What are the steps to financial freedom? One may ask.
Everyone wants to be rich but they don’t know how.
In my book, The Secret Life of a Young Millionaire, I mentioned that in order to be rich, one must pass the “checkpoint” first.
In a racing video game, you need to pass through a checkpoint so your time gets extended.
Then, you will have better chances of reaching the finish line.
In business and in getting rich, you need to take the steps to financial freedom first.
After that, getting rich becomes easier.
So what are the steps to financial freedom and how one can achieve it?
Before anything else, you need to understand this formula:
Passive Income > Expenses
Simply put, your monthly passive income, which is the income streaming in your bank account while doing something else or doing nothing, must be greater than your monthly expenses.
This is the ultimate goal.
According to Robert Kiyosaki, the best-selling author of Rich Dad, Poor Dad, this is actually the formula for being rich.
It’s not the amount of money that you make, but the amount of money that you make without actually personally doing it.
Passive Income is that one income you must truly understand and focus on.
This is essential before I share you the steps to financial freedom.
Most people focus on working income. Rich people focus on passive income.
1. Make More Money
Truly the first step to being financially free is making more money.
It will be very hard for someone who earns very little to be financially free as young as possible.
If you want to go through the steps to financial freedom further, then you got to learn how to make more money.
The best way to make more money, especially if you are starting out and you are still an employee, is to master the sales industry.
If ever one of your dreams is to have your own business in the future. You got to learn how to sell.
Every business is a sales business because no business will strive without sales.
Sales makes the money come in. It is the start of the steps to financial freedom.
2. Manage Your Cashflow
When money starts to flow in, you got to manage it.
There’s no best formula but to follow the golden rule of personal finance which is this:
“Spend less than you earn.”
Now it does not mean you should stay with your current income. If it is too small, you are not living your potential.
Even rich people who spends a lot, still spends less than what they make. So this step still flows you back to step #1 which is to make more money.
Always make sure that you make more money than you are spending so that something is left.
This will allow you to go over the next steps to financial freedom.
If you want to be rich and financially free, you got to start committing yourself to managing your finances now!
Part of managing your finances is to allocate a certain percentage of your income to savings.
In this step, you got to decide to invest what you have saved.
Ideally, you are saving at least 20% of what you make.
You got to follow another best practice of personal finance which is to:
“Pay yourself first.”
Most people pay everyone else first.
They pay their landlord, they pay the fast food chains, they pay the malls, the coffee shops, they pay all their bills first, then try to live on what’s left.
Most of the time, none is left!
You got to pay yourself first.
By simply investing a part of the money you make, you get to remove it from your spending budget.
You may think that this is hard since you will be reducing your expenses but most of the time, 30% of our expenses goes to wants and not our needs so this is really doable.
The good side effect of this method (hopefully this happens to you), is that you will be on your toes since you reduced your budget for expenses.
You will now look for more ways and will be creative in making more money.
4. Protect Your Assets
You’ve worked hard for so long and it’s time to protect what you’ve built.
Some people do not want the idea of getting “protection” because it is too conservative, but the truly rich people understands how important it is.
Imagine you have worked for 10 years and you lose all of it.
You will go back from scratch starting from zero rather starting with “something” let’s say a savings or investment that you did not spend or risked in business.
You would’t want to spend your savings, sell your business, or get into debt when you get sick.
Also, follow the basic rule of thumb in personal finance which is to have 3 to 6 months of your monthly expenses as safety fund.
This is to ensure that you have mobility in case you resign from your work if you are employed, or if you had bad sales months if you are self-employed.
Now we can go to the last 2 steps to financial freedom.
5. Reinvest Your Earnings
Okay, now a lot of people invest.
But only a good few reinvest what they earn.
People think that if they invest, they can already get it in the future for future purposes.
While it is a good thing to do, to invest for future expenses, it is not a good idea to withdraw it all and stop investing.
Investing regularly is a must if you want to achieve financial freedom.
Investing to your education so you can grow your business is even more vital.
You got to have the discipline to continue to grow the money you have invested if you ever dream of living on interest.
One of the first “checkpoints” in accumulating an amount of investments is the Php 10 Million mark ($200,000).
If ever your investments give you 10% annual returns, you can live on a modest Php 1 Million every year without physically working for it.
If you want to live better than that then you got to reinvest some more in businesses and investments.
Having that in mind now will inspire you to continue to reinvest and not take profits too early.
Remember, the goal is financial freedom not just to make money and spend it.
6. Give Away What You Want
One of the basic laws of wealth is to give away what you want.
In the company that I run, I asked our salespersons in one seminar who among them wants to buy their own house or have another house. All of them raised their hands.
I told them that in order for that to happen, they got to help more people get what they want which is to purchase a house for investment or personal use.
A classic metaphor for giving what you want.
Now if you want more money, then you got to practice giving away money.
You start with 10% of your income thru tithes, charity events, outreach programs and the like.
We all know that God is the best business partner as he is only asking for 10%, you take home the rest.
Aside from that, the side effect of doing this is that you developing an abundance mindset.
Knowing that you can give away part of your income is simply telling your mind that there’s a lot more coming in!
Now there’s where the magic begins!
Follow these steps on the dot and I guarantee that you will achieve financial freedom soon!
I made it in 8 years! That is why I wrote a book about it.
You might want to get a copy. Just visit this link>>
PS. I run a seminar entitled The 6 Steps to Financial Freedom and you can book me in your next company event! You can contact me to check availability.