Not having money is miserable. And I’ve been there sharing 100 square foot room with a roommate, and counting every penny to make sure that I can make it until the end of the month has taught me a lot. I’m still very careful with money because I know what it means to cut down on your meals to make the rent at the end of the month.
Back when I was a freshman, I wasn’t thinking to make a lot of money. But I wanted to get out of that desperate financial position because I had to make a lot of compromises. So my only hope was, once I graduate, I will have the required skills to find a job that will provide me with the comfort of free time, then I will use that time to develop a business or skills that will further increase my income. It seemed like a reasonable plan.
However, it wasn’t long enough that I realized it wasn’t as good as I thought because I wasn’t ready to wait for a few years to graduate and then figure out what I want to do. So I decided to try everything I could. I tried to start an online business, got into real estate, joined a little startup.
And after years of commitment and hard work, I made it. When you don’t have to worry about money. Trust me life changes, you no longer base your every decision on how much it costs, you will suddenly have the freedom to do things that are interesting to you that matter to you, you will have the freedom to take a break from everything. And don’t worry about the rent. You don’t have to be a billionaire to do that. It takes far less than that
So in this blog post, I want to share with you some basic steps to achieve financial freedom. If you’re just starting out, or still on the way to do that.
1. Stay cashflow positive.
How good are you at managing your cash flow is eventually what determines how financially successful you are going to be. If you have taken accounting classes, you probably know what cash flow is. But in college, they teach you that businesses have cash flow.
However, in life, we deal with the same problem. We have to manage the inflow and outflow of cash. To keep your business healthy, you have to make sure that there is more money coming in than going out for at least the amount of money that leaves the business is equal to the amount that it receives. It doesn’t matter how much debt or expenses the business has, as long as it generates more cash than it loses. It’s a good business.
Personal finance works exactly the same way. It doesn’t matter how much debt you have mortgage, student loans, car loans, as long as your’re cashflow positive.
2. Don’t take unnecessary responsibilities.
This mistake is literally one of the main reasons why a lot of people are struggling financially, they might be cashflow positive, but then they take a financial responsibility that they can’t afford. I’m not just talking about getting a brand new car, lease, or credit card debt. But they get into an expensive relationship. Maybe we’ll start a family. Don’t get me wrong. I’m not saying that starting a family is a bad idea.
.But here’s the equation. Let’s say your cash flow is balanced. You start a family, raise a kid, your expenses increase if you get a second job or get a promotion, and your income rises as well. Not bad, right?. But as you keep getting elder, your expenses rise as well, and at some point exceed your income, so you become cashflow negative, and for the rest of your life, you will be working hard to catch up with your negative cash flow.
And that’s known as generational poverty, you get to the point where you don’t have the means to build capital that will get you out of poverty. Most people today can get financially independent, not because they don’t work hard enough, but rather, they put themselves in a situation where they have no other option but to spend every penny they earn.
3. Build an investment portfolio.
So to keep your cash flow always positive, you need to do step number three, build an investment portfolio.
Around 4000 years ago, in a kingdom in ancient Mesopotamia, there was a guy named Arcade who was poor, like really poor, who escaped poverty, he worked hard to put food on the table. However, when he received the payment for his service, he put very little food on the table and let the rest of the money to a shoemaker who didn’t pay interest on the loan. Instead of spending that interest to improve the standard of living. He lent it to another shield maker that’s growing his wealth even more. After repeating this process for many years. his wealth grew so big that he did not have to work again. He ended up the richest man in that city Babylon.
You might not find a shield maker today to lend him your money. But there are clearly other instruments that you can use to grow your wealth. Consider this. The S&P 500 is an index that measures the performance of the top 500 usa companies, historically, it had an average rate of return of around 10%. This means that if you put aside and invest just $1,000, every month into the s&p 500, when you are 20, by the time you get 50, you will have almost $2 million. And that’s just with $1,000. Imagine if you increase that number every year to two or three or even $5,000.
As your income grows, you will end up with 10s of millions of dollars. And that’s how you keep your cash flow always positive. How to invest in the S&P 500?
And how exactly does it works?
But before we move on, here is a little disclaimer. We’re not financial advisors, and anything we say on this post should not be taken as financial advice, you should do your own research before making any investment.
4, Be liquid.
Don’t go out and throw all of your money into the stock market. Because investing isn’t all sunshine and rainbows. If you put in $1,000 into the S&P 500 in June 2007, for example, and decide to withdraw it a year later, because you had an emergency, how much do you think you would have made on that $1,000. I’m sorry to say this, but negative 50% you would need to wait another five years just to earn your money back.
And that’s how the market works. It jumps up and down every day, sometimes a crisis heads and it might need a few years to recover. That’s why if you’re serious about the stock market, you should be in it for the long run to rip off the profits. But to truly feel that you’re financially independent, you need to be liquid.
If something goes wrong, not worried. You get fired, businesses going south, a recession is around the corner, no problem, got yourself covered. You have enough cash to not worry about the bills for at least six months.
5, Have a plan.
All of the things we have talked about in this post sound amazing, I get it. But how on earth do we get the money to do all of them. The only feasible option seems to win the lottery. You can of course try that with back. However, there is another option. Plan your spendings you’re not going to build a six-month cash cushion in a single month.
They’re not going to build a million-dollar investment portfolio in a few months. And guess what? You don’t have to financial independence isn’t the final destination. The goal isn’t just to make enough money and retire for good.
Instead, to put yourself in a position where you’re not going to base your every decision on how much does it cost, you’re not going to accept that new job offer just because it pays slightly higher. Probably going to continue working as you do, but instead working on the things that matter to you the most with fewer financial problems.
Hopefully, your life is going to get a little bit more colorful.