Financial freedom is a term thrown around quite often, mostly by people who don’t understand what it means. Essentially, the goal is to have enough money to ensure you no longer need to work for the rest of your life. If you don’t have kids, they say your 30s is a lot like your 20s, but with a lot more money. Working toward achieving financial freedom by then can be an incredibly valuable and rewarding experience. So let’s get down to it.
The concept of financial freedom is also loosely termed as having passive income. You don’t work, but the money keeps rolling in. Like if you were a retired founding member of a successful business, or if the government gives you a pension you can live off of. Before you start thinking about financial freedom, understand that all money is earned through a business. If you’re providing a service, you’re being paid by a business of some form or another. If you earn money through trading, you’re investing in and pulling money out of a business, based on their performance in a market.
This is important because when you stop thinking like an employee and start thinking like a business owner, the volume of cash flow in and out of your account starts to get bigger. And this makes it easier to reach this goal of financial freedom.
$ave Dat Money
They say no one ever became rich by saving money, but what they don’t tell you is how no one ever became rich without having saved money at some point. If you want to achieve financial freedom in your 20s, you’re going to have to invest your money somewhere. And if you’re spending over budget, you’re not going to have enough left to invest.
If you’re finding it too hard to save money, take on a paid internship or do some online work from home. It’s essential to find ways of generating disposable income.
Ask People For Money
But don’t give it back. Offer them a service or a product. Look at what skills you have to offer, or could learn to offer. Look at what the market wants and how you can provide it. Start a business. Also, stop rolling your eyes.
Start small. Learn how it works. Fail. Fail again. Learn how to get it right. It won’t be easy, but this is arguably the most direct way of achieving financial freedom in your 20s.
AKA trading. You’ll need to create a Demat account, after which you can start pretty much right away, as long as you have some savings to invest from (see point 1). The idea is that you buy an asset, such as a stock, bond, commodity or mutual fund when it is undervalued and sell when it’s valuable enough for you to make a profit. Of course, this is risky, and you could potentially lose all the money you’ve invested. So be careful with this one.
Besides trading on the spot market, there are several other avenues you could look into. Derivatives trading (futures, options, swaps, etc.) can, in certain cases, be less risky and can potentially bring in greater rewards. Though most derivatives contracts are used by institutions to hedge investments, they can be traded to make a decent profit too.
A good resource for learning more about trading and how to read price charts is Investopedia. They even have a trading simulator game, where you can practice using real-world price data without spending any actual money.
Always remember — do your own research (DYOR) and only invest what you can afford to lose.
Magic Internet Money
This could be looked at as a sub-point of the previous one because cryptocurrency trading is quite similar to trading stocks and shares. The difference here is that crypto-assets are much more volatile and susceptible to large, unpredictable movements. While this means that it can be much more risky than trading stocks and shares, it also means that the potential returns are exponentially higher.
In fact, Bitcoin — the first cryptocurrency — is the fastest-growing asset in the world, with an ROI of over 6000% if you’d bought at launch back in 2009.
You could even look into mining cryptocurrencies such as Ethereum, Monero or even Bitcoin, but you’ll need a dedicated mining rig and have to research how cost-effective it would be. Also do take note of the laws in your country regarding trading, purchase, and sale of cryptocurrencies.
Flappy Bird 2
Remember that super popular and annoying game everyone was playing in 2014? The developer made $50,000 dollars per day in ad revenue. He became a millionaire and a half in just one month. And this is silly money compared to what gaming giants on mobile platforms make. Clash of Clans is reported to make almost $2.3 million per day, almost $840 million annually, for company Supercell.
Yes, you would need to put in some time, energy and perhaps some money (see point 1) to learn how to make an app that could rake in the dough for you. And like any business venture, it will likely take you several attempts before you get it right. But once you do, it could see you free from your financial and work-related woes for the rest of your life.
While this one sounds boring, Albert Einstein once famously said that compound interest was the most powerful force in the universe. He called it the 8th wonder of the world, stating, “He who understands it, earns it; he who doesn’t pays it.”
If you know how much you need to live, you can invest a fixed amount of money into a retirement account or fund every month or year, which will multiply over time because of — you guessed it — compound interest.
Obviously you’ll need to be putting a lot of money into this fund to make it sustainable over the course of the rest of your life, and it will also take years to create this fund. But while this isn’t the best idea in terms of returns, it is the least risky.
You could also grow the fund over a certain period, using that amount to invest in a business or trading afterward.
Debt and Tax
It’s no secret that national debt is growing, and if you have debt, it’s going to take you a little longer before you can start thinking about financial freedom. But do not fret about debt, get up and get set.
In this case, the first step to take is to create a timeline. Give yourself a date beyond which you vow to not have debt. Once you’ve done that, you can start making monthly or yearly payments toward it, and eventually, you’ll be able to start saving enough money to apply some of the ideas above.
Tax can also heavily eat into your funds, but there are ways to shield your money from tax. Find out where, how and how much tax you can claim returns on and do it, even if it’s not a substantial amount. Because money not spent on tax is money that can be invested.
Financial freedom is a broad term. If you could survive with just $1 a day, you’d need around $15,000 to be financially free for the next 40 years. But this isn’t usually the case, and if you’re thinking about financial freedom, you probably spend more than $1 every day. It’s hard work, and there is a lot to be learned before this goal becomes realizable. And while it is a good idea to work towards becoming financially free in your 20s, most people don’t achieve it until much later.
It’s going to take time, and that’s okay. Don’t feel too anxious. Take a step. And another. And another. Because soon, when you begin to make bigger steps faster and faster, you’ll find that it isn’t too hard to lift off.