Financial freedom means having enough income streams or assets to cover your living expenses and any discretionary spending you want, without relying on a traditional job or career. It also means paying off debt, saving consistently, and investing wisely.
It allows you to make life choices based on your values and interests, rather than financial constraints. To achieve financial freedom, start by implementing the following pillars:
Work Part-Time
Working part-time can be a great way to earn extra income and achieve your financial freedom goals. Whether you’re trying to save for a down payment, vacation, or a new car, working a little bit more can help you reach your savings goal sooner.
A key to working part-time is establishing clear routines and scheduling everything. This means scheduling meetings, administrative duties (like tackling your inbox), project work, and even lunch or short breaks.
Be sure to talk with your boss about your expectations and schedule, so you’re on the same page. It also helps to track your expenses with a free budgeting tool so you can see how much you’re spending each month. This will give you a clear picture of where your money is going.
Get a Second Job
Whether you want to take a sabbatical, volunteer, try out a new career, or start on those house projects you’ve been putting off, having something that gives you purpose will help keep you from getting bored in early retirement. It also helps you avoid the risk of relying on Social Security too soon, which can cut your monthly benefits significantly (for life).
One popular strategy is called “Barista FIRE,” and involves saving up enough to quit your full-time job and work as a barista or similar part-time job to earn passive income. This type of income comes from investments or business ventures that don’t require much ongoing effort. It can also come from other sources, like rental properties or royalties. This type of income can give you a solid foundation for your early retirement goals.
Start a Side Business
One of the best ways to achieve financial freedom is by starting a side business. This can be a great way to test out your ideas, learn from mistakes, and make a little money on the side. Plus, it can help reduce stress by removing work from your schedule.
Alternatively, you can try to generate passive income by investing in real estate, royalties, dividends, or small business ventures that run with minimal involvement. This type of income can be a great supplement to your retirement savings and give your efforts an extra boost. The most important thing is to find something that piques your interest and aligns with your goals. Then, you can start building momentum towards your early retirement.
Start Investing
Taking the steps toward financial independence is more than just saving aggressively and investing wisely. You also need to create a plan that accounts for the unknowns in life, like unexpected expenses or job loss.
Start by setting up a budget. Then, look for ways to cut costs by making smart changes, like downsizing your home, buying reliable used cars, or cooking at home instead of eating out.
Finally, invest your savings and make sure you have an emergency fund, pay down debt, and have a good handle on the risks of investing. With a little planning and the right mindset, early retirement may be within reach. 2019 Navy Federal Credit Union. All Rights Reserved. Member FDIC. Equal Housing Lender. All Deposits are insured up to $250,000. Member FDIC.
Create a Budget
Many people dream of retiring early, but it’s a big financial goal that requires intense saving and sacrifice. Luckily, you can get on track to retire at a reasonable age by creating a savings plan that works for your lifestyle.
Start by documenting your income and expenses. Using an online paycheck calculator, find out your after-tax income (also called net or take-home pay). Add up all of your monthly bills and expenses, including those for things you need like food and rent, as well as those you want, such as a music subscription or a gym membership.
Set aside at least 20% of your net income for savings and retirement, or even more if you can. Then, automate your savings so that it’s a part of your budget each month without any extra effort from you.
Build a Savings Account
There are many ways to save and invest money, including IRAs, 401(k)s, HSAs, and mutual funds. One option is to invest in property that can produce income, such as renting a house or converting your basement into an Airbnb apartment.
Hylland also recommends opening a health savings account (HSA), which is often offered in conjunction with high-deductible health care plans. These accounts allow you to contribute pretax dollars, let the assets grow tax deferred, and withdrawals for qualifying medical expenses are tax-free.
Having a strong savings stream is key to achieving early retirement. But that’s only part of the equation. It’s also important to consider what your goals and desires are for a fulfilling retirement. Taking some time to define what that might look like for you may help you achieve your financial freedom goals sooner than expected.
Retire Early
Many people assume they’ll work a career, contribute to one of the best retirement plans, and retire by 65 or so. But the FIRE movement encourages people to save aggressively and invest wisely to retire a decade or more early.
This typically involves living frugally, cutting expenses, and prioritizing financial growth. It also requires a plan to generate passive income and other income streams, like investing in rental properties or starting a small business.
Retiring early sounds incredible, but it can feel impossible for most people, who believe it’s only a pipe dream for the ultra-wealthy. But it’s possible for anyone with a strategy and smart investments. Here’s how.