I. Introduction
Howdy, everyone! Due to covid-19 and the ongoing lockdowns all around the globe, I decided that I would start some kind of 'blog' on mc-market that aims towards helping students, starting entrepreneurs, and generally people to improve their (work) life with simple but significant steps. If the feedback for these articles is positive and there's enough demand for more I will try to publish one article per week.
I will try to keep the information in these articles as plain and simple as possible, I will also write a short summary at the end of every article for those who want to have the information summed up rather than having to read through the article.
II. Why you should achieve financial freedom.
Disclaimer: I am not a financial advisor and I am not responsible for possible financial damages caused by unwise investments. This post is only a rough guide with information and is not meant to replace an actual financial advisor!
While you may not be striving for great riches you should still consider the main aspects of why you should at least become financially free - being financially free does not mean that you have to turn into Pennybeg.
First of all, let's clear up the phrase 'financial freedom'. What does it mean?
The answer is easy! It describes the situation of being independent of a job, government substitutes, or any other kind of income that you have to "work" for. To explain it by using an example: If you have investments that pay you $70,000/year and cover all your living expenses without you having to work for it you're financially free. No boss. No co-workers. Just you and your money - awesome, right?
The main positive aspects of financial freedom are the following:
(These only apply if you aren't already filthy rich and don't have to worry about anything)
III. How to accomplish financial freedom.
I actually thought about getting into all types of investments that can achieve financial freedom, but I decided to not get into too much detail since it would simply exceed the frame of this article. I will, for now, focus on the stock market, real estate, and cryptocurrencies.
First of all, you have to ask yourself "How do I get started?" The first step is figuring out how much money you need to become financially free. I would recommend that your yearly passive income is 20% higher than the average income in your area. I won't give a specific number here since the average income varies from country to country, just make sure that all your expenses are covered and that you'll still have a comfortable 20% of your yearly income left after all expenses have been paid.
To make it easier I will take the average income of my area, which equals $75,000 annually. This means we will have to create a cash flow of $75,000/year or $6,250/month. While this may sound like an unachievable amount it's perfectly possible!
You'll also want to build an emergency fund that provides you with at least six months of income, in our example this would equal $37,000. You can also have less, but always, under all circumstances, make sure that you can cover all your monthly expenses.
The next and, arguably most important step, is creating a financial plan. You have to write down every expense and recurring cost. And I mean everything. From what socks you buy at Target to your monthly car payment, write it down. If you don't know what you spent money on, get your monthly bank and credit card statements. You now have to mark all unnecessary expenses such as impulsive purchases, eating out, and others. After figuring out what drains your budget you have to think about ways to either reduce the costs or how to get rid of them entirely. Save money by preparing your meals at home, reduce utility costs, avoid impulsive purchases - live below your mean and don't buy liabilities. Liabilities are things that actively cost you money while assets are, for example, investments that bring you a recurring cash flow or increase in value.
Your financial plan should give you an estimate of how much money can be left each month, based on that figure out how much you can afford to invest. I would recommend, if your job income allows you to do so, to invest at least $400/month. Now let's break down some of your possible investment options:
To accelerate the speed towards financial freedom you can also increase your monthly investment, for example with money earned by extra jobs or side hustles. A business can also work out for you if you find a good niche and have the skills to pull it through, however, 65% of businesses don't make it over 10 years, so if you do something you better do it right.
To sum it up, achieving financial freedom may sound like a complicated and rough process, it actually is, but once you have enough knowledge it will become substantially easier. In my opinion, if you're young and can't invest yet the best investment you can make is the investment in yourself. Buy educational books, take risks, learn a new skill, and work on improving yourself. Also, make sure to live healthy since money won't be able to make you younger or fix permanent health issues. If you would like to talk more about investing and gaining financial freedom feel free to open a conversation on-site or leave your Discord tag below, I'm sure we can have a great talk and both learn more together!
V. Denouement
Thank you for reading through my fifth article! This article took me quite some time to write and I honestly wish that I could have covered more aspects of investing since it's something I'm really passionate about, but I feel like the amount of information I could possibly have put in here would've been overwhelming. As I mentioned before, there are a lot of options to learn more about investing, so make sure to financially educate yourself!
While some might say money can't buy happiness I believe the total opposite. Money, to a certain extent, makes life easier and more enjoyable - I still highly support the quote money isn't everything though, love, friends, and family are a lot more important.
Enjoy your weekend and stay healthy,
Zero
Howdy, everyone! Due to covid-19 and the ongoing lockdowns all around the globe, I decided that I would start some kind of 'blog' on mc-market that aims towards helping students, starting entrepreneurs, and generally people to improve their (work) life with simple but significant steps. If the feedback for these articles is positive and there's enough demand for more I will try to publish one article per week.
I will try to keep the information in these articles as plain and simple as possible, I will also write a short summary at the end of every article for those who want to have the information summed up rather than having to read through the article.
II. Why you should achieve financial freedom.
Disclaimer: I am not a financial advisor and I am not responsible for possible financial damages caused by unwise investments. This post is only a rough guide with information and is not meant to replace an actual financial advisor!
While you may not be striving for great riches you should still consider the main aspects of why you should at least become financially free - being financially free does not mean that you have to turn into Pennybeg.
First of all, let's clear up the phrase 'financial freedom'. What does it mean?
The answer is easy! It describes the situation of being independent of a job, government substitutes, or any other kind of income that you have to "work" for. To explain it by using an example: If you have investments that pay you $70,000/year and cover all your living expenses without you having to work for it you're financially free. No boss. No co-workers. Just you and your money - awesome, right?
The main positive aspects of financial freedom are the following:
- Independence from the job market, no need to follow your boss's instructions, you are your own boss.
- Stability and security, you would have a stable income and enough money in your emergency fund to not have to worry about anything - in the best case not even about the next recession!
- It leaves you with more time for self-improvement, your loved ones, hobbies, friends, or whatever you enjoy doing in your free time.
- You can work on whatever you want. Being financially free does not mean you shouldn't work, it's up to you. If you want you can start your own company, work in a job that brings you joy but wouldn't pay enough to cover your expenses, or just relax at a beach in the Caribbean.
(These only apply if you aren't already filthy rich and don't have to worry about anything)
- You will have to be strict with your money. No more designer clothes, no liabilities, no undocumented costs.
- You will have to live below your means till you can cover all your expenses with your monthly or annual returns.
- Becoming financially free usually requires a great amount of capital if you're planning to become financially free by using the stock or cryptocurrency market. (Let's assume you're investing in an index fund that yields 10%, if you want to be in a good financial situation you'll need at least $60,000/year, which means $5,000/month. You do the math, if $60,000 equals 10% the full amount you need is $600,000 - this is only a rough estimate, but it should give you an idea of how much capital it requires)
III. How to accomplish financial freedom.
I actually thought about getting into all types of investments that can achieve financial freedom, but I decided to not get into too much detail since it would simply exceed the frame of this article. I will, for now, focus on the stock market, real estate, and cryptocurrencies.
First of all, you have to ask yourself "How do I get started?" The first step is figuring out how much money you need to become financially free. I would recommend that your yearly passive income is 20% higher than the average income in your area. I won't give a specific number here since the average income varies from country to country, just make sure that all your expenses are covered and that you'll still have a comfortable 20% of your yearly income left after all expenses have been paid.
To make it easier I will take the average income of my area, which equals $75,000 annually. This means we will have to create a cash flow of $75,000/year or $6,250/month. While this may sound like an unachievable amount it's perfectly possible!
You'll also want to build an emergency fund that provides you with at least six months of income, in our example this would equal $37,000. You can also have less, but always, under all circumstances, make sure that you can cover all your monthly expenses.
The next and, arguably most important step, is creating a financial plan. You have to write down every expense and recurring cost. And I mean everything. From what socks you buy at Target to your monthly car payment, write it down. If you don't know what you spent money on, get your monthly bank and credit card statements. You now have to mark all unnecessary expenses such as impulsive purchases, eating out, and others. After figuring out what drains your budget you have to think about ways to either reduce the costs or how to get rid of them entirely. Save money by preparing your meals at home, reduce utility costs, avoid impulsive purchases - live below your mean and don't buy liabilities. Liabilities are things that actively cost you money while assets are, for example, investments that bring you a recurring cash flow or increase in value.
Your financial plan should give you an estimate of how much money can be left each month, based on that figure out how much you can afford to invest. I would recommend, if your job income allows you to do so, to invest at least $400/month. Now let's break down some of your possible investment options:
- The stock market has averaged a 10% historical return each year, to make sure our money is in good hands we won't buy individual stocks - while these are a great tool to grow wealth I believe that you should choose a more stable, historically proven investment such as the S&P 500 which combines the 500 biggest U.S. corporations, by market capitalization. By investing $400/month @ 10% annual interest you will take advantage of a beautiful thing - compound interest. It basically describes the concept of earning interest on the previously earned interest. Say you invested $100k @ 10%, you'd have 110k in the second year, 121k in the third, and so on. In your example, with only $400/month being invested, we will achieve our $75,000/year of passive income after around 30 years. I know what you're thinking now! "30 years?!" But think about it like that: if you want to get to the point of not having to work anymore faster you can just invest more. Not enough money? Find side hustles like writing, graphic designs, marketing, an extra job, or anything else you're good at! Invest $100 more each month and you'll get there 4 years earlier. You can use the following website to calculate compound interest returns: https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator
- Your second option is real estate. People will always need a place to live at, I honestly can't think of a future without real estate - we simply need a home! To create a monthly cash flow I would recommend investing in rental properties, you can also invest in conventional or commercial real estate, however, these are also riskier, that's just my personal preference though. First of all, what is a rental property? A rental property can be a house, an apartment complex, or anything else that brings you a monthly cash flow - rent. A common misconception of real estate is the amount of capital you need to get started, while your location is incredibly important, you can usually buy real estate with a 15-20% down payment, the remaining amount, called a mortgage, will have to be paid monthly, usually over the course of 25-30 years, depending on the contract. This means you can buy a $100,000 property with a down payment of only $20,000. The average monthly mortgage payment would be $465/month. Let's say you bought a house and are renting it out for $950/month - you found a great deal, good area, the house was in good condition and the previous owner wanted to get rid of it as fast as possible so you snatched a fantastic property! Unfortunately, we are not done yet, your monthly income of $950/month will have to pay the mortgage ($465/month), maintenance and management costs, say $250/month, and, the most frightening thing, tax. This leaves you with roughly $185/month in cash flow. Don't forget the fact that by paying the mortgage you slowly, but steadily have more and more ownership of the property. Please, do not underestimate, but also don't think that it's extremely easy. I only made a very rough, simple example to show the principle, but there's a lot more to it such as closing costs, rehab, unexpected expenses, finding a great property, getting your loan approved, and a lot more. I would highly recommend you the book "The Book On Rental Property Investing" by Brandon Turner, it's the best book on real estate investment that I've read so far and will pretty much run you through everything you need to know.
- The last option I'm going to cover is investing in cryptocurrencies. The historic returns of cryptocurrencies are insane, however, people often rush into investing without knowing the basics - the market is volatile, extremely volatile. Another common misconception is the fact that "cryptocurrencies always go up in value", which is simply not true. A lot of projects die, most cryptos that were popular in 2017 aren't around anymore. The cryptocurrency market also has market cycles, similar to the stock market, while the bull-cycle marks a period of great growth for most projects the bear-market represents the opposite, uncertainty, falling prices, little to no growth through months. This can be scary for new investors and if you're looking for a stable income I would recommend you to go for the first or second option while investing 5-10% of your monthly investment in cryptocurrencies such as BTC, ETH, LTC, DOT, ADA, VET or other coins with high potential. But please, before investing, make sure to learn the basics of cryptocurrencies so you know what you're getting into. I'm not a financial advisor but I do have some experience with investing and can proudly say that my average return on all my investments is more than 750%, some up to 3,000% - if you want to learn the basics make sure to check out YouTube, Bitcoin.org, ask in forums like mc-market, open a conversation with me, or simply use Google to learn everything you need and want to know.
To accelerate the speed towards financial freedom you can also increase your monthly investment, for example with money earned by extra jobs or side hustles. A business can also work out for you if you find a good niche and have the skills to pull it through, however, 65% of businesses don't make it over 10 years, so if you do something you better do it right.
To sum it up, achieving financial freedom may sound like a complicated and rough process, it actually is, but once you have enough knowledge it will become substantially easier. In my opinion, if you're young and can't invest yet the best investment you can make is the investment in yourself. Buy educational books, take risks, learn a new skill, and work on improving yourself. Also, make sure to live healthy since money won't be able to make you younger or fix permanent health issues. If you would like to talk more about investing and gaining financial freedom feel free to open a conversation on-site or leave your Discord tag below, I'm sure we can have a great talk and both learn more together!
V. Denouement
Thank you for reading through my fifth article! This article took me quite some time to write and I honestly wish that I could have covered more aspects of investing since it's something I'm really passionate about, but I feel like the amount of information I could possibly have put in here would've been overwhelming. As I mentioned before, there are a lot of options to learn more about investing, so make sure to financially educate yourself!
While some might say money can't buy happiness I believe the total opposite. Money, to a certain extent, makes life easier and more enjoyable - I still highly support the quote money isn't everything though, love, friends, and family are a lot more important.
Enjoy your weekend and stay healthy,
Zero
