The financial freedom train is all about getting to financial freedom. This is just one way to do it but I think the over arching path is how most people get there. I best heard financial freedom explained by Thach Nguyen as: "What age do you want to have the option to work in life?" You may be doing this because you hate your job and want to get out. You may also love your job but goals change and down the road you may want to travel 2 months out of the year, be a stay at home dad/mom, or want stability if there was a job loss. I think the best part of financial freedom is the piece of mind that comes from knowing you are financial stable enough to weather a job loss, large unexpected expense, going on more vacations, and the opportunity to spend more time with family!
The Financial Freedom Train!
Step 1: The Roadmap
Where are we going and how are we going to get there? In my financial freedom model I choose real estate as a vehicle to build my wealth but that is just one way. You can choose a less active path such as mutual funds and other means. I choose real estate because I think it is the quickest/largest net worth builder and I do not mind the work that comes with it.
How much money do you need? What if you find you want 10,000 in passive income a month? Let's build this out using rentals from my area:
House rents for 2000.
So if this rental was paid off it would cashflow 2000 - 266(taxes) and 100 (insurance) = 1634.
$10,000/1634 = 6.11
So we need 6 or 7 paid off rentals to get to that goal.
So we buy our 6 or 7 rentals that cashflow atleast 400/mo * 6 = 2400/mo.
We dump that 2400/mo into one house + if we want to add more until it's paid off then we unlock that 1634 of more cashflow and start paying off the next rental. It's like dominoes with cashflow at the end.
2. Budgeting and Saving
It's not what you earn it's what you keep!!! There are a lot of people out there making 80-100k but they rack up debt quickly. It is key to keep your expense low throughout your journey. What sounds better the oppurtunity to vacation for a few months one day or a car payment today. I wrote a post on how to save huge amounts of money
www.callphillyhome.com/home-buyer-education/saving-money-in-your-20s-and-30s this will tell you everything you need to know!
3. Increasing Your Income
This can be a difficult one and you may have to be creative. I was at a corporate job that I hated and increasing your corporate salary could take years. Should I get my MBA, spend 2 years of my nights and weekends + 50000 with interest so I can earn 10,000 more once I'm done? That didn't make sense to me.
I had been interested in real estate for years and a few peers even at my corporate job said I should get my license so I did. I worked from 3 months spent 500-700$ and got my real estate license. I began working nights and weekends besides my w2 job which was 10-12 hr days. The days were long but my real estate job gave me life again. I began earning more money that I could save up for my third real estate deal.
I ended up quitting my W2 job to pursue real estate full time. Which I could only do because I was saving up for a 3rd real estate deal which now became my cushion until I could replace my income.
So side effects of pursuing financial freedom I'm now doing a job I am passionate about and had the money to jump ship because I was saving for my 3rd real estate deal. Changing jobs was the biggest shift for me. I went from working 10 hr days in something I didn't like + 1.5 hr commute to working where I wanted, in a great company that feels like a family, doing what I love everyday.
Once you increase your income make sure to keep your expense low! You maybe able to take your foot off the gas with the little stuff but do not go out and buy something big now that you have done the work.
4. Putting Money on the Train!
So you have made your road map, you saved, you boosted your income and kept your expense low! Now after months of saving a consistent amount of money you have a lot of money in your savings account. When I get to this point I invest the money in real estate. Real estate is great for me because it is not liquid aka I cannot take my money quick if I want to buy something I probably do not need. The way I think of it is taking my saving putting it on the financial freedom train (real estate deal) that will appreciate, cashflow, and depreciate my taxes.
When you have a lot of money in your savings not in a deal or mutual fund you start thinking of things you could buy. They may be practical too like : I should buy a truck for 25k I do a lot of work on my homes this would help. But that money could be in a real estate deal helping you take back your freedom and you can get the supplies delivered from Home Depot for a low fee.
These are basically the four steps you will be told if you read any of the books out there. The goal is buying back your freedom and security. If you don't like your job this could give you the freedom to pursue that side business you have been working on or spend more time with your family.
It is not an easy journey but it is very possible so why not try?
Matt Tallent is a Realtor with The How Group. His passions include rental property investing and helping others achieve their real estate goals.
Real Estate Investing
Buy and Hold