Financial Freedom: 10 Steps to Live the Life You Want

Understanding Financial Freedom: The Ultimate Goal

Financial freedom is a concept that signifies having enough income to cover your living expenses for the rest of your life without having to be employed or dependent on others. It means having control over your finances, being able to make choices that allow you to enjoy life, and eliminating the stress that comes from financial uncertainty. Achieving financial freedom offers numerous benefits, including peace of mind, the ability to pursue your passions, and the opportunity to live the life you desire without financial constraints. This guide, Financial Freedom: 10 Steps to Live the Life You Want, will provide you with 10 actionable steps to achieve financial freedom, helping you take control of your finances and build a secure future.

The True Meaning of Financial Freedom

Financial freedom should not be mistaken for lounging on the beach all day. Personally, financial freedom allows me to live in a different country and city each year, enabling my children to learn new cultures and languages, and allowing the entire family to experience what it’s truly like to live in places like Paris, Rome, London, Madrid, or on the beach for at least a year.

For others, financial freedom might mean having the economic stability to venture into new business endeavors. Therefore, the term “financial freedom” is applicable to those who wish to live like retirees, living off their investments or traveling leisurely, as well as to executives who want to pursue other businesses, whether for fun or to continue accumulating wealth or social status.

Each person defines what financial freedom means to them, but everyone agrees that this freedom allows them to face life and its uncertainties with a peace of mind that those working solely to make ends meet do not have.

A Personal Blueprint for Financial Freedom: 10 Steps to Live the Life You Want

At the end of this post, I will offer you an extra about how I designed my financial freedom. All other ways are perfect; mine will be just a proven one by myself.

 

1. The Benefits of Achieving Financial Freedom

1. Peace of Mind: Financial stability reduces stress and anxiety, allowing you to focus on other aspects of your life.
2. Lifestyle Choices: Financial freedom provides the flexibility to make choices about where you live, work, and how you spend your time.
3. Opportunity to Pursue Passions: Without financial constraints, you can focus on hobbies, travel, and other activities you are passionate about.
4. Security for the Future: Ensuring you have the resources to handle unexpected expenses and retire comfortably.

 

2. Assessing Your Financial Situation

Calculating Your Net Worth

Your net worth is the difference between your assets and liabilities. Assets include cash, investments, property, and other valuable items, while liabilities consist of debts like loans, mortgages, and credit card balances. Calculating your net worth gives you a clear picture of your current financial health.

Steps to Calculate Net Worth:

• List all your assets and their current values.
• List all your liabilities and their current amounts.
• Subtract the total liabilities from the total assets.

 

Understanding Your Income and Expenses

To manage your finances effectively, you need to understand your income and expenses. Track all sources of income, including your salary, bonuses, and any side income. Similarly, track your expenses, including fixed costs (rent, utilities) and variable costs (entertainment, dining out).

Steps to Track Income and Expenses:

• Record your monthly income from all sources.
• Track all your expenses over a month to identify spending patterns.
• Categorize expenses to see where your money is going.

3. Setting Clear Financial Goals

Short-Term and Long-Term Financial Goals

Setting financial goals is crucial for achieving financial freedom. Short-term goals might include paying off credit card debt or saving for a vacation, while long-term goals could involve buying a home, saving for retirement, or funding your children’s education.

SMART Goal-Setting Framework

Using the SMART framework ensures your goals are Specific, Measurable, Achievable, Relevant, and Time-bound. This approach helps you create clear, actionable steps to reach your financial objectives.

Example of a SMART Goal:

• Specific: Save $10,000 for a down payment on a house.
• Measurable: Track savings progress monthly.
• Achievable: Save $500 per month from your salary and bonuses.
• Relevant: Aligns with your goal of buying a home.
• Time-bound: Achieve this goal within 20 months.

 

4. Creating a Comprehensive Budget

Building a Budget That Aligns with Your Goals

A budget is a plan for your money, detailing how much you earn, save, and spend. It should align with your financial goals and ensure you are living within your means.

Steps to Create a Budget:

• List your monthly income.
• List your monthly expenses, including savings and debt payments.
• Allocate funds to each category based on your goals and priorities.

Tracking and Adjusting Your Budget

Regularly tracking your budget helps you stay on course. Adjust your budget as needed to accommodate changes in income or expenses.

Tools for Budget Tracking:

• Spreadsheet programs like Excel or Google Sheets.
• Budgeting apps like Mint or YNAB (You Need a Budget).

5. Eliminating Debt

Prioritizing High-Interest Debt

High-interest debt, such as credit card balances, can quickly become unmanageable. Prioritize paying off these debts to reduce the amount you pay in interest.

Strategies for Paying Off Debt Quickly

1. Debt Snowball Method: Focus on paying off the smallest debts first, then move on to larger ones.
2. Debt Avalanche Method: Pay off debts with the highest interest rates first to save on interest payments.

Additional Tips:

• Consider consolidating debts to lower interest rates.
• Make extra payments whenever possible.

 

6. Building an Emergency Fund

Importance of an Emergency Fund

An emergency fund acts as a financial safety net, covering unexpected expenses like medical bills, car repairs, or job loss. It prevents you from relying on credit cards or loans during emergencies.

How to Save for Unexpected Expenses

Aim to save 3-6 months’ worth of living expenses in a separate, easily accessible account.

Steps to Build an Emergency Fund:

• Determine your monthly expenses.
• Set a monthly savings goal.
• Automate transfers to your emergency fund account.

 

7. Investing Wisely

Basics of Investing

Investing is essential for growing your wealth over time. Understand the basics of different investment options like stocks, bonds, mutual funds, and real estate.

Building a Diversified Portfolio

Diversification spreads your investments across various asset classes, reducing risk.

Steps to Build a Diversified Portfolio:

• Assess your risk tolerance and investment goals.
• Allocate your investments across different asset classes.
• Regularly review and rebalance your portfolio.

8. Generating Multiple Income Streams

Passive Income Ideas

Passive income can supplement your earnings without requiring constant effort.

Examples of Passive Income:

• Rental properties.
• Dividend-paying stocks.
• Peer-to-peer lending.

Developing Side Hustles

A side hustle can provide additional income and financial security.

Popular Side Hustles:

• Freelancing in your area of expertise.
• Starting an online business.
• Offering services like tutoring or consulting.

 

9. Saving for Retirement

Importance of Retirement Planning

Planning for retirement ensures you have enough resources to live comfortably after you stop working.

Maximizing Contributions to Retirement Accounts

Take advantage of retirement accounts like 401(k)s, IRAs, or country-specific pension plans.

Steps to Save for Retirement:

• Contribute regularly to your retirement accounts.
• Take advantage of employer matching contributions.
• Increase contributions as your income grows.

10. Protecting Your Wealth

Insurance protects your assets and provides financial security in case of unexpected events.

Types of Insurance to Consider:

• Health insurance.
• Life insurance.
• Disability insurance.
• Home and auto insurance.

Estate Planning and Wills

Estate planning ensures your assets are distributed according to your wishes after you pass away. A will is a legal document that outlines your wishes.

Steps to Create an Estate Plan:

• Write a will.
• Designate beneficiaries.

The Early Years: Learning the Value of Saving From the beginning of my salaried career, and even from a very young age, I understood the importance of saving. Whether it was my weekly allowance from my parents, holiday jobs, or my salary as a basketball referee, a significant portion always went into savings. In my blog post “Passive Income: The Naked Truth” you can see the various forms of passive income I experimented with, always aiming to generate additional revenue.

Diving into Real Estate: My First Investments However, real estate has always been my passion. At 21, together with a family member, I purchased my first apartment. Initially, we bought modest homes and made quick repairs like painting, installing new flooring, and changing door and window handles. Gradually, we started purchasing properties in better areas and undertook complete renovations, including new electrical systems, plumbing, doors, windows, and so on.

Balancing a Day Job with Real Estate Flipping For years, my salary and income, from what is now trendy and referred to as flipping, were my main sources of income. Despite the real estate business occupying only 10% of my time, it nearly matched the income from my 10-hour days as a financial consultant.

From Homeowner to Real Estate Mogul By the age of 25, I had purchased my first home with a mortgage. Within five years, this property nearly doubled in value after I performed a luxury renovation. I wish I could have bought four or five more properties at that time; I would have become a millionaire very quickly.

Preferring not to work on credit, I bought and renovated a property only when I had the necessary funds. As a result, I could buy and sell about three properties a year, with each process taking an average of four months. Although recent changes in tax legislation have made the real estate sector less attractive to me, it remains a good investment option as long as there is a demand for housing.

Surviving the 2007-2008 Financial Crisis The 2007-2008 crisis caused me to lose money as I had three properties for sale that I couldn’t sell, forcing me to explore the rental market for my properties. Rental yields aren’t very high, except for short-term touristic rentals, which gave me about a 9% net return for a few years but required dedication and being present in the same city if managed by a third party.

A Turning Point: Embracing P2P Crowdfunding At the age of 45, a major corporation, displaying its typical harshness towards older employees, dismissed me. This was a decisive moment. I realized I needed to focus on creating a consistent source of income, rather than merely supplementing my salary as an employee.

Discovering the Power of Diversification Around 5-6 years ago, I started exploring the P2P lending or crowdfunding loan market. I have several articles on this topic if you haven’t heard of it before, or you can read, for example, “Passive Income: Beginners’ Guide” In summary, with a computer and from anywhere in the world, I can invest as little as 10 euros in thousands of different loans across various countries and sectors, such as real estate, land, startups, consumer loans, etc.

Achieving Financial Freedom through P2P Crowdlending During this period, we began living in different countries, and we encountered issues that forced us to drive across half of Europe during the COVID-19 pandemic to resolve a problem. Thus, it offered little freedom, not to mention the challenges of dealing with tenants who increasingly demand higher quality service and cause more problems (midnight arrivals, breakages, damages, etc.).

The Benefits of P2P Crowdlending Over Traditional Real Estate Instead of investing 300.000 euros in one property as I used to, I now invest 2.000 euros in a property in Belgrade or Nice, in exchange for a 12% annual interest with monthly interest payments. If my property didn’t sell or was damaged in an accident, I could lose 300.000 euros. If a project where I invested 2.000 euros fails, there will be 160 other projects where I also invested 2.000 euros that will more than cover that loss. This way, diversifying as much as possible in investment amount, sector, company, and type of loan spreads out your risk so much that, while you will have losses, the gains from successful projects exceeding 10% will more than cover the failed ones.

Some main P2P Loans Platforms:

Lendermarket, Swaper, Bondster, Nibble, Lande, Kviku Finance, Get Income, Brickstarter, Letsinvest, AxiaFunder, Coreestate, Nectaro, Nordstreet, Bullride, Viainvest, Crowdpear, Loanch, Twino, Indemo, Maclear, Crowdhero, Monefit, Mintos, Esketit, Hive5.

From Real Estate Enthusiast to Crowdfunding Advocate Returning to my story, after testing this model for more than two years and finding it successful, I sold my own house and several apartments I had and invested in P2P crowdfunding. As a real estate enthusiast, suddenly rejecting real estate was incredible! But I realized that real estate could give me a 5-7% return, while in P2P crowdfunding, I’ve had returns close to 12% for over four years. It became clear to me: if my house is worth 500.000 euros, and I pay taxes, insurance, maintenance, municipal fees, etc., investing in P2P crowdfunding could yield around 50.000 euros a year in interest, allowing me to live in a rental house paying 4.000 euros a month. The reality is that I live in rental homes where I want, near where I want (school, beach, with swimming pools or gym at home, etc.), with high-quality living for much less, which allows me to live “for free” and still save money.

The Simple Principle of High Returns The principle is straightforward: if the bank gives you a loan at 5%, if your house offers a 6% return, if your other rental property offers a 7% return… liquidate everything and invest to achieve 10-12%. You can live comfortably wherever you want and not be tied to a place you don’t want to be. We’ve lived in Paris, London, Madrid, Málaga, Rome.

A Life of Financial Independence and Flexibility I don’t need to spend more than a little time reviewing my investments, which work automatically and reinvest themselves. I help my clients manage their investment portfolios, and often, I am investing while walking on the beach early in the morning. It sounds idyllic, but it is true. I have an income that doubles the salary of my country’s president, and I could work no more than two hours a day, though I usually work about four hours out of habit.

Living Without Ties and Embracing Freedom The feeling of not being tied down (not to jobs, schedules, properties, or anything material) personally relaxes me, and I love living peacefully. Some might enjoy the hustle and stress, but I love waking up without an alarm clock, deciding what to do when I feel like it, and choosing to live in another country on a whim.

Creating Your Own Passive Income Portfolio If you are interested in helping us create your passive income portfolio or guiding you in adapting it to achieve the best returns, you can write to us at carliaconsulting@hotmail.com or click here.

Planning for the Future: Diversification and Security As a savvy investor, my portfolio is well-diversified across agricultural land, real estate, bonds, ETFs, and more. I understand that as I approach retirement age and decide to settle down in one place, it will be wise to invest in at least one property to live in or rent out. This serves as a safety net, ensuring I have a place to live if I were to lose my income.

The Reliability of P2P Crowdfunding Currently, P2P crowdfunding has proven to be a very safe and reliable investment. However, it’s important to recognize that over time, businesses, legislation, or other factors may change, potentially making this less reliable in 15 years. Therefore, I recommend using all liquid savings today to maximize the return on each euro. However, as time goes on, it will also be wise to make investments that are not as profitable but provide the peace of mind of owning a home, ensuring a stable living situation should future monthly income decrease.

The Power of Compound Interest Nevertheless, I currently live comfortably on half of my annual income, while the other half remains invested, allowing compound interest to work its magic (if you haven’t heard about compound interest, you’re missing out – read here). This strategy will enable my savings to secure my children’s future in about ten years, ensuring their basic needs are covered. This aspect of passive income brings me the most satisfaction. I no longer need extravagant luxuries to live happily; instead, my greatest desire is to ensure my children are not burdened with worries about studying wherever they want, buying their first home, or living a nomadic lifestyle like their parents, always ready to explore new cultures.

Preparing the Next Generation for Financial Independence They are well-prepared for this lifestyle because they’ve been doing it from a young age. Besides speaking five languages fluently, they are the ones most eager for us to move to a new city or country.

Looking Ahead: Planning for Retirement So, as I approach retirement age, and even though I already live like a retiree, it’s time to start thinking about creating a solid retirement plan.