Do you think that being financially free is a far-off dream? It’s not necessary. If you take control of your money, you’ve already made the first step toward being financially independent. But what does it mean to have “financial freedom?” Does it mean paying for the best quality of life or even getting rich? Can everyone say what financial freedom means to them? And most importantly, how will you get there?
Find out how you can, step by step, become financially independent.
A summary of the most important facts
- Definition: Most people think that financial freedom means being able to pay for all of your expenses with passive income alone. In other words, you no longer have to work to support yourself.
- Independence: Many people become financially independent when they have saved up enough money to no longer need to work. This is the basis for being financially free.
- Goal: The goal is to no longer need a monthly paycheck. But how long it takes you to reach this goal depends on how well you live. Most of the time, someone who likes to live cheaply can reach financial independence faster than someone who likes to live in style.
- Options: There are many ways to become financially independent and, in the end, free. You can put your money into stocks, mutual funds, or exchange-traded funds (ETFs), but you can also make a regular income from things like advertising on your own website or a book you wrote yourself.
What does it mean to be free from debt?
Being financially free means being able to pay for everything. How this is put into action is up to the person. It doesn’t matter if you’ve saved your money over the years or if you get it as interest and returns from investments. What matters is that you no longer have to work to pay for your lifestyle.
Each of us has a different place where we can stop worrying about money. For one person, it means having a lot of money. For another, it means being able to live well. In fact, many young people think that getting a steady income every month is all it takes to be financially independent.
How can someone become financially independent?
To become financially free and independent, you should take things step by step, starting with your current finances and expenses and moving on to other passive sources of income.
- Analyze the initial situation.
- Set goals
- Save money.
- Use money to help you.
Step 1: Analyze the initial situation.
First, you need to take an honest look at your current situation. For example, you can do this by making a plan for your money. How much do you have in your bank account right now? How well does your salary cover your fixed costs each month? Have you already saved money or put money into financial assets? Do you have any loans that need to be paid back every month? Add up all your money coming in and going out so you know where you stand. This is very important for figuring out what your goals are.
Step 2: Set goals.
In the second step, give some thought to what “financial freedom” means to you and how many years you want to get there. Is your goal just to retire early, or do you also want to travel the world, buy a big house, or buy your dream car? When you set goals, be sure to include where you’re starting from. If your goals are too high, it can be hard to stay motivated. Not many people get a million dollars overnight. Set yourself smaller goals, like once a year, to get closer to your main goal in small steps.
Step 3: Save money.
Before you think about investing your money, you should save up a little bit each month. Because you never know when you’ll need money quickly for something unexpected.Any time the washing machine, dishwasher, or car could break down and need to be fixed or replaced, This is where a call money account comes in handy, because it has higher interest rates than a checking account, but you can still access your money at any time. Use the call money account as a pure savings account that you only take money out of in dire situations.
By putting money aside every month, you’ll be able to live on your own. You can also get good deals on global interest rates at WeltSparen, which are often higher than those at German banks. You get the benefit of statutory deposit protection with both call money and time deposits. In the EU, deposits of up to EUR 100,000 per customer and bank are protected.
Step 4: Put your money to work.
Financial freedom is possible if you know how to invest your assets well and make passive income. Call money and time deposits are already doing their parts. Investing your money in the stock market, such as in stocks, funds, or ETFs, can be a good way to make more money and become financially independent. Again, you can choose between investments with low risk and investments with higher risk within these asset classes. For instance, you could put some of the money into an ETF with a lot of bonds and the rest in an ETF with mostly stocks. This lets you diversify your portfolio even more within a given asset class. ETF Robo from Raisin Invest lets you choose from four portfolios based on how much risk you are willing to take. The higher the risk you choose, the more likely it is that you will get a good return.
With the ETF Configurator, you can put together your own portfolio based on your own preferences. For example, if you are interested in commodities and the environment, you can put your money into ETFs that focus on commodities or the environment.
But there are other ways to make money without doing anything and get out of debt. If you own rental property, you can continue to add to your wealth by collecting rent. If you have your own website, advertising income can add money to your bank account without you having to do anything. You might also be a good writer who has written a best-seller. You also get money from book sales that you don’t have to work for.
How much money do I need to be able to live however I want?
How much money you need to be financially free depends on what you want to do and how you want to live. If you can pay for your lifestyle, whether it’s simple or fancy, with passive income, you have enough money to be financially free.
With a lifestyle that only covers the usual fixed costs, you don’t need a lot of money to become financially independent from your job. This is in contrast to a high-end lifestyle with expensive real estate, purchases, and travel. If you work toward your long-term goals and keep making more money, you can change your way of life to fit the money you have. This will help you get out of debt faster and raise your standard of living over time. This idea is also called “frugalism,” and it says that people should get out of debt as soon as possible.
Conclusion: Asset accumulation is a smart way to get to financial freedom.
Everyone has a different idea of what it means to be financially free, but everyone wants the same thing: to be able to pay for all fixed costs and other wants without having to work. This is possible if you build up your assets in a smart way. You can put some of your money into a call money account to build up safe savings you can use in case of an emergency. You can spread out the rest of your money by investing in different things, like stocks, funds, or ETFs. These are more likely to pay off, so you can use the money you make to improve your standard of living. Don’t let price changes discourage you, and think about the long term. For example, a globally diversified, optimally aligned portfolio with the ETF Robo or the ETF Configurator from Raisin Invest can help you get closer to financial freedom through passive income.
