Achieving financial freedom is no longer a dream. It is rather a necessity.
And is that the legal retirement age is rising throughout Europe. In Spain it ranges between 65 and 67 years, and from time to time new rumors of a rise appear. Everything points to the fact that we are going to have to work considerably more years than we had anticipated.
In addition, more and more experts doubt that those who were born from the 80s have access to a decent retirement, even after spending a lifetime contributing.
That’s not to mention the current job landscape: marathon workdays, a terribly competitive professional environment and a deep feeling of throwing away the best years of our lives in exchange for a salary that is only enough to pay bills, mortgage and leave I travel three paltry weeks of vacation a year.
Faced with these perspectives, a new movement has appeared to which more and more people are joining. The FIRE movement : Financial Independence Retire Early , or people who retire young having achieved financial independence.
You may think that is beyond your reach. That only lucky entrepreneurs or lottery winners can achieve financial freedom and stop working.
But times have changed, and today generating additional income to stop worrying about money is no longer a utopia. I have succeeded , and in this article I am going to reveal to you the 10 best ways to achieve financial freedom due to its simplicity and ability to generate income in a stable way.
Since I want to be totally transparent with you, I will also show you my own results. But first let’s clarify a couple of concepts that many people confuse.
What is financial freedom?
The financial freedom is to be able to cover all your financial needs without for it have to be tied to a job. It is very directly related to passive income, those that do not require constant activity on your part to get them.
In other words, you achieve financial freedom when your savings, along with your passive income, cover all your expenses , which means you no longer depend on a job for life.
Some examples of passive income can be:
- Income from the rental of real estate (flats, parkings, premises, etc.)
- Interest and dividends from your investments
- Recurring income through web pages: advertising, affiliation, passive products
- Royalties and copyrights from the sale of books or the like
There are people who, although they have achieved financial freedom through one of these routes, decide to continue working. The difference is that they work for pleasure , not necessity.
In my case, financial freedom is totally linked to my passive income, because the money that now enters my account does not depend directly on the hours I invest in achieving it.
It should be noted that most of this income is not 100% passive, since it usually requires a minimum of dedication on your part to maintain or increase it. But the advantages are innumerable: you will stop being tied to a fixed schedule, you will feel free to use your time as you want and you will not have to explain to any boss.
How to plan your financial freedom?
There are two fundamental variables that you should consider before planning your financial freedom: your money , and the time that you will remain financially free.
Many people confuse financial freedom with wealth. They think that those people who have achieved it can afford a life on all trains traveling the world with no expense spared, but that is usually totally false.
In reality, they are minimalist, frugal people who control very well what they spend.
The less you need to live, the easier it will be for you to be financially independent because you will also require less income and savings. So the first thing to consider is how much money do you need each month to live? Or rather; How much money do you want each month to live?
Add to that all possible unforeseen events, such as parenthood, medical expenses, or repairs. Calculate a realistic monthly amount and always keep it in mind, because you will need to keep quite strict control of your expenses.
Financial freedom is calculated in years . That is, the time during which you could maintain your rhythm of life if you stopped working tomorrow, whether it was using your savings or having an inflow of money that did not depend directly on your work.
- In the first case, to calculate your financial freedom time, you just have to divide your savings by the expenses you need to cover every month.
- If you have a passive income system, quantify how much comes in each month and subtract what you need to live. If the result is positive, you will have financial freedom as long as you continue to have that source of income.
If you want to achieve absolute financial freedom – stop working forever – you must take into account how many years you are going to live in that situation in order to calculate what profitability your investments should give you and / or what savings you should have. Because it is not the same to want to retire at 50, than at 35.
Types of financial freedom
Financial freedom can be divided into 3 levels, depending on whether you can cover only your basic needs or you can forget about money practically forever.
# 1 Financial security
Financial security means that you have sufficient savings or passive income to cover your basic living expenses such as a mortgage or rent, supplies (electricity, water, gas, telephone), food, medical insurance, etc.
# 2 Financial independence
At this level, in addition to your basic living needs, you can cover other additional expenses that allow you to maintain your current standard of living, such as travel, restaurants or a car, if you have it.
In practice, when many people talk about financial freedom, they refer to this level: being able to live while maintaining the same rhythm of life.
# 3 Financial freedom
This is the level to which we all truly aspire. Financial freedom implies that you have enough savings or passive income to cover your basic and non-basic needs and face any unforeseen event.
In practice, you would have so much money that you could hardly spend it even if your circumstances changed a lot. Therefore, you have the freedom to choose what you want to do at all times.
But this does not mean that you can live at full speed without paying attention to expenses. In fact, many people who reach this level do so by keeping fairly tight control of their finances.
Remember: it is not about getting rich, it is about making you free .
The formula for financial freedom
If you want to achieve financial independence or freedom, the first step is to calculate your total annual spending volume .
Add there any quota, consumption or disbursement that you can foresee. The moment you have saved 25 times what you spend in a year , you can consider that you have achieved financial freedom.
That is the necessary amount so that, if you invest that money well, you can withdraw 4% annually without your funds ever running out. That 4% is what is called the capital withdrawal rate or withdrawal rate , and it is a standard that already includes inflation in its calculations.
If you also have passive income that does not depend on your workday, the account is as follows:
[Annual expenses – annual passive income] x 25 = amount of money you need in the bank to be able to consider yourself financially free.
Below I give you an example, but for now stay with this number.
The best ways to achieve financial freedom
Below are 10 proven systems for achieving financial freedom. To increase your chances of success, the ideal is not to apply just one, but several.
# 1 Invest what you save
The first method to achieve financial freedom is simple: invest your savings so that, in the end, the return on your investments allows you to stop working and live on them.
In this calculation you have two fundamental variables: the amount you manage to save each month, and the profitability that the saved money gives you. Based on these two variables, it is possible to calculate the years you will need to achieve financial freedom.
To make it easy for you, I have created this financial freedom calculator so you can calculate it for yourself based on your savings rate and the profitability of your investments . To use it, simply indicate:
- Your annual income
- The savings you currently have
- Your savings rate (more information below)
- The profitability of your savings
In doing so, the table will show you the funds you need to achieve financial freedom and the years it would take to achieve it.
Your savings rate is essential to achieve financial freedom. The higher the better. And for this you only have two options: increase your income or reduce expenses.
Generally, it is usually easier to reduce your expenses than to increase your income. You can eliminate the car and go to work on public transport, take home-made food, renegotiate the mortgage, or just go to the cinema on spectator days, for example.
Note: use these data with caution because there are more variables to consider, such as bank fees or the IBI of the garage. But do not lose sight of the final objective: the return you get from your savings should allow you to cover your expenses.
2. Live on your initial investment
If you already have considerable savings, you may be able to achieve financial freedom by investing them and obtaining a good annual return (from 6 to 12%). In this way, it is possible to live off the interests generated each year so as not to have to return to work.
For example, if you saved € 100,000 and invested them in an index fund that generated 8% per year, after a year you would have € 108,000. After two, € 116,640. And after 10, € 215,892.
Logically, you should take money from that fund to be able to live and meet your expenses. In general, it is assumed that the capital withdrawal rate (the percentage of your investments that you can use each year) must be below 4% to be sure.
So how much money would you need to invest in order to live off that retirement rate and immediately achieve financial freedom?
As you have seen before, the calculation is simple. Quantify your annual expenses and multiply that number by 25, which is the inverse of the 4% withdrawal rate.
Amount to invest = monthly expenses x 12 x 25
That is, you should invest 25 times your annual expenses to be able to live on your investments and achieve financial freedom immediately.
Suppose a person with the following expenses.
- Rental / mortgage costs: € 700
- Water, gas and electricity costs: € 100
- Food expenses: € 250
- Transportation costs: € 100
- Health insurance: € 45
- Leisure expenses: € 70
- Spending on hobbies: € 60
His annual expenses would be 17,700 euros. If you multiply it by 25, you should invest 397,500 euros to obtain it. Not bad.
If, like me, you do not have that amount either, the ideal is to find additional sources of income that allow you to approach that figure. That is what has really worked for me.
3 Generate passive income online
This is the system that has allowed me to be financially independent today. Why? Well, because while most people live thanks to active income (the one they get in exchange for their work time), passive income is what is generated automatically without it involving an additional investment in time or money .
This way you generate income while doing other things, whether it’s working, traveling or even sleeping. And the amount of money that you can accumulate in that time is beastly.
But let’s not fool ourselves; This does not mean that you can earn income effortlessly, because at first you will have to spend enough time to get your system up and running.
Fortunately, the Internet has revolutionized the possibilities of generating passive income. Simply, because a website does not sleep or rest. And, unlike what happened a few years ago, today you can achieve them with little investment or computer knowledge.
These are the 3 most profitable ways to generate passive income online today:
Affiliate marketing is about promoting the products or services of other companies in exchange for a commission for every sale you get. The most common is that you do it through a website where you write and publish recommendations for some type of product.
Its economic potential is enormous. In fact, the first website I created more than 5 years ago continues to passively generate more than 3,000 euros per month , without spending a minute on it for months!
To promote physical products, the best known affiliate platform is Amazon Affiliates , but there are many others like Tradedoubler or Awin .
The process is the following:
- You sign up for an affiliate platform.
- You create your website. In this guide I teach you how to do it step by step in less than 15 minutes.
- Publish your analysis and recommendations.
- You position your website in Google so that it gets visits. Here is another tutorial on web positioning .
An example would be to create a website for cooking products (mixers, coffee machines, etc.) where you would publish your analyzes and put links to Amazon so that readers could buy what you recommend.
When people searched Google for food products reviews, they would find your website, read your article, and click on your affiliate links. When you buy something, Amazon would give you a commission on the sale.
When your articles are receiving visits, your website will start generating money 24 hours a day and will become a totally passive system. I still remember the excitement of waking up every morning to see how much money I had generated the day before.🙂
SELLING COURSES ON A BLOG
This option, in addition to generating income on autopilot, will help you feel more fulfilled personally and professionally. The idea is to create a blog where you publish content on a topic that you like (healthy life, emotional intelligence, finances, etc.), position yourself as an expert in it, create a passive product and automate its sale.
This passive product could be a prerecorded video course, a book, an exclusive area for subscribers or a pdf course. That is, anything that once created, costs you the same to sell one than three hundred and you can practically forget about it .
It may seem difficult, but if you overcome the impostor syndrome it is not so much. The key to positioning yourself as an expert is in hyperspecializing yourself in a subject for a very specific segment of the public; This way you reduce the number of competitors.
For example, you could create a blog about emotional intelligence for young couples, or exercise tables for people who travel a lot and can’t go to a gym.
In my case, since I was a teenager I have been very attracted to social intelligence, so I decided to create a blog for introverted people like me who wanted guidelines to improve their social skills.
After a while, I recorded a video course and started selling it with a sequence of automated emails for new subscribers to my blog.
In this way, in addition to feeling useful helping other people, I manage to passively enter another 4,000 euros per month.
If you want to start earning money with a blog, in this guide you have everything you need to know.
MONETIZE A WEBSITE WITH ADSENSE
Adsense is the Google platform that allows you to monetize websites with ads. The idea is very similar to affiliate marketing: You create a page on a topic, you get traffic, and you make money every time someone clicks on one of those ads.
The advantage in this case is that you do not need the reader to buy to get a commission, although it is also true that they pay less per click.
Adsense is so popular thanks to its simplicity of use and number of advertisers. You just have to register and, when your request is approved, you can already insert ads on your website with a small code.
This system deals with displaying personalized ads for each reader according to their profile and the theme of your website, which maximizes the money you earn with advertising and prevents you from directly contacting advertisers.
Unlike affiliate marketing, the most common is to create a website that provides general information on a specific topic. The more visits you get and the more ads are paid for that theme, the more income you will generate.
4. Rent real estate
If you have a property that you do not use, you can make it profitable by renting it to third parties. For example a house, a premises or the garage if you decide to get rid of the car to reduce expenses and increase your savings rate (remember that it is important).
The profitability of rentals in Spain is currently around 10% due to the cost of housing and the boom that rent is experiencing in our country.
If you are not a property owner, you can assess the possibility of acquiring a home, renting it and going to live for rent in a smaller and cheaper apartment to maintain.
- this is a quite viable option, since if you decide on a variable interest mortgage, the interest will be approximately Euribor + 0.89% .
- If you prefer to shield your installments in the long term, you can find mortgages with fixed interest from 3%, approximately.
Note that, in either option, there is a wide margin up to 10% of profitability of a rental.
Another option is to rent your property on vacation rental portals, such as AirBnb . The profitability is higher, but keep in mind that it is not a totally passive system and you will have to spend time managing the rents on the platform, attending to the guests who arrive and taking care of the cleaning.
#5 Earn royalty income
The royalties or copyrights are the revenue that you perceive every time someone sells a work in which you are the author, like a book, a picture or a song.
The royalties are calculated as a percentage and vary greatly depending on the market, your popularity on it and if it is a digital or physical product (physicists tend to be lower). For example, with my first published book I get 10% on sales. That generates approximately a little more than a euro for each unit sold, so I would need a huge sales volume to generate significant income.
As you can see, you will hardly be able to live exclusively on royalties of this type unless you generate tens of thousands of sales per month, but as a complement to your savings or passive income it is not bad.
WHERE TO START?
If you have any technical skills such as photography or composing music, you can join online platforms that act as marketplaces to generate royalties this way.
The idea is very simple. You simply sign up on those websites, they include your copyrighted works in their directories, and when someone buys a license to use your content you receive a commission that can be between 30% and 50%.
- For example, if you have written a book, you can self-publish it as an ebook by registering with Amazon’s Kindle Direct Publishing service , and take up to 70% of sales.
- If you compose music, you can license your creations on Audio Network or AudioJungle .
- If you like photography, you can include your photos in image banks such as Fotolia or Shutterstock .
#6 Practice minimalism
Minimalism is an almost essential philosophy to achieve financial freedom.
Basically, it means being able to live with the essentials and do without everything that is expendable . It is not about giving up what you like the most, or becoming an ascetic, but living a life focused on your needs and not on your possessions.
- The first step is to identify what is essential for you and choose to stay alone with it. Do you need a car and a motorcycle or with just one would be enough?
- The second, simplify and group . For example, do you really need an iPod, a smartwatch and an mp3 to listen to music? Probably not. You probably have enough with your mobile so you can reduce your expenses.
Another example of how a small decision can have a big impact on your expenses:
Suppose that every morning on the way to work, you stop at a Starbucks and order a large latte to drink along the way. The price of that coffee is € 3.95.
After a year, you would have spent more than 850 euros on coffee. Is it essential? You could get up 5 minutes early to have coffee at home and save all that money. Now think of all those other things you can eliminate to get closer to your financial freedom.
If you want to get started in minimalism, I recommend the popular Marie Kondo. Although his book is mainly about how to bring order to your life through home organization, the basis of his method is to learn to get rid of things that you don’t really need or make you happy.
#7 Live in a poorer country
It is important to calculate the amount of money you need to maintain your rhythm of life, but where are you going to live that life?
The cost of living in each country has a huge impact on the amount of money you need. Your expenses will be very different depending on whether you live in New York or in the town of Huesca, that’s why Thailand is the fashion destination among digital nomads.
So, if you are not bound by any responsibility, moving to a country with a lower cost of living can be a determining factor in achieving your financial freedom.
These are some of the best options where you could move:
- Costa Rica, with more than ⅔ of sunny days a year, political stability and a social security system, is a very attractive option. Renting a house costs approximately € 200 a month, and for less than € 40 you have the right to health care through the public system. Also, Spanish is spoken.
- Thailand : sunny, warm, with paradisiacal beaches and VERY cheap. An apartment with private security and pool does not exceed € 200 per month. There is no public health, but it is accessible. Many people understand English and have a much slower and more relaxed pace of life than Spanish.
- Philippines : Similar to Thailand, although less popular and touristy, after the last change of government it is becoming a much safer country. English is an official language, and the only disadvantage I find is that the Internet connection is not as good as Thailand because of its geography.
- Portugal : If you prefer to stay in Europe, Portuguese neighbors are a great option. It is not as cheap as the previous ones, but you can rent an apartment for around € 500, and with around € 1,000 to cover all your monthly expenses.
Nor is it essential that you settle permanently in a country; You have the option of becoming a digital nomad and changing your location as I did, but this forces you to have an initial financial support to be protected in case of problems.
#8 Eliminate debt
The debts we contract are one of the biggest obstacles to achieving financial freedom.
Obviously, if they are very high, we cannot eliminate them immediately. But we can start reducing them. To do this, you need two things:
- Know how much your debts really amount to. Create an Excel and write down all you have, the initial amount, what you have left to pay, the fee you pay each month, the interest rate they are applying to you and the time you have left.
- Invest part of your savings in reducing your debts. If you think you can’t, prioritize. With minimalism you can reduce your expenses to save more, and in the end you decide how to use that savings.
The most effective method of dealing with your debts is to start by paying off the smallest .
The smallest is usually the one with the least capital pending amortization (although to compare them the interest rate should be similar). Once you have removed the smallest debt, move on to the next. And so on until they all disappear.
You are not going to make it overnight, but when you have eliminated the first debt you will have double ammunition for the next: the money that you no longer have to pay for it and the money that you kept to pay it and that you can now allocate to the next .
A good idea is to start with the credit card , which is the most common debt in Spain:
- Identify all the credit cards you have, their conditions and the debt you have pending.
- Talk to your bank to remove the fees on each card. Make sure that you have established the payment at the end of the month.
- Use some of your monthly savings to eliminate the debt on the cards until they disappear completely. Set a payment of a fixed amount or a percentage of the debt, whichever is best to eliminate it as soon as possible.
- Once you have done this, cancel your credit cards and start using debit cards . If you really consider it essential to have a credit card – in certain cases this is the case, for example if you are going to rent a car – keep only one.
Some debts, such as a mortgage or certain bank loans, impose an early repayment fee. They charge you an “extra” to penalize you for the interest you will stop paying, so there are cases in which it is not convenient for you to get rid of all the debt at once.
There are also companies that group all your debts into a single installment, usually lower than what you pay separately. However, read the fine print well: you will surely end up paying for more years … with its corresponding interests.
#9 Invest in the stock market
You may think that the stock market is too volatile and that investing money there is like gambling at the casino.
But it’s not like that. Not everything is frantically buying and selling, as the movies show us.
100% security does not exist, but if you bet on the long term , invest in reliable companies and do not get nervous with market fluctuations, it is not so random.
Precisely one of the strategies most used by those who pursue financial freedom has more to do with reflection and patience. It is known as buy & hold .
The buy & hold consists in gradually getting hold of a portfolio of companies with a certain guarantee of stability, maintaining it over time and constantly expanding it. An ant job to end up having the barn full.
The companies that interest you are the ones that distribute dividends throughout the year, that is, they regularly give the shareholders a part of the profits obtained. Thus, you will begin to get dividend income that in the medium term can represent a remarkable income.
With this strategy, the most important thing is not to get nervous. Remember that your plan is in the medium / long term: if your shares fall at a certain time, hold the rate because they will surely rise again.
HOW MUCH COULD YOU EARN WITH THIS STRATEGY?
Suppose you make a more or less powerful initial investment of € 30,000.
If you don’t have much experience, take it easy at first. Banks, energy companies or highly consolidated companies with a strong brand are usually quite stable and, although they do not provide large profits, they do stabilize your money.
In this first stage, 5% profitability is enough to avoid losing liquidity and start to gain confidence. Over time you can diversify and achieve returns between 7% and 20% depending on the risks you want to take.
Suppose you act conservatively and get 7% per year. The first year you would earn € 2,100, the following would be € 2,247, etc. When you handle an interesting amount of money you can consider securing an amount with more or less safe investments, and risking another part in high-risk investments.
Note: If you are extremely aggressive, you can even put yourself in the hands of a broker like Rob Booker , who talks about up to 40%. But beware, it is also proportional to the risk.
#10 Play the lottery
Yes, we have all fantasized about the possibility of a few million falling from the sky. And advertising is about teaching us luxury homes, dream yachts and vacations in the Caribbean.
But the reality is that achieving financial freedom by playing the lottery is almost utopian, at least in the best-known draws in Spain. Look at the odds of winning an interesting prize:
Christmas Lottery : You have a 0.001% chance per tenth of winning of winning € 400,000.
Children’s Lottery : 0.001% chance per tenth of winning € 200,000.
ONCE : 0.000007% of chances (one in 14 million) of winning € 9,000,000, and 0.001% of winning € 35,000 of the daily coupon.
EuroMillions : 0.0000007% probability (one in 140 million). The prizes accumulate if there are no winners, but the possibilities of obtaining it are ridiculous.
If you want to try despite these odds, keep these tips in mind:
- Don’t go over budget. Decide the money you are going to spend on the lottery and respect that decision.
- If you play in a group, make sure you have paid your share and have a copy of the ticket . A simple WhatsApp message with the photo of the number and the name of the people who participate in the draw is already legally valid.
- If it touches you, consider the taxes . In Spain the first € 20,000 are exempt, but the Treasury keeps 20% of the rest .
- Always check your prizes . Just because you haven’t won the jackpot doesn’t mean you don’t have a smaller prize. Anything helps on the road to financial freedom.
- There is no foolproof method of winning the lottery. Save yourself the trouble of falling into one of the many scams you will see on the Internet.
Plan your financial freedom
As you have seen, achieving financial freedom is a long distance race, but it is possible. In my case, reducing expenses and generating passive income online with affiliate websites has become a reality.
If you also bet on it, mark the following roadmap:
- Make financial security your first goal. If you aim too high you may become unmotivated and stop trying.
- Start with the simplest: reduce expenses and save. Practice minimalism and focus only on the essentials.
- Implement systems to earn passive income. You won’t be financially independent until you stop selling your time for money. The Internet still offers endless possibilities to generate income, even for the most novice.
Now I would like to listen to you. Are you already applying any of these points? Which is the easiest for you?