I remember the overstuffed, black, leather couch of our housesitting gig as the place where investing finally clicked for me.
I felt late to the game at age 36. Discouraging thoughts of missing out on pivotal “compounding” years left me uninspired. But with real estate, it suddenly seemed like I could make up for lost time. For me, investing in rental properties began my progression toward the kind of financial security I had thought was unattainable after a decade spent traveling the world.
For a while, I felt empowered. I felt like I had discovered a secret. But soon the weekends of touring properties, analyzing deals, fixing tenant damage and more began to drain me. It seemed like I would have to sacrifice my daily happiness to build my wealth and make it to the next level.
Luckily, I paused and reflected that I wanted to design my life differently – while still working towardfinancial freedom. I pivoted to passive real estate investing and prioritized family time and other hobbies.
Achieving financial freedom is not just a dream, but an attainable goal with the right mindset and strategy.
At Goodegg Investments, we know that when we can live off our cash flow distributions and see our portfolio grow in value – magic happens. Suddenly, our time becomes ours again. We’re free to give to the causes that we care about. Our health improves as we have the time and resources to take care of ourselves and our loved ones.
Sounds like a dream?
Well, it doesn’t have to be.
In this journey in discovering how to be financially free, you will learn to define your goals, assess your financial situation, and implement strategies that lead to long-term wealth building. However, this isn’t the typical path you may have seen. We’re going to throw some new ideas and curve-balls at you (don’t worry, we won’t throw any eggs), so get ready!
Key Takeaways
Define your financial goals and assess current situation to gain clarity
Start with defense: Automate savings plan, monitor & control spending, create budget & cut unnecessary expenses
Spend more time in offense: Invest wisely for long-term growth and seek out partnerships to achieve financial freedom.
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Break Down Your Financial Goals Into Three Stages
To achieve financial freedom, one must adopt a growth mindset and focus on long-term wealth-building strategies. But the journey can be daunting if we don’t break it into distinct stages. However, before you even begin, you have to first acknowledge that you want to live differently and that it is possible for you to live your dream lifestyle.
If someone else can do it, so can you.
This seems simple, but it’s a big mindset shift. This is committing to living a life by design – not a life by default. The path to financial freedom is one step in the process to lead a life by your own design, and probably the most powerful and important step.
In living a life by design, you are likely working toward being able to do anything without financial concerns (this is stage 3 – financial freedom). However, you don’t necessarily have to be fully financially free to consider your life design complete. Far from it.
Living a life by design is the process – not the outcome. So as you develop financial goals for your stages 1 and 2, keep in mind that you can begin to live your life by design along the way.
Stage 1: Financial Security
Achieving financial security means having enoughpassive incometo cover your basic living expenses, providing you with confidence in your financial stability, even in the absence of a job.
Stage 2: Financial Independence
Financial independence is reached when your passive income can sustain your current lifestyle, including your daily luxuries, granting you the ability to retire early and maintain your chosen way of life without the need for further work.
Stage 3: Financial Freedom
Financial freedom goes beyond independence and entails having passive income that not only supports your present lifestyle but also affords you the freedom to enjoy your ideal, even extravagant, way of living without financial concerns, marking the pinnacle of financial success and the ability to live life fully on your terms.
Related Article: How To Start Living A Life By Design, Today And Every Day
Connect a Financial Goal To Each Stage
Don’t let this journey turn into a long and grueling one. You’ll surely quit along the way. Instead, break it down into several smaller goals that you can celebrate along the way.
Stage 1 Goal: Financial Security Number
To calculate your financial security number, begin by examining your current monthly budget and expenses. Isolate the costs associated with basic living essentials such as food, shelter, clothing, and other necessities. The average amount you spend on these items each month becomes your financial security number.
Example: Jane reviewed her monthly expenses and found that her basic living essentials cost her $2,500 per month. She now has a goal to create $2,500 in passive income to reach her stage 1.
Stage 2 Goal: Financial Independence Number
Your financial independence number (or FI number as the FIRE community likes to call it) extends beyond basic necessities. It encompasses all your current monthly expenses, including the nice-to-haves that enhance your lifestyle. Start with your stage 1 number and add in extra costs, such as private school kid’s tuition, daily lattes, a family vacation, and more. Achieving financial independence means you can comfortably sustain your current lifestyle even without a job.
You may also see this number expressed as a formula: Annual living expenses x 25 = your FI number. This is the amount your total net worth in stocks should be to be able to withdraw your monthly expenses out without running out of money. It’s a super rough calculation, so we’ll stick to the monthly number as a goal for passive income replacement.
Example: Juan analyzed his monthly spending and determined that his current lifestyle, including leisure activities and luxuries, amounted to $5,000 per month. He then worked to invest enough money to be receiving $5k in monthly cash flow before he was comfortable quitting his job.
Related Video: The Rubik’s Cube Method To Financial Independence – 4 Simple Steps To Achieve FIRE
Stage 3 Goal: Financial Freedom Number
Once you’ve established your financial independence number, take the next step by envisioning your ideal life. Create a list of all the experiences and goals you aspire to achieve. Assign a monetary value to each item on your list, considering that people often overestimate the costs of their dream lifestyle. Estimate an annual budget for this lifestyle based on regular luxury expenses and however many annual dream experiences you’d like to have. Then divide that by 12 to get a monthly number for your financial freedom number.
This monthly amount represents the passive income required to not only maintain your present lifestyle but to indulge in all your desires and give back as you’ve always wished.
Example: Sarah outlined her life goals, including first-class travel, luxury accommodations, and charitable contributions. After careful calculation, she determined that her ideal lifestyle would cost $8,000 per month. This figure became her financial freedom number, signifying the level of passive income she needed to live her dream life.
This, and any financial goal, requires focusing on personal finance and financial literacy as a foundation to this journey. Establishing clear financial goals allows you to design a roadmap tailored to your unique needs, leading to your desired level of financial independence and helping you feel that freedom of your expenses being paid without the need for a paycheck.
Let’s start building our personal finance foundation so you can hit your financial security number as soon as possible and get to stage 3 even faster.
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Assess Your Current Financial Situation
A thorough examination of your finances is like packing your bag for the journey to achieving financial freedom. Identifying any potential issues is also important in this process, similar to checking the weather or flight schedules before your big trip. To gain clarity into your current financial situation, you should:
Gather your debt information
Calculate your expected income
Identify areas where you could benefit from having more financial security, such as insurance or emergency savings
Review your account statements regularly to gain insight into your spending habits and determine how much debt you currently have or any unnecessary fees you’re paying.
Achieving financial freedom is not just about reaching a specific monetary goal but also about a mindset shift and a way of life.
Here are some steps to help you on your journey to reach financial freedom, once you have achieved financial freedom:
Get excited for the journey towards financial freedom.
Recommit to your goals regularly.
Relish the sense of freedom and security that comes with financial independence.
Continually evaluate your current financial situation and mindset.
Keep learning about investing and wealth building.
Experiment with new life design elements that may be a part of your lifestyle of financial independence.
Choose the Right Accounts for Your Needs
Investing accounts such as 401(k)s, IRAs, and 529 plans can help you secure your retirement and college savings goals. Create investing accounts that can also support integrating real estate investing into your financial plan as a passive investor. Real estate investing can be agreat opportunity to build wealthsince it gets your money working in multiple ways (such as through appreciation, tax benefits, and regular cashflow).
Look into self-directed retirement investing accounts, such as solo 401(k)s or self-directed IRA accounts. These increase your investment options, allow you to create wealth that can grow tax free, and allow you to place your money in real estate and not just in the stock market, which can be volatile and unreliable. These accounts can optimize your financial potential and propel you faster towards financial freedom.
Related Article: Investing Your 401(k) In Real Estate
Automate Your Savings Plan
An emergency fund is a practical and necessary means to foster your mental well-being, as it provides financial security during unexpected situations. Finance experts often recommend setting aside 3-6 months worth of living expenses, or the equivalent amount of your regular income for emergencies or other goals and another 10% for retirement, so you can stay secure and reach all your goals. To ensure you don’t spend your money first, set up an automatic deposit schedule and create a system that guarantees consistent contributions towards your financial goals.
For instance, you may send your savings into a high-yield savings account until it reaches your desired emergency fund amount or grows to a minimum investment amount of $10,000 that you can deploy in a real estate crowdfund. Or you may automate into your brokerage account directly. Just be sure you are allocating those funds wisely.
Related Article: How To Invest $10k In Real Estate
High-yield savings accounts can help your money earn some interest and provide a safe, secure, and reliable place for your emergency fund. Automating your savings plan allows for effortless building and maintenance of an emergency fund, thus ensuring peace of mind and financial security during unforeseen situations.
Monitor and Control Your Spending
Let’s continue setting up our defense.
Keeping a close watch and control over your spending is vital to ensure you keep investing as much as possible, without letting lifestyle creep suck away your potential. By using free apps like Mint or Marcus Insights, you can easily collect and categorize spending data, making it easier to track your expenses and control your spending habits.
Focusing on active income opportunities, considering major lifestyle changes, and evaluating whether the debt from buying things will make your life easier are great strategies to make the most of your money.
To avoid unnecessary expenses and focus on investing, start by identifying potential savings opportunities such as:
Streaming services
Delivery memberships
Unused subscriptions
Impulse spending
Cutting these expenses will free up more money for investing, allowing you to accelerate your path to financial freedom.
However, don’t get stuck optimizing small expenses. Instead, move on and focus on the offensive moves in the following sections.
Create a Realistic Budget For Stage 1 – Financial Security
Budgeting is an essential (but annoying) step for getting your finances in order and ultimately achieving financial freedom. The 50/30/20 budget rule is an effective way to manage your finances and reach financial stability. It suggests that you allocate your after-tax income in the following manner: 50% of your income should go toward needs, 30% for wants, and 20% for savings and debt repayment.
Formulating a monthly budget is pivotal in ensuring timely bill payments and expected progression of savings. By crafting a realistic budget that aligns with your financial goals, you can better manage your expenses and make informed decisions that support your journey toward financial freedom.
HOT TIP: Begin writing down your stage 2 and 3 budget goals as you go. Keep a “dream lifestyle and budget” journal to give you doses of motivation as you make progress in stage 1.
Cut Unnecessary Expenses
Cutting unnecessary expenses is vital for freeing up more money for investing and accelerating your path to financial freedom. Here are some ways to do it:
Track your spending and identify areas where you can make smart financial decisions
Cancel unused subscriptions
Reduce food waste
Negotiate lower bank fees
The goal here is finding more money to invest, not wasting time to only save a few bucks.
Eliminating unnecessary expenses allows for allocation of more funds towards your financial goals, be it investing in real estate, building an emergency fund, or settling debts. This proactive approach to managing your finances will enable you to progress faster toward financial independence and long-term wealth building.
Prepare for Unexpected Costs
This one gets missed a lot.
Your emergency fund is crucial for achieving financial freedom, as it serves as a safeguard against unexpected life events such as car repairs, broken appliances, and medical deductibles. To start building your emergency fund, aim for $500 a month and gradually increase it to $500 bi-weekly and beyond. Some experts recommend having $10,000 saved, while others suggest saving six months of your salary for a secure financial future.
Allocating a small amount each month and transferring it directly to a separate bank account ensures readiness for any unforeseen expenses. This financial cushion will provide peace of mind and security, allowing you to focus on your long-term financial goals without being derailed by unforeseen costs.
Develop a Debt Elimination Strategy
This is a big defensive move.
Debt elimination is the process of paying off debt to free up more money for investing and building wealth. The snowball and avalanche methods are two main strategies for paying off debt that can lead to success. The snowball method involves focusing all your extra money on one debt while making minimum payments on the rest, providing quick results. The avalanche method involves paying off the debt with the highest interest rate first, saving money in the long run.
Paying off loans, including student loan debt, on time has numerous benefits, such as:
Positively contributing to your credit rating
Feeling progress to maintain your debt elimination strategy
Diligently working towards settling your loans
Liberating more funds for investing
Fast-tracking your journey towards financial independence.
Keep an Eye on Your Credit Score
This is boring, we know. But having a great credit score can open doors to achieve financial freedom and living a life by design. For instance, you can save money and still fulfil your travel dreams by leveraging credit card rewards in travel hacking. You’ll also need a reliable method of tracking expenses and paying bills on time.
Monitoring your credit is beneficial for:
Maintaining access to loans with low-interest rates
Making informed financial decisions
Regularly reviewing your credit report
Safeguarding your credit information
Preventing fraudulent activities
Ensuring your credit score remains in good standing.
Paying off loans on time has numerous benefits, including:
Positively contributing to your credit rating
Improving your financial health and mindset
Regular monitoring of your credit score and making punctual payments provides access to superior financial opportunities and low-interest loans
Facilitating quicker progress towards financial freedom
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Evaluate Your Career Path
Time for offense! Let’s start looking at ways to grow your money faster to get you toward your ultimate goal faster.
Your career choice plays a significant role in attaining financial freedom. When choosing a career that leads to financial freedom, consider its positive impact on your long-term financial plan and the potential for increased earning potential. Your career path could have opportunities for boosting active income and investment potential, leading to long-term wealth accumulation.
By reflecting on your current career and exploring new opportunities that align with your financial goals, you can boost your earning potential and invest more in your financial future. This proactive approach will enable you to progress faster towards financial independence and long-term wealth building.
Invest Wisely for Long-term Growth
Here is where you’ll make the most progress toward financial freedom. This is how you’ll start building the passive income streams to reach stage 1, stage 2 and ultimately stage 3 – financial freedom.
Investing is essential for financial freedom, as it provides individuals with the opportunity to save and grow their money throughout their lives. The key is to keep a long-term wealth-building mindset here.
Real estate investing, especially in syndications, allows you to grow your money in hard assets with ongoing cash flow. Many investors become financially independent with less initial wealth with real estate due to these benefits.
Real estate syndications, for example, allow non-accredited and accredited individuals to pool their money to invest in larger assets and tap into real estate markets and opportunities that would otherwise be unavailable or unaffordable. Prudent long-term investment decisions pave the way for multiple passive income streams, speeding up your journey toward financial freedom.
Investing in individual rentals is another path to using real estate to build passive income streams. While you can get cash flow, tax benefits, and have your assets appreciate, you also need to consider how much time you’ll spend as a landlord or managing all your properties. Go back to you life by design. Do you want to spend weeknights or weekends fixing water heaters or showing tenants vacant units? Remember, you can invest in real estate passively too with the same – or better – returns.
Financial freedom is a long game, and so should your investing mindset. It isn’t always sexy or exciting to prioritize long-term wealth-building strategies, such as real estate investing, or steadily contribute to retirement savings accounts.
But it works.
Related Article: Step By Step Guide To Becoming An Accredited Investor
Plan Your Legacy
Preparing your legacy is about setting your kids up with financial security and peace of mind. Regular updates to your financial and estate plans secure your legacy and adapt to any changes in life circ*mstances or tax laws.
To safeguard your legacy, consider creating a will, updating beneficiaries on financial accounts, and maintaining adequate life insurance. By taking these proactive steps, you can ensure that your kids are taken care of in the best possible way after you are gone, providing them with financial security and a lasting legacy.
Seek Professional Financial Advice
Seeking professional financial advice can help you achieve financial freedom. You may wish to find support with:
Guiding you through investment options and the stock market
Focusing on selecting the right team and partnerships
How to progress faster toward financial freedom
Making the most of your financial resources
However, be cautious of any financial advisor. They can give you advice that is in their best interest – not yours. You’ll want to seek out advisors and partners who understand your investing objectives and can help you explore investment opportunities in the stock market and real estate. Always as for a summary of their track record, and ask if they receive a percentage fee from the money you invest. That can chip away at your wealth in astonishing ways.
Utilizing professional financial advice can empowers you to make informed decisions, but it can also lead to paying higher fees and missing your financial goals entirely.
Related Download:
Summary
Achieving financial freedom is an attainable goal with the right mindset, strategies, and commitment. By defining your financial goals, assessing your current situation, choosing the right accounts, automating your savings plan, controlling your spending, and investing wisely, you can unlock a life of abundance and fulfillment.
Remember, the journey towards financial freedom is not just about reaching a specific monetary goal but also about embracing personal growth and living life by design. So, take the leap, start your journey today, and create the life you’ve always dreamed of.
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Frequently Asked Questions
How much money do you need to be financially free?
To be financially free, most people aim to have an amount of money equal to 25 times their yearly expenses. However, you can also consider financial freedom to be when your monthly living expenses for your ideal lifestyle are covered by your passive income.
Can someone be financially free?
Yes, it is possible to be financially free. In fact, anyone can do it. Financial freedom means having enough savings, investments, and cash to live comfortably without money-related stress, whether that means paying off debt or growing retirement savings.
What are the 5 steps to financial freedom?
Achieving financial freedom can be broken down into five simple steps: defining your goals, creating an emergency savings fund, paying down debt, steadily investing in cash-flowing assets, and staying committed to growing investments.
How can I be financially free at 30?
Following the advice of cutting your budget, setting specific savings goals, building an emergency fund and paying off debts early could set you up to be financially free by 30. However, the key is to start investing as early as possible to allow maximum time for appreciation and compounding to grow your portfolio.
What is the difference between financial freedom and financial independence?
Financial independence is the key to living off one’s passive income, while financial freedom is the ability to afford your dream lifestyle.
Check Out Our Open Investments
Want to invest alongside us? Take a look at some of our current and upcoming offerings.
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Next Steps
If you’re looking to invest in real estate syndications with strong asset management practices, we invite you to join the Goodegg Investor Club, so we can keep you in the loop on opportunities to invest alongside us.
You can also check out our open deals page to learn more about our current or upcoming opportunities.
Learn More
If you’re not yet ready to invest but are curious about how all of this works, we invite you to dip your toe in the water with us through our free 7-day email course – Passive Real Estate Investing 101 – or to get a copy of our book – Investing For Good.
To learn more about us and our experience, be sure to download a copy of our track record, which shows the projected and actual returns we’ve achieved across all the deals we’ve exited to date.
Connect With Us
If there’s ever anything we can do to help you on your journey, feel free to email us at [emailprotected] or call / text us at (888) 830-1450.
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