My strategy to be Financially Free within Five years

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I delineated a strategy to fulfill me as a person, capable of supporting my family and heading to retire in 5 years. This strategy is based on four simple pillars: spend less, invest more, develop new strong income sources and live a happier life spending more time with my family.

All of these came after I realized I was working overtime for a company where I was not earning enough to pay my debts, at the same time I was not saving nor investing enough for my retirement (which seemed by the way, very far away) so I had to change my focus in life if I wanted to do something because, at that pace, I was heading to retiring at 60, not able to work for anyone else, with a very low retirement fund.

My goal was very simple, I wanted to be financially free so I could spend more time with my family, be able to travel a couple of times a year, and be capable of living on my own (easy right?). To do this, I realized that I have to change my life asap.[/vc_column_text][/vc_column][/vc_row][vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column][vc_empty_space height=”34px”][vc_single_image image=”1250″ img_size=”large” qode_css_animation=””][vc_empty_space height=”11px”][vc_column_text]

0. What is your Purpose?

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Ok, sounds simple but it’s not so simple, to begin you have to respond to 3 simple questions:

1. What do you want to do?

In my case I want to be free, I don’t want to respond to a boss anymore. I want to have time to spend with my family and return to my architectural designs.

So in that sense then plan I elaborated consists in:

1. Get a better job.

2. Develop different income sources that will help me support my lifestyle without having a job.

3. Set up an emergency fund

4. Pay my debts and obligations

5. Set up an investment plan.

6. Reward me

2. When do you want to do it?

Of course that I want to do it as soon as possible, but I know that developing a different income source that can be sustainable takes time. It should take me 1 to 2 years to develop different income sources that could help me with a percentage of my income, and then the idea is to keep developing it until it becomes a full income.

3. How are you going to do it?

The first thing to know is what does it takes for you to retire? The rule of thumb, in this case, is to multiply by 25 the average amount of annual income that you want to receive when you retire because if you withdraw a 4% every year it should give you that same amount.

Example: $50,000 x 25 = $1’250,000 ///

$1’250,000 x 4% = $50,000

Second, I need to calculate where do I stand at this moment. That means how much money do you make, how much money do you own; basically, how far are you from your retirement goal?

And third, how with a mix of investing and developing new passive income sources, I am going to be financially free.

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1. Calculate your numbers

[/vc_column_text][vc_empty_space height=”34px”][vc_column_text]First of all, you have to know where do you stand in economic terms? And for that you have to ask yourself about your net worth.

When you do your calculations, try to be the most realistic as possible, because this will help you set your goals.

How much do I earn?

You have a salary which is your main earning, do you own an apartment that gives you a monthly rent?

In my case, these are my calculations:

What are your assets?

This is where you list the apartment you have, the car you own, the property that you’re paying to the bank.

What are your liabilities and obligations?

This is the part that sometimes surprises us (At least it did to me)

Car Insurance, Car repair, Household Taxes, do you have a recurring cost on your credit card, club monthly fee?

Assets

• House
• Wages
• Passive income

Liabilities

• Taxes
• Income tax
• Gas
• Household cost
• Repairs

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2. Preparing for an Emergency

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Imagine a scenario where there is a car accident, job loss, or legal problems that result in an economic setback, you don´t want to turn around and reach your credit card, generating a big hole in your pocket that could last for months or years. Emergencies happen more often than everyone wants, and if you´re not prepared it can be a real setback for your personal economy, that is why you have to have a safety net in case this happens.

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Setup an Emergency Fund

[/vc_column_text][vc_empty_space height=”35px”][vc_column_text]This is where we have to ask ourselves, if a problem occurs, how much money do I need to support my lifestyle until I get back on my feet?[/vc_column_text][vc_empty_space height=”35px”][vc_column_text]Although experts suggest that a proper emergency fund should support between three to six months of expenses, I think that an amount that keeps me comfortable is having at least four months of expenses covered, as I think that this is the time that would take me to find a new job in case everything else fails.[/vc_column_text][vc_empty_space height=”35px”][vc_btn title=”TIP 1: Try to save an amount of money that lets you live in calm and peace with yourself, if it is a month, two months, three months, a year you decide it.” style=”3d”][vc_btn title=”TIP 2: If you’re going to save money, try to make this fund accessible. Nothing worse than having an emergency and having your funds in an account that is going to penalize you for retiring your money before you were supposed to.” style=”3d”][vc_btn title=”TIP 3: Have your funds in a High Yield account. If you’re going to save your money instead of investing it, at least the institution where you leave it should give you something in exchange.” style=”3d”][vc_empty_space height=”35px”][/vc_column][/vc_row][vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column][vc_single_image image=”1237″ img_size=”large” qode_css_animation=””][vc_empty_space height=”21px”][vc_column_text]

3. Limit and Reduce your Debts and Obligations

[/vc_column_text][vc_empty_space height=”11px”][vc_column_text]This is a very important matter that you need to focus on and address immediately because if you don’t put your mind to it, it will not let you advance faster.

Stop Accumulating Debt and Make a Budget

First of all, debts are not bad, the only bad debt is the one that you can’t pay. There is always a subscription that you don’t need; maybe you’re still subscribed to a gym that you don’t use, an ONG that a friend made you support and forgot (my case).

Do you need to be subscribed to Netflix, Hulu, Apple TV, and others if you don’t watch that much TV?

Check the monthly report of your bank for the detail of all of your expenses, try to divide them into groups, and then decide which of all these expenses you can eliminate.

A healthy budget for all your debts should have a division and weight like this:[/vc_column_text][vc_empty_space height=”35px”][vc_row_inner row_type=”row” type=”full_width” text_align=”left” css_animation=””][vc_column_inner width=”1/2″][pie_chart2]25,#FF8885,Housing; 10,#574240,Transportation; 10,#BFA5A3,Food; 5,#00BBF8,Utilities; 10,#0086C0,Insurance; 5,#0059A6,Medical & Health Care; 10,#FFF4F2,Saving, Investing & Debts[/pie_chart2][/vc_column_inner][vc_column_inner width=”1/2″][vc_column_text]

• Housing (25-35%)
• Transportation (10-15%)
• Food (10-15%)
• Utilities (5-10%)
• Insurance (10-25%)
• Medical & Healthcare (5-10%)
• Saving, Investing & Debt Paying (10-20%)

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Which debt should you pay first, High-Interest / Secured, Snowball method, avalanche method?

First of all, you have to understand that there are different types of debts:

Installment loans are lump-sum loans that you have to repay in monthly installments for a period that could be a couple of months or years.

Installment loans include:

• Mortgages and home equity
• Auto loans
• Personal Loans
• Student loans

Revolving debt is when you have an available balance to use multiple times, instead of taking a lump-sum payment.

Revolving Debt:

• Credit card loans
• Personal lines of credit
• Home equity lines of credit

And also, there are two kinds of debts, secured debts ( the ones that are backed by collateral) and unsecured debts.

When thinking about what debt to pay first, you have to take into account what’s is more important for you, what will make you live calmer and peaceful with yourself?

In my case, my family lent me money to remodel my house, and even though it is a loan that has no interest, I feel more obligated to pay that loan first instead of other debts that have higher interest rates.

If saving money is your primary goal, then the avalanche method could be more suitable (paying higher interest debts first). If you’re not too keen to wait, then the snowball method (paying smaller debts first, so you feel you’re accomplishing and eliminating debts faster) could be more adequate for your means.

For me, the most important is to recognize which debts have higher interest, because those will keep growing faster, making it harder to overcome your obligations.

Generally speaking, a revolving debt, like credit card expenses, have higher interest rates than other debts so you should concentrate on those expenses first.[/vc_column_text][vc_empty_space height=”35px”][vc_btn title=”TIP1: Check your bank report at the end of the month, this is where you will find all your expenses. Make a list of all the ones that you could eliminate.” style=”3d”][vc_btn title=”TIP 2: If you’re having a different mortgage or consumer loan, you can always consolidate them and get lower rates with just one institution.” style=”3d”][vc_btn title=”TIP 3: Finally, you can refinance your debts, yes you might have to pay more, but at least it will let you breathe.” style=”3d”][vc_empty_space height=”35px”][/vc_column][/vc_row][vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column][vc_single_image image=”1238″ img_size=”large” qode_css_animation=””][vc_empty_space height=”21px”][vc_column_text]

4. With how much do I want to retire?

[/vc_column_text][vc_empty_space height=”11px”][vc_column_text]Travel around the world every year, visiting an old friend on the other side of the globe once a year, maintaining that beach house and the tennis club can be expensive but achievable; In my case, as I grow old I would love to visit my kids three or four times a year, go on holidays as I please and having a couple of houses to enjoy without working is how I envision myself in the future.

Earn more money

It is important to keep always in mind your goals, as sometimes earning more money makes people have more expenses. If you manage to earn more and maintain your expenses low, then your possibilities of retiring early become higher.

Find a better-paid job

I am a father of two, and currently working in a job that lowered 30% my salary because of the pandemic. Because I haven’t started any passive income strategy yet, the first step on my list is to find a better job, as this will help me pay for all of my obligations and contribute a larger portion to my 401k, investment and trading funds.

(Luckily I was able to find a managing position where I should have a positive increment in my salary and with more benefits.)[/vc_column_text][vc_empty_space height=”35px”][/vc_column][/vc_row][vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column][vc_single_image image=”1240″ img_size=”large” qode_css_animation=””][vc_empty_space height=”21px”][vc_column_text]

5. Invest till it hurts!

[/vc_column_text][vc_empty_space height=”11px”][vc_column_text]Investment haves a huge role in every financial strategy, as it is the only manner to advance and succeed in a journey to an independent life.

I think that everyone has ease of how to make more money, but not necessarily exploit it the way they should. In my case, I want to invest in real estate and the stock market, mostly because I’ve been investing in it for the last 20 years.

Nowadays is easier than ever to invest in the stock market, you can open an account in E-trade, Ameritrade, Vanguard, Robinhood, Tradezero, Etoro, aong many others; and select from multiple choices like stocks, bonds, futures, cryptocurrency, ETFs, REITs, etc.

In my Case, As Warren Buffet suggests, I decided to invest in the NASDAQ index fund, because after doing my calculations and comparing different ETFs, I decided that it was a good way of having a good return and not having to be always watching the investment.

I invested a part of my money in $QLD ETF, which is a 2X leveraged ETF, thinking it could give me an annual return of close to 30% (in the long term), but still, I am aware that I have to diversify my portfolio to make it less risky.

New Income Sources

Another of the pillars of financial freedom is having different income sources and preferably a good portion of it comes from passive income.

Passive income stands for income that takes minimal effort to earn and to maintain. A good example of this is:

• Cashflows from Rental Income
• Royalties from intellectual properties (books, music, videos, plans, scripts, patents, others)
• Stock Dividends
• Renting your house, Car, other goods
• Dropshipping
• Affiliate Marketing
• Vending Machine businesses
• Lending Money

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