plan
Figuring out your “financial independence number” and calculating your net worth can be done in an afternoon, but some of the other steps will take years, even decades, to complete.
If you’re motivated to continue taking additional steps toward achieving financial independence, why not create your own financial freedom plan?
Try breaking down the other steps from Grant’s seven-step framework (reducing your living expenses, hacking your career, starting a side hustle, and investing often) into smaller actions. This Financial Freedom book review goes into greater depth on each chapter.
A few ideas for your financial freedom plan:
- Schedule time to meal prep or cook more meals at home
- Develop a new skill that will help you qualify for a raise or promotion
- Sell items that you no longer use and deposit that money into your emergency fund
- Identify monthly subscriptions you can cancel and invest that money instead
With a little creativity and effort, there are plenty of ways to continue working toward financial independence. Don’t underestimate the impact of these small actions over time!
Do you want to achieve financial independence but aren’t sure where to start?
Financial Freedom is a great resource if you’re looking for a financial freedom plan with everything you need to reach your long-term goals.
If you’re ready to think outside the box and do things differently from your peers when it comes to personal finance, the book will change the ways you think about money!
It’s also a great gift if you’re looking to inspire and educate a family member or friend to start their own financial independence journey.
Even if you aren’t ready to buy the book (which again, I think is worth the money), be sure to take advantage of the free financial freedom calculators that Grant has created to help explore the concepts in the book.
What’s your reason for pursuing financial freedom?
Would you like help with cutting your expenses and saving more money?
Trim Savings is your free virtual assistant who can help you negotiate better deals on your utilities, fight unwanted account fees, and identify the monthly subscriptions you aren’t using.