My Answer to a 19 Years Old Boy’s Financial Freedom Question
This is an article that I write to answer a 19 years old boy’s question in richdad forum. He was asking :
I am looking for anyone to point me in the correct direction, my goal is to be financially independent by 25. I just recently joined this forum, I have done some research on recommended books and such, but just do not know what to do. I have no need for inspirational or motivational materials, I have plenty of that. I need a starting point, somewhere to begin my work.
I am thinking high-risk stocks, but do not know much about the stock market. Some friends and I were talking about real estate, but do no know much about that either. I am willing to learn anything. Any books that will go more in depth with these sort of things (i.e. termonology, etc.)? Any other ideas where I could begin?
This is the most common question that a lot of people ask when they want to make a plan to achieve financial freedom. So below is my answer for this question.
The First Step in your plan is ……
I will recommend you to plan anything that you can make excessive cash as your first step in financial freedom planning. At this moment, what I can see is business has the potential to let you make excessive cash, especially the online business. Of course, if you don’t like to start any business, you can do anything that you can to generate excessive cash.
But if you want to retire earlier, just like this 19 years old boy who wants to retire at 25. Then starting a business is must for you because of its potential. It can really make you retire and financial free quickly if you do everything properly. Of course, starting a business is not easy but I can tell you that it is worth to put some hard works into it. What you are doing right now is invest for your future. Furthermore, you don’t have to quite your day job to start your own business, for example, to make money online through blogging, all you have to do is sit down at your spare time and write some articles for your blog. This is the true way to achieve financial freedom – leverage on your spare time.
The Power of Excessive cash
So here are the reasons that why you should start with excessive cash:
- Reduce the investment risks. People always afraid of taking risks when comes to investing. This is because they are worry of losing money. If you are investing using their limited cash or money, losing money is a big risk because it might affect your life and personal finance or even their retirement. But the story will be different if they invest with excessive cash. First you have excessive cash and you can invest in less risk because losing money will not affect you directly. Second you usually have a way to generate excessive cash, so you can always generate back the money if you loss it in investment. By reducing the risks, you will invest differently compare to others and hence you can achieve financial freedom faster.
- Able to afford more and variety of investing options. Investing just like a strategy game where you must plan and use your strategy to make money. So each investment has its own options for you to invest. But some time you need to pay extra or use more money to use difference kind of options. So with excessive cash, you choose whatever you want. At the same time, you also can invest in different kind of investment to diversify your investment portfolio. Don’t put all your eggs in one nest, this is what most investment experts will tell you.
- Afford some big deals which sometime are less risk! Yes, I found this from my customers who are rich. According to them, in some cases, your investment will not risky if you can put a certain amount of money in it. This is what we always call big deal investment. Some of them even can bring higher return and less risky compare to those small deals investment. I also found this theory when I was learning to trade in Forex last few years. In Forex, the more money you invest inside, the lower risks you have to carry. Now you know why those riches can invest not as worry as others.
How to Generate Excessive Cash?
3 ways I will recommend you to do for generating the excessive cash:
- Mange and save your money. This is the most basic and conventional way to let you have excessive cash for investing.
- Start your part time business. If you have a day job, I would recommend you to start a part time business which will allow you to build your business empire while still holding your day job. You can check my post 20 Ideas to start a part time business for more information.
- Start your own online business. This is what I’m doing right now. I want to make money from internet and generate excessive cash for my financial freedom plan. If you want to make money from internet or start an online business, I will recommend you to start blogging. You can download this free ebook for more information. I can tell you that this is the best way I ever found to get started in online business.
Conclusion
Above are just my opinions and thoughts for the 19 years old boy’s question. My recommended path is start generating excessive cash, invest the cash and transform them into passive income, then finally achieve financial freedom. There isn’t just one correct path. Each person has their own path to achieve financial freedom. The most important thing is your passion. If you are not passionate about and love what you are doing, then you may hardly stay focus on it and succeed. The theory is same with business. You must understand your passion and then start a business around it. Then you can stay focus and succeed from it easily.
Do you have any advices for the same question? Why not share it here….
How to Make a Plan to Achieve Financial Freedom, Part 3
Previously, I shared the first 2 parts of How to make a Plan to Achieve Financial Freedom. First part, we discuss how to test and know your current financial status and problems. In the second part, we discuss how to set a goal on how much passive income you need to achieve financial freedom. Both of them are in the preparing stage of this plan.
So in this article, I’m going to discuss how and in what way you can start your journey to achieve financial freedom
How to start the journey?
I always suggest people to start the journey according to the following steps:
- Start a business or build an income source that will generate excessive money for you.
- Manage the excessive money in a proper way
- Invest the excessive money to generate passive income
I elaborated each of the steps below:
Start or Own a Business that Generate Excessive Money
I always recommend people to start by building up a business or any other income source that will generate excessive money to them. In fact, I’m also doing this to achieve my financial freedom.
Let me define the meaning of excessive money:
Excessive money means the amount of money that can pay out all your living expenses and at the same time provide extra money for you to invest and build up your assets.
There are 2 reasons why I recommend to get started in business first:
- Protect Yourself. In my post, how to start a part time business that protects you financially, I already pointed out the important of a business to us. It can generate income to you and help you to build up your assets or as a protection for you at the emergency moment. Of course, business is not the only way to generate excessive money and you can also use your abilities to build up any other income source. As long as it can generate excessive money for you.
- Lower Your own Risks. We are not born to be an investor and in most cases we tend to lose money in starting. However, the more money you lost the more experience you will get and finally you can be a professional investor. I can tell you that learning from your mistakes and errors is the best way to improve. Yes, it is really pain to lose money but because of this you will remember your error very well and make a better investing decision next time. So if you have excessive cash, then the risks of losing money will be lower since it does not affect you life.
Manage the Excessive Money
No matter how much money you make, you must learn how to manage your money. In most cases, people fall deeply in debt not because of their low income, but because of their spending habits and weak in money management.
So even you have some kind of income source or business that generates excessive cash for you, you still need to learn and have a plan to manage them. If not you still can fall into the money trap.
Here, I will recommend you to start a budget. This is the best way to manage your money and gain control over your money. You plan how you spend and spend according to plan.
Now you can use the information that you collect in part 1 of this series and compile your own budget accordingly. Please remember that you must include emergency and investing funds in your budget.
Invest the Excessive Money
By carrying out a budget for your money, each month you will have some money ready for investing. This is one of the reasons why we must start a budget. However we cannot simply go out and dump the money in any investments and wait for the returns. We are trying to learn and invest like a true investor and not a gambler.
I have some suggestions for you:
- Decide what kind of investment you want to start. There are a lot of investment in the market such as real estate, stocks, forex, bonds and etc. So you must decide and select 1 or 2 of them and focus on them. I suggest choosing 1 or 2 of them because it takes time for us to train ourselves to make money from 1 investment. So if we start with so many investments, we will easily get confused and overwhelmed until we stop taking any actions. So we must start small and take baby steps all the time.
- Invest in your brain. There a lot of information we have to absorb and learn before investing our money in one investment. Different kind of investment will have different kind of terms, options, tools and strategies to be used. So in order to learn all this skill, you must read books, attend some courses or even pay a mentor to guide you in this. This is what I called invest money in your brain because you exchange knowledge with money. However, once you learn enough, your brain will put back some “gold” in to your pocket.
- Take some simple actions. I believe we can always leverage on the baby steps to train up ourselves easily. For example, if you choose stocks as your first investment target, then you can start with some free stock simulators and make yourself familiar with the market by using the virtual money. This is a good choice for you to gain experiences without losing any real money.
- Start your investment journals. By keeping a journal, you will keep down your journey to learn something. From there you will keep down what you learn, what mistakes you made and how the market change from in the previous year. This will make your mind clear about what you are doing every day. At the same time, compile and prepare your own investment strategies. The more knowledge you get, the better analysis and decision you can make. Then finally you can start making your own investing plan and strategies to invest.
- Don’t Give Up!
Coming Up next : Next part will be the last part of this series and I wish to discuss the power of mindset in your plan to achieve financial freedom. So stay tune, my friend.
At the same time, why not share with us your action plan to achieve any financial goals?
How to Make a Plan to Achieve Financial Freedom, Part 2
Last week, I post the first part of how to make a plan to achieve financial freedom. Inside there, I share some of steps that you can test and find out what your current financial status is. You will have an overall picture on your current finance and hence know the main problem that you must take care at this moment. This will be your first steps to achieve financial freedom too. There is another biggest decision you have to make where you must decide whether you should pay off your debts before doing anything to achieve financial freedom. In order to help you on this, I shared some tips inside the first part of this series that you should read through.
Anyway I wish you have a good idea over your current financial status and let us move on to the next part of this series, how much Passive income we need to achieve financial freedom?
How much Passive income you really need?
Passive income is an income you get without any physical hard works or spending most of your time on it. For those who don’t know, in order to achieve financial freedom, you must build some kinds of passive income which can support or exceed your monthly expenses. After financial free, you don’t really have to bother about your job and you can spend most of your time to do whatever you want to. This is an ultimate lifestyle that a lot of people dream about for their life.
However, the question is how much passive income you must build in order to be financial free?
Right now, as you read this article, we actually on our way to make a plan to achieve financial freedom. In this plan to achieve financial freedom, the amount of passive income will be the biggest goal for you. Without a goal, it is hard for us to come out a plan and then take action to achieve it. So first we must set a goal on how much of passive income we need.
There are a lot of factors that you must consider in order to decide how much passive income you need. I have listed down some of the most important factors that you must consider below:
- Decide the living style that you want after financial free. First you must decide what kind of living style you want to. Maybe you prefer to live frugally or live like a “millionaire next door” whose lifestyle is just like a normal people even though they are wealthy. Or maybe you want to travel around the world after this and spend your days leisurely. There will be different level of expenses and requirements with different life style you opt for.
- Decide what you want to buy after financial free. I believe most of us have a dream to buy something. Maybe you want to buy a Ferrari for your life or you want to buy a bungalow with personal garden and swimming pool in it. Whatever you want, just decide and write it down in this plan.
- Decide what you want to contribute back to the society. If you are financial free, you are really free in terms of time and financial. So at this time, you really can do something for our society. You have plenty of time to help people and you also can leverage on your wealth to do this too. I believe if you want to get more from your life then you must contribute more to the society. This will balance your life and you also will live happily and wealthy.
- Decide and plan for the future of your family. Yes, it is easy to achieve financial freedom if you are alone and without any family or financial burdens. However, the story will be different if you are married and you have your own family to support or maybe you want to prepare some income as your children’s education fund. You must very clear what you and your family need in future. This is part of plan for your most of the retirement planning.
- Decide your investment plan after financial free. Financial free is not the end of your personal finance. Instead it just a stepping stone for you to retire rich and wealthy. So even you achieve financial freedom, your job is still have to look for profitable investments, assets and businesses to build up your wealth. Besides that they also will be your tools to generate money for your retirement and future. So write an investment plan is very important.
PS: You may feel like you cannot afford most of your dreams. Maybe your inner voice keeps telling you that stop dreaming and you are hard to writing down your dream. Don’t bother about it and just decide and write it down. Write down your goal will not spend you millions of dollar, so don’t limit your dream. Just write down what you dream about all the time.
What is next?
Now, I bet you have a list of dreams and goals that you want to do and fulfill after you achieve financial freedom. Next, you have to do some research to find out what is the true cost to own everything you want. I found that the first problem people make in their plan to achieve financial freedom is they never know the price of their goals or dreams. For example, I heard from my friend that he wants buy his dream car in future. But when I ask him how much the car is, he just keeps quiet because he never do any homework for his dream car.
do some research about your dream and get the figure or price for them. Now what you have to do is just set the level of passive income which can afford your dreams and goals.
For example, I will be financial free if I can make a passive income of $3000 per month. This money will help me to support my family which currently has 5 members in it. I’m not married and I know my family burden is slightly lower than others. Besides that, I have a dream to travel around the world. Of course, this amount of passive income is not enough for luxuries travel. But for budget or middle-class style of travelling, this amount of money is enough. But anyway this is not a problem as I always have a plan to shoot up my passive income by owning more profitable investments and assets. I believe one day I can afford more.
I have a budget plan to use my passive income and I set a ratio of 50:20:20:10. 50% of my passive income will be used to cover my family’s living expenses and also others funds such as emergency funds. First 20% will be my investment modal then the other 20% will be my travel fund and last but not least 10% will be my charity fund.
Conclusion
You know what you want, you set a goal and you must do some research about it. From my experience, the more you know about your dream, the higher motivation you will get. Trust me, this is my own experience. This is also a way to train your mind about your goal. The more you know, the better your goal and dream accepted by our subconscious mind. Then you will believe it and your body will take action to achieve it.
So spend some time, maybe in your spare time, do some research about your dreams. Then open a text file in your PC or take out a piece of paper and write them down. 1 more thing that I want to remind you is revising your goal every 5-10 years. Well, everything in this world is changing and so as your dream. So revise it and change your plan accordingly.
Coming up next: Since you know what you have right now and set what you want in future. Next, I will talk about the actions plan that will bring you to your dream – financial freedom.