You Asked, I Replied - I Really Want To Achieve Financial Freedom. How Do I Start To Achieve It? | The Investing Engineer PH

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You Asked, I Replied – I Really Want To Achieve Financial Freedom. How Do I Start To Achieve It?

I was reading a book the other day when all of a sudden, I received an email from one of my readers. The reader asked this question and I was intrigued.

This is not the first time I receive emails from my readers. I randomly receive about two to three emails in a week asking questions about investing in general.

But this question piqued my interest so I decided to make it an official post today. I did replied with a brief answer but this time, I wanted to expand it and share my own thoughts about it.

Just to let you know, I’m not a financial planner and I’m not yet financially free. I’m speaking from someone who’s constantly travelling the path of financial freedom and learning along the way. If you need professional advice on your finances, then I recommend that you consult a financial planner to get better solutions to the topic that I’ll discuss in this post.

If you’re searching for an answer on how to be financially free, then this post will give you insights into what actions I’m taking today to ultimately reach that goal.

Let’s begin.

How To Achieve Financial Freedom

Here’s the question that I got from one of the blog readers.

financial freedom

Fig. 1 A question I got from one of the readers.

I can’t really answer this question based on experience because I haven’t reached financial freedom yet. But the successful people who already achieved it have these three things in common;

  • They are frugal and that’s why they are able to save.
  • They invest and grow their money through compounding.
  • They have multiple streams of income.

#1 They Are Frugal And That’s Why They Are Able To Save.

If you continue to live paycheck to paycheck, you’ll never be financially free. You have to learn to save a certain portion of your income every month consistently. To be able to save, it follows that you have to be frugal. You have to learn how to live below your means.

One way I do it is to follow a certain set of standards. In my case, I follow the 10-20-70 rule.

In a nutshell, 10% is your leisure expenses or your tithe whichever you want it to be. 20% is the amount you save and the 70% is your living expenses.

Some people don’t seem to find the will to save money. People love to spend money on material possessions, expensive food and luxurious travel. At the end of the day, there’s not much left to save. The sad part is that it repeats over and over again until you realize that it’s too late.

If you find yourself in this situation, then you need to slowly change your mindset about saving. Luckily, there’s a fun way to do that.

The 52-week money challenge will definitely teach you the virtue of saving money. This will train you to save at consistent intervals in increasing amounts. I started mine last year for the purpose of saving for the Christmas season. I’m almost finished with just 3 weeks left and I’m planning to continue this habit in 2017.

READ: How To Save Money By Doing The 52-Week Money Challenge

Building the habit of saving is a crucial part in achieving financial freedom. Without it, you can’t invest. This, I’ll discuss on the next item.

# 2 They Invest And Grow Their Money Through Compounding.

Imagine this, if you started investing in stocks at P5 Thousand pesos a month at 10% annual returns at 25 years of age, you would have gained P32 Million pesos at age 65. If you start at 35 years of age, you would only gain P12 Million pesos.

Now which is better? P32 Million or P12 Million? The answer?

Both of course!

The reason I say it is that no matter what age you’re into, it’s never too late to invest. Of course, it’s much better if you can invest in an early age. But the important thing that you must understand in the above example is the concept of compounding. According to Albert Einstein, it’s the eight wonder of the world.

financial freedom

Fig. 2 Credits to http://quoteaddicts.com/topic/compound-interest-quotes/

Wealthy people invest their money to make more money. They do this consistently over long periods of time that’s why they become wealthier. Poor people without financial IQ borrow money and pays compound interest eternally.

That’s why poor people become poorer than ever.

I invested in stocks because I wanted to compound my savings. I believe that investing in stocks using a value-based approach is one of the best ways to build wealth and achieve financial stability.

But to become totally financially free, you have to earn more than you spend passively. Having an Active Income is not enough, you must have Passive Income as well which I’ll discuss in #3 below.

#3 They Have Multiple Streams Of Income.

financial freedom

Fig. 3 Robert Allen

In today’s uncertain economy, the safest solution to be wealthy , be in total control and enjoy freedom for you and your family is to have multiple streams of income.

Robert G. Allen

Look at the most financially successful people in the world. One thing they have in common is that they have multiple streams of income. Some even retain their day jobs. Why? Because these multiple streams of income give them passive income every month on top of their active income.

If you’re doing #2, you’re already building passive income. The dividends you get is already a form of passive income. If you invest in bonds, the coupon rate is your passive income per year. If you invest in rental properties, the rent your tenants pay is also a passive income.

The above mentioned are just one of the many ways on how to build passive income. If you want to build it without sacrificing too much money, time and effort, then consider looking for opportunities in the Internet.

Besides investing, I also do some Internet stuff that nets me a decent amount of money. Learning about Affiliate Marketing and Email Marketing is one of the most lucrative ways to build passive income.

Making a blog or a niche site and putting up advertising like Google Adsense will also give you passive income. If you search enough, you’ll find successful people generating Adsense income as high as $100,000 a month.

This is a good opportunity for me because I just got my Adsense account approved after 48 years (lol). This is what I’m going to do this 2017.

If done in the right way with the right strategies, the methods I mentioned above can literally make you financially free.

The best part is that you can do all this Internet stuff without leaving your present job. In fact, this blog is a cash machine. It generates income all by itself using the above mentioned strategies.

So Here’s The Formula To Achieve Financial Freedom

To summarize, I believe that you should do the 3 things I discussed above in the right order. Here’s a quick recap just so you can follow.

  • Save money. This is a pre-requisite. Without this, you can’t invest in stocks and you can’t start building your cash machine. Financial freedom will start to gain traction in your life if you learn how to save money first.
  • Invest. The ultimate reason why you’re saving money is to invest it. Money saved must be put to work. In order for your money to work for you, you have to invest it. Invest it in stocks, bonds, UITF’s or mutual funds… and make sure you compound it yearly. 12% is average but if you can do it at 20% annually, then you’re on your way to become financially stable.
  • Build multiple streams of income. Investing can give you passive income but will definitely take a lot of time. Building something that generates cash on its own is the best way to build passive income. You have to build a lot of these cash generating machines in order to be financially free.

If you’re smart, you can also use the income you make from your passive income to fund your investments. More dividends means more passive income plus you get the benefit of compounding too.

Final Thoughts

These are the things I do to reach financial freedom and I’m very aware that there are people out there who really struggle which is why you could also get yourself a financial analysis adviser if you really need the extra help. Someday, I might be able to put up my first tech startup or an investment firm in the distant future. But one thing is for sure – the goal is to have as much investments and passive income as early as possible to retire young and rich.

How about you? What are the things you’re doing today to get you closer to where you want to be in the future? Do you still depend on your job as your only source of income? Are you paying much attention at your investments? Do you save consistently? I want to hear your thoughts! Share them in the comments section below.

To your success!

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  • Belma says:

    Save, save and save….take a calculated risk…invest…

    • Saving is something I never did during my younger years lolz. Not because I didn’t know how to save but there’s no one teaching me the right mindset on how to do it consistently. Today’s younger generation are so lucky because financial literacy is already accessible in social media groups. It’s easier to get information today compared to 15 years ago.

  • JRP says:

    Still working on #3… hopefully in 2017

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