You may hear people being monotonous about how they are spending almost nothing so that they can retire at a young age, most likely 30. They are bragging how thrifty they were so they can retire well before the typical retirement age and they may have already achieved financial freedom.
As the saying goes, planning for retirement or even financial freedom is not a sprint but a marathon. For the process to be a bit more manageable and hopefully a little stressful, you should break up your financial independence goals into small chunks for you to stay on track. The important thing is to get started even if you are starting small.
Here are the levels of financial freedom that you should work on achieving.
Building up an emergency fund is the first level of financial freedom. Paying off credit card debt is included as well. Unfortunately, the reality of millions of Americans is living pay check to pay check. Some 40% of the households could not cover a $400 unexpected expense according to the Federal Reserve’s Report on the Economic Well-Being of U.S. Households in 2017. Car repairs, medical bills and night outs drinking with friends are some unexpected bills that will pop up throughout the year. During those types of situation, having an emergency fund will come in handy.
Making work an option is what financial freedom is all about. It is such a huge commitment to save enough money to quit your job forever. It is such a big jump in that direction if you can accumulate enough money to be able to take some time away from work. It is such a good feeling to know you can but that doesn’t mean you have to quit your job.
In case some of you wanted some extra motivation to get to this level, you may think of saving up for a sabbatical or extended vacation. But it would take some planning in order to be away from financial firm for that long.
This is more about having the money to enjoy your life. There is an enormous sense of relief to still have an extra at the end of the month when earning enough to save while doing the things you enjoy.
More flexibility with their schedule is what most people desire. It goes hand in hand in terms of freedom of time and financial independence. Together, not going completely broke doing it, they are about spending more time with your family or leaving the rat race to follow your passion. It could be perhaps working remotely on occasion, more paid time off an or flex time
There are individuals who hate their job and are willing to do almost anything to retire as soon as possible. Some considered selling their house or getting a roommate, or even go to a foreign country that has a low cost of living. Those kind of people were close to full retirement age.
Think about what your bare minimum retirement would look like for those who are looking to retire early with financial freedom. Knowing you have at least enough money to cover some standard of living during your early retirement, other choices you will make along the way will be most likely be influenced.
What would you do to maintain your standard of living in retirement assuming that you are doing pretty well and are happy with your current standard of living? It is a big win knowing you are on track to gather a nest egg to support that lifestyle. Gold medals will be given to those who collect enough assets, or passive income streams and to be in a position to retire well.
On the aforementioned levels of financial freedom, take a look at where you would fall. For you to keep moving towards your most important financial goals, keep that as a motivation.
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