7/24/2023 0 Comments Financial freedom meaningTo reach this point you will need to accumulate a lot of wealth or build up other sources of income besides your salaried or self-employed job. You will be able to live off the income generated by your savings or the other sources of passive income you have built up. When you reach financial independence you will no longer need to work to cover your lifestyle. This means that you could stop working and live off your savings, but only by cutting your expenses as much as possible and changing your lifestyle for the worse. ![]() Of course, all within a limit that will define your years of financial freedom.Īt some point between this stage and the next it is possible to achieve what is known as Lean FIRE, which we could translate as “frugal or meager financial independence”. In short, you have the flexibility to organize your life and your time according to your preferences and you do not have to put up with certain work environments. People who reach this stage have at least two years of financial freedom, understood as two years of your lifestyle covered by your wealth.Īt this point you could consider questions such as changing jobs voluntarily, taking a sabbatical year or studying, if you need to. At this stage it is also normal to start investing to make your money grow. Of course, if you do lose your job, you will adjust your expenses, but you will not drastically cut your quality of life because you have room to react.įinancial stability is characterized by having paid off most, if not all, of your debts and having an emergency cushion of at least 6 months of fixed expenses. In fact, losing your job will no longer be so frightening because you have backup savings, and the same will be true for unforeseen expenses. Of course you’ll still think about it, but in a very different way! Money will no longer be a concern. In addition, you will see your money stress start to reduce. Being able to save every month and seeing how you can set aside two months of your expenses as a contingency fund can change your perspective on your financial capability. You consistently spend less than you bring in and that allows you to start working on goals like building your emergency buffer.ĭespite being the fuzziest step, this stage is one of the most rewarding. This doesn’t necessarily mean you are making more money, but it does mean you are managing it better. Perhaps the most vague stage of all, this is the moment when you really start to save. You can review ‘ant expenses’, save on electricity, and even start investing.Īs we have just said, financial freedom is a long-distance race and your best weapons for achieving it are perseverance and time. If you live on credit, you will actually still be in a phase of dependence, and one step away from disaster because a bank is not the same as your parents and it will demand that you pay back the money.Īt this stage the ability to generate financial freedom is limited, but it exists. In other words, you must be able to meet your financial obligations without the help of third parties and, if possible, without getting into debt. The next step towards financial freedom is to become solvent or self-sufficient. Stage 2: solvency or being self-sufficient Something as simple as cutting out some expenses can make all the difference in the long run. This is everyone’s real starting point, but even there you can begin to work on your financial freedom. Some people identify this stage with dependence, which is when your financial situation relies completely on other people, usually your parents. ![]() ![]() ![]() A good way to start is with a budget, which will help you get a picture of how much you earn and what you spend your money on. It’s the time when you ask yourself where you are financially and consider where you want to be. More than a stage, this is usually the turning point when you start looking for financial freedom.
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