Are you looking to become rich? Do you have dreams of financial freedom?
It seems like everyone I talk to is going to make it big and become rich.
The other night I was at a networking function. I was talking to this really nice guy, and at one point he said to me that he wants to become rich.
Not a bad aspiration, but what is really driving him to say that?
When someone says something like “I want to become rich,” what they are really saying is “I want freedom and control over my life. I don’t want to make decisions based on money.”
The idea is that if you have more money, then you won’t have to worry about all of the stresses that accompany not money. You can make decisions based on your desires and passions, not your budgetary constraints.
But this line of thinking is missing one key point.
If what you do doesn’t require a lot of money, then money isn’t your path to freedom and control!
You’re definitely going to need SOME amount of money, but the less you tie your happiness to doing things that require money, the better off you’ll be. And the closer you’ll be to obtaining that control you desire, and achieving financial freedom!
SHIFTING YOUR MINDSET TO REACH FINANCIAL FREEDOM QUICKER
One of the biggest short-cuts to reaching financial freedom is not needing as much money in the first place.
Financial freedom is simply the ability to fund your lifestyle without relying on a particular job. You could do this through savings, investments, passive income, or a number of other ways. The variable that is different for each person is how much it costs to fund their lifestyle.
Do you need $100,000 a year to live the lifestyle you want? Well, then you are going to have to amass much more wealth than someone who only needs $25,000 each year.
WHAT IT TAKES TO RETIRE
You hear this often when people discuss saving for retirement.
I read a recent article that was talking about the rise in the number of retirement-aged Americans who are continuing to work.
In the article, the author points out that the average retirement account balance for those continuing to work is $133,108. And they casually drop the fact that in order to retire, most people should have $2 million saved in retirement assets.
I read that and was a bit taken aback.
What an incredibly broad-brush stroke statement: “You need $2 million in order to retire.” Of course you don’t. The number you need is predicated on a number of variables, and each person’s situation is different.
That figure they referenced was one that is based on a lot of assumptions and averages, and clearly doesn’t factor in someone who has taken steps to drastically lower their spending.
So, if you want to make cuts, where should you start?
WHERE TO FOCUS ON CUTTING YOUR SPENDING
The three areas people spend the most on are housing, transportation, and food.
On average, those three costs add up to over 60% of spending – with Housing accounting for 33.1%, transportation at 15.9%, and food at 12.9%.
All of those tips about cutting the small expenses out of your daily living aren’t entirely wrong, but if you want to have the biggest impact, these are the three areas you need to focus on first.
It can be hard to immediately cut your housing or transportation costs, seeing as most people are locked into a lease, mortgage, or have a car payment. So, it probably makes sense to first see how much you can cut back on food.
When you are coming up to the end of your lease, strongly consider moving to a more inexpensive living situation where you aren’t paying as much in rent and utilities. And if you are locked into a high mortgage payment, you’re going to have to really contemplate if selling your house to get out of that payment makes sense.
THE SOONER YOU WANT IT, THE MORE YOU NEED TO CUT
As for most things in life, there is a give-and-take when it comes to your spending habits and how quickly you want to build wealth.
The sooner you want to obtain financial freedom and have true control over your life, the more drastic the cuts to your expenses need to be.
There is no right way to do it. In fact, I’m not even a fan of going full HAM with cutting expenses. But you have to know yourself and what you care most about. Living a good life today, or living an awesome life in the future.