7 steps to financial freedom

Here are the 7 steps to financial freedom:

1. Avoid debt like the plague.

If you are in debt you owe your time and labour to someone else. You are a serf. To have financial freedom you need to be free from debt.

2. Spend less than your earn.

Spending more than you earn leaves you with debt (see first step). Spending all that you earn keeps you on the treadmill for eternity. You have to spend less than you earn to achieve financial freedom.

3. Invest the difference in your own skills to earn more money

It is far easier to save money if you earn more. You should consistently invest your saved income towards improving your own skills and earning capacity.

4. Save the extra money you earn.

Once you start earning more money, it doesn’t mean you also need to spend more. You can now save this larger difference towards your future financial freedom.

5. Invest your savings into your own business ideas or other businesses.

The people who become truly prosperous have established their own businesses. It’s riskier than employment, but the rewards are far greater and so is the level of control over your life – something crucial to achieving financial freedom.

If you do not wish to create, build and manage a business, then you need to invest into other businesses to obtain the potentially superior long-term investment returns available.

You can do this via investing in a range of companies on the stock market and I would favor established dividend paying companies because the existence of dividends proves the cash flow of a company. Nowadays, you can very easily buy funds or indices to mitigate stock specific investment risk.

6. Reinvest the earnings that these businesses generate.

The businesses you invest in should provide you with profits. You should then reinvest these profits into further businesses/shares.

7. Repeat these steps until you can afford to live solely from the income these investments and businesses provide.

You need enough capital so that your income can last the remainder of your life, and perhaps also leaving some behind to family or charity if you wish.

Enjoy Freedom.

There’s clearly a lot more to each of these steps and you should start with a comprehensive financial plan.

By Mark Underdown

Financial Coach, Small Acorn Money

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