If you just finished the first part of this blog post, welcome to Part 2! In Part 1, I covered the first five steps in achieving financial freedom.
1. Invest in yourself before investing in a vehicle
2. Define your “why” in wealth
3. Follow the path of others who have already achieved financial freedom
4. Treat your personal finances like a business
5. Have specific financial goals
This second part starts where we left off – on the sixth step. And remember from part 1, there are many ways to achieve financial freedom, but these steps are essential no matter where you’re starting from or what vehicle you use to get you there.
6. Invest and re-invest in cash-flowing assets
The majority of wage earners work hard for their money yet have no specific strategy for how to invest their surplus. They often invest in speculative ventures or on a “tip” from a friend without ever having considered when they’ll receive a return or what they’ll do with the money if they DO get a return. But if you want to achieve financial freedom, you’ll have to get more purposeful in your investing.
There are two general ways that you can earn a return on an investment: through cash flow or through appreciation – and some investment vehicles can do both! Cashflow means that you are receiving a recurring payment, distribution, or dividend. Appreciation means that the asset appreciated in value and that you’ll realize that gain when the investment sells or liquidates. Cashflow puts money in your pocket now, appreciation puts money in your pocket later, and usually much later.
If you want to achieve financial freedom, you’ll need to invest in assets that cash flow on a regular basis rather than assets that only give a return through appreciation in value. And while you’re working towards financial freedom, you’ll need to take that cash flow and put it right back into more investments. This is known as “financial velocity” for good reason – it speeds your journey to reaching your destination!
7. Have a team
Many busy professionals are “do-it-yourselfers” by personality and by training – this tendency has often helped them achieve success in their trade. However, one of the most helpful things I came to realize on my OWN journey to financial freedom was the importance of having a team. Achieving financial freedom is a team sport, or at least it SHOULD be! No one can be an expert at everything, and no one has time to DO everything. Be the captain of your financial ship, but make sure you have the appropriate crewmates.
If you’re just getting started, consider hiring a coach or mentor to help you learn the essentials and take the first steps.
You’ll also need a tax advisor with expertise in investing – preferably in the vehicle that YOU choose to use. Taxes will always be your biggest expense and will massively erode your investment profits if you don’t have a strategy to avoid or lessen them. We loved our old CPA firm, but they had no specialized knowledge in investing or in our particular investment vehicle. We had to find a new firm that could keep us educated on the ever-changing investment tax laws while also helping us accelerate our path the financial freedom through maximum tax savings.
And if you want to keep your day job and be a passive investor (rather than an active investor), you’ll also need a person and/or team that specializes, manages, and operates in the realm of your chosen investment vehicle. Having this relationship and developing trust in your team will help provide you with ample investment opportunities, it will lower your financial risk, and it will give you peace of mind when investing your money.
One of the most challenging things you’ll face as you begin the journey to financial freedom is maintaining F.O.C.U.S. – Follow On Course Until Successful. I’ve seen many successful professionals make terrible investment choices, and it is usually because they fell prey to the “shiny object syndrome” – that human tendency to want to get in on the “next best thing”, that “can’t lose”, “win big” investment opportunity. But if you want to achieve financial freedom – and not just be a gambler – you’ll have to get laser focused on one particular asset class and vehicle type. Avoid the temptation to put some of your money in the latest greatest stock, part into a marijuana farm, part into real estate, and part into a new tech startup! Remember, your risk goes down as your knowledge in your chosen vehicle goes up, and you can’t be an expert in everything. “Playing the field” with your investment dollars is risky and not likely to get you to your financial freedom goal. Become an expert in an investment vehicle that you love and stick with it – F.O.C.U.S.
9. Surround yourself by others who are financially free
Among many other valuable insights, Jim Rohn once stated that “you are the average of the five people you spend the most time with”. Consider that statement thoroughly and take inventory of YOUR current five! In the context of their finances, are THEY financially free OR are they earning 100% of their income and following the “path to retirement”? Do they, or have they taken any of these ten essential steps to financial freedom? Are you learning from them and are they pushing you forward towards achieving your OWN financial freedom OR are they doing the same things that you are currently doing?
I had to purposefully seek out a new “five”, as the five I used to have were all doing the same thing I was doing – earning an income and investing in a 401k! By finding others who are on the journey and/or who have already achieved financial freedom, you’ll elevate your mindset, your knowledge, AND your actions to achieve financial freedom yourself.
10. Take action
It’s relatively easy to get excited about financial freedom and to learn about investing, it’s much harder to take action. But the great aim of education isn’t knowledge, its action. Knowledge isn’t power, it’s potential power – it only becomes powerful when it has guided and prompted corresponding action!
Due to our normal human tendencies, our fears, our skepticism of new ideas and new people, and our comfort in the status quo, we often hesitate to take new actions. We study, we dream, we talk to others, but then take no action. This has often been referred to as analysis paralysis – getting stuck in the analysis and consideration of a new possibility but failing to take any action.
Many people learn about financial freedom but only a few take action to change their outcome. Whether waiting for the opportune time, for the market to correct, for others to get on board first… the reasons we get paralyzed are seemingly endless. But none of these 10 essential steps will help you if you don’t take action. Knowledge changes your mind, but only action changes your results.
Despite my initial excitement, I too felt hesitation to act when I first learned about the possibility of financial freedom; it was a major shift in everything I was doing and everything I thought I knew about finance. But I took the first step – small steps at first – and began the journey. I learned a little then invested just a little. This got me started. And as I got in the game, I learned more, got more comfortable, gained more confidence and certainty, and THEN invested more.
Financial freedom means your passive income meets or exceeds your expenses and achieving it should be everyone’s goal. However, it is not an overnight achievement or a static destination. It is a process that requires fundamental changes in the way you think and act around money, and it is a lifetime journey. And although there are multiple paths to get there, the majority of those that are truly financially free have incorporated these ten essential steps in their own journey to freedom.
Whether you’re considering taking the journey (which you should!) or already started, don’t underestimate the importance of finding a like-minded tribe of people and/or mentors who are also on the journey. Having a support system and others to help you along the way is invaluable in helping you avoid mistakes, in increasing your efficiency, and in keeping you motivated! And remember, a journey of a thousand miles begins with a single step! Get started. Take action. Don’t be intimated. By following the path of others and finding mentors to help, you too can take purposeful action and achieve your own financial freedom.