Dear reader, are you financially free? To be honest, I have not met even one person surrounding me who can answer yes to this question. Definitely, there are such people; I read their blogs, but I personally do not know them. It makes my goal of achieving financial freedom even more appealing. What is that first step towards financial freedom?
It is my goal to be financially free. While we are still on our journey there, I truly believe it is achievable. With a projected $41,500 annual passive income in 2020, we are advancing even faster than we thought when we started our financial journey about six years ago.
My objective was clear: we need to receive at least the same amount of money we earn today but without needing to go to a traditional job. It does not mean that we will not work. It means we will be free and not tied to a job by the responsibility to support our family.
Many questions came to mind when I first started thinking about this goal. How am I going to establish passive income streams? Am I educated enough to do it myself? Where do I start?
As an engineer, it is a very important step to sync expectations by defining acceptable criteria, and, as I see it, the first criterion is to earn passive income equivalent to what we currently earn as a working couple. Once that is achieved, I will consider us financially free, and we will be able to spend our time as we wish.
When the course of action is clear, the next questions we need to answer are the following: When do I begin? What is the first step towards financial freedom?
First Step towards Financial Freedom Is
The first step is to clearly see your income and expenses as they are right now. This is the most important question you will ask yourself when starting your financial journey. The same question might be rephrased as, What is left of our income after all expenses?
Or, in Warren Buffet’s words:
Don’t save what is left after spending; spend what is left after saving.
We can debate the right way to invest, but the first step of saving is unavoidable.
It is like a snowball; regularly saving even a small amount of money will grow your savings. Investing saved money will further accelerate that growth. Reinvesting profits will create compound interest, a pillar of financial success.
The World of Opportunity
Our world is one of opportunity, and saving money gives us a chance to take advantage of those opportunities by investing in businesses or any other stream that might generate income. Any thoughtful investment we make is an opportunity that moves us closer to our goal of financial freedom.
Gift yourself such an opportunity and start saving!
How Do I keep Our Expenses Leashed?
With the number of accounts we have to manage, it is almost impossible to track them without some help. In my opinion, it is just not feasible to keep track of our expenses manually.
Fortunately, there are tools available online that help us to keep track of our family balance sheet. Personally, I use www.mint.com to see clearly how we do each month in terms of savings and in what categories we mostly spent money. At the end of each month, income and expenses appear on a budget tab in the program.
Then I copy the numbers into a Google spreadsheet to visualize further what we have managed to save during the month.
The relationship between two monthly numbers, income and expenses, is very important to us. It is like revenue and expenses for any company. The more that is left, the faster we move towards our goal of financial freedom.
Just seeing these numbers helps us as a family to rein in our expenses, always keeping in mind the need to save to ensure our financial future. We also understand how much passive income we need to be financially free. Our goal is for expenses to be less than the revenue received from passive income streams.
Not seeing these numbers creates a virtual impression of being financially well, which may not reflect reality. Everyone should see the real numbers to budget accordingly, either reducing expenses and/or increasing income.
What Are Next Steps?
Invest that saved money. And while how to invest is debatable, for most of us, saving is a necessary step on our way to financial freedom.
Once you have saved some money, you can check my suggestions on where to invest in the post where to invest $10,000.
Creating Wealth Should Be a Fascinating Journey
Like any other long-lasting activity, you have to enjoy your way to a goal. Just sacrificing will not work, at least it does not work for me. On my financial journey, I do not feel that I sacrifice anything. I am pleased with not buying unnecessary luxury items; it just does not make me happier.
And what is the repayment? It is your time to be spent on what you like!
The truth is that the financial journey can be exciting and joyful and can provide fruits sooner than we think. The skyrocketing prices of Vancouver real estate did help us to borrow cheap money and invest it, but this is just an example of an opportunity for when you save and invest. You, dear reader, may have other opportunities, but, to take advantage of them, you have to have some money saved.