The 5 Paths to Financial Freedom

Why do you work?

Is it because you love what you do and would still be doing it regardless of whether there was any financial incentive? Or, it is because of the money?

If the answer is the latter then you are not free. Of course, there are degrees of servitude, but if your inner voice is rebelling against the routine of reporting to an office, or place or work, 5 days a week, 48 weeks of year, then your time is not your own.

So, what can you do?

The answer lies in securing your financial freedom. Do this, and you will never have to work another day in your life. You’ll have all the time you want to spend with family, friends and loved ones. Furthermore, they’ll be no more working for asshole bosses and compromising your values and ideals.

There are 5 paths to securing your financial freedom. Each one is unique, although you aren’t constrained to one alone. Pick and choose. Find the path, or paths, most suited to your personality, passions, current financial situation, family responsibilities and time constraints.

Path n#1: Live off Grid

Buy your own land, or live in a community, where you provide for all of your own heating, lighting, waste disposal, washing, water and eating needs.

Traditionally, living off grid means not relying on the national electricity grid for your power. As a result, you have no bills, mortgage or rent to pay. You owe no one.

What will you do with all of this freedom?

Keep yourself alive!

And, herein, lies a potential problem with living off grid.

You must spend so much time sustaining yourself there’s a chance you’re trading one form of servitude for another. Unless this type of lifestyle appeals to you, think twice.

Many people living off grid report having to spend time getting their living needs and food supplies up and running. This could be a few years of toil, cold, hunger and uncomfortable living conditions. If you’ve got a passion for it, you’ll be fine. If you don’t, there could be easier paths to securing your financial freedom.

Despite this criticism, there’s one undeniable positive of living off grid. You can claim your financial freedom relatively quickly. With some careful planning and a little money to get you started, the life of taking orders, being rushed and worrying about the bills, will soon become a distant memory.

Path n#2: Early Retirement

What would you think to retiring within the next 5 to 10 years and never having to work another day in your life?

Too good to be true? Sounds impossible?

Not if you follow the strategy created by Jacob Lund Fisher on his website Early Retirement Extreme. Originally born in Denmark, Fisher worked for 5 years as an astrophysicist before retiring at the age of 33 with savings of $175,000.

While this sum is not to be scoffed at, you might think it would be hard to live off for another 50 years. Not for Fisher. He recommends saving 75% of your yearly earnings and learning how to live off the rest. This means that, for every year you work, you buy yourself 3 years of freedom.

Fisher was able to reduce his living expenses to $7000 a year. On his website, he explains that the three greatest money drains are food, travel and housing. If you can keep these to a minimum, by eating a mainly vegetarian or vegan diet, living within walking or cycling distance of your place of work and paying a minimal amount of rent or owning your home outright, then retiring within a decade from now is a realistic goal.

The main advantage of the Early Retirement approach is that you don’t have to make any drastic changes to your career. You can keep working as you are, possibly even gaining promotion and making (and saving) even more money. However, a change will need to be made to your lifestyle.

Living on such a tiny budget is anathema to everything we’ve been conditioned to believe in the developed world. Consumption equals happiness and status. It can be hard not to think this way when all the messages you see and hear in the media, and purchasing habits of your peer group, reinforce this ideal.

Have you got the strength of character to stand alone and buck this trend? If you do, you could be claiming something far more valuable than eating out 5 nights a week, flashy cars and an overly mortgaged home. Within 5 to 10 years, you can be completely free to determine how you spend your time.

Path n#3: The Latte Factor

You are richer than you think. These are the words of David Bach in his new book The Latte Factor. This story is a modern version of the original wealth creating fable, The Richest Man in Babylon, by George Clason. In that 1926 classic, Clason, through his character Arkad, advises the reader to save 10% — 20% of their annual income before tax.

Bach calls this ‘paying yourself first.’ Dividing your salary, work out how much you get paid per hour. Then, ensure that your first hour’s work, every day, is syphoned off into a separate account.

This is the most important payment you’ll ever make. Before tax, before your rent or mortgage and before your food allowance, you must make this payment towards your financial freedom.

The magic happens when you follow Bach’s next piece of advice. You then take this money and invest it in tracking the stock market. Bach reveals that, since the stock markets inception, it has grown, on average, by 10% each year (US stock market).

With a 10% return on your investment, you can achieve your financial freedom far quicker than you may have believed. By saving just $5 a day, Bach calculates that you’ll have earned $948,611 in 40 years. Saving $25 a day would see you making $1,222,924 in 30 years.

‘The Latte Factor’ path presents an even easier route to financial freedom than ‘Early Retirement.’ This is because the changes to your spending habits are more manageable. Bach shows that, just by forgoing one luxury a day — a latte — with time, you can secure your financial freedom.

There are two catches to the Latte Factor path. The first, is time. While living off grid grants you near immediate financial freedom and Early Retirement might take 10 years, following The Latte Factor Path could, depending on your salary, leave you waiting 25 years. Is it worth it? Two or more decades worth of being somewhere you don’t want to be and doing things you don’t want to do, might have you looking for a quicker exit.

The other problem is relying on a 10% ROI. Just because it has in the past, doesn’t mean the stock market will continue to grow at this rate. And, if it doesn’t, you’re looking at an even longer time scale to ensure that such a small investment can one day lead to your financial freedom.

Path n#4: Make Money from your Passion

Like living off grid, this is another path to rapid financial freedom. However, this one requires a change in understanding of what it means to be free.

The previous 3 paths offer you options whereby you have enough money, or resources, to never work again. Path n#4 takes a different approach. It flips the meaning of financial freedom on its head and makes you question what you’re trying to escape.

Is it the world of work? Is it the need for money? Or, is it doing things you don’t want to do?

If it’s the latter, then your quickest route to financial freedom could be finding, or creating, a job you’re passionate about. ‘Choose a job you love, and you’ll never have to work a day in your life,’ is how Confucius put it. But how will you find that job?

First, you must remove all societal conditioning. Forget what your parents want you to do. Disregard what your friends are doing. Ignore what society tells you is a desirable career.

Then, listen to your heart. What do you find stimulating? In which fields is your appetite for learning endless?

In answering these questions, you might come up with answers that don’t lead to any obvious job description. That’s ok. There’s always the possibility of creating an income from something you’re passionate about simply through a relentless involvement in that field — see Clark Little making a living out of shore break photography.

You may not even need to do this. You might be passionate about teaching but have spent the previous 5 years working in banking because you believed the greater financial reward would lead to a happier life. Perhaps, now, you’re reconsidering this decision.

If your passion does lead you to mainstream career then beware of the possibility of ‘System Pollution.’ This means you might be passionate about a profession (e.g. teaching) but all the rules, regulations and red tape that goes with it, kills the fun. If this is the case, you’ll have to take your passion and find another outlet (e.g. become a private tutor).

There’s a lot to consider when choosing path n#4. However, if you can make your money in a way that inspires you, the issue of how much money you’re making won’t be such a factor. So long as you can provide for yourself, you are far richer than the person who makes millions yet doesn’t enjoy what they’re doing.

Path n#5: Make Fuck You Money

“Somebody wants you to do something . . . Fuck You
Your boss pisses you off . . .Fuck You”

These are the words of John Goodman’s character in the 2014 film The Gambler. He’s talking about the freedom that comes from amassing a large sum of money.

In the film, this figure is $2.5 million. Financial Samurai website claims that Fuck You money comes when you have between $5 and $10 million. Both these figures are derived from the idea that, once you have such a substantial sum, you can invest in a risk-free account, earning you interest of aprox. 2.5% per year. Then, you simply live off the $75,000, $125,000 or $250,000 per year this generates.

But how to earn this amount? Currently, under 0.7% of the world’s population (The 2017 Credit Suisse report indicates that this percentage have assets of over $1 million) are wealthy enough to put themselves in the Fuck You category.

If you are thinking of joining them, then ownership is the key. In his book, Rich Dad, Poor Dad, Robert Kiyosaki makes the distinction that the poor focus on the amount of money they can earn per hour, whereas the rich focus on how much money their assets can make them (even when they’re not working).

If you want to make this shift, start thinking about what you could own. Will it be property, stocks, part of a start-up, your own business or intellectual property? Acquire enough of these assets and you’ll never have to work another day in your life.

The advantage of the Fuck You path is that it’s financial freedom without limitation. All but the greediest would have no trouble living off $100,000 to $200,000 a year without needing to budget. As a result, nothing is off limits and you don’t have to spend a lifetime scrimping and saving.

The downside to the Fuck You path is that it requires an uncommon amount of money. Only a tiny minority ever get to this level. If you have no money to invest, how can you even begin?

However, could the perceived difficulty level also be a blessing in disguise? With the majority keeping their eyes firmly fixed on their salaries, and believing that financial freedom is a goal that’s out of their reach, perhaps there’s less competition for you!

Final Word

Whatever, you believe, and whatever path you choose, make a start today. There are few things worse than wasting all your potential, doing something you don’t enjoy, when there are options to change. Begin to see financial freedom as your right, not something reserved for the lucky or super talented.

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(Image used courtesy of Tax Credit’s photostream flickr.com)

Originally published at http://www.screwthesystemnow.com.