Is It Possible to Achieve Financial Freedom by 40?
The short answer is…yes. There are many people out there who have achieved financial freedom by 40, so if they can do it, I know I can do it also! The real questions, though, are:
- What does financial freedom by 40 look like?
- How do I achieve it?
So let’s dive deep into these questions!
What is the definition of financial freedom?
According to Robert Kiyosaki, the author of Rich Dad, Poor Dad, financial freedom is what your passive income covers your living expenses, such that you can stop working and still cover all of your expenses. This is a good basic definition, but there are a lot of nuances to financial freedom that you also need to think about.
First, there is a difference between financial freedom and retiring early. When I first heard about financial freedom, I always thought I’d be retired and just do nothing when I’m 40. While that may be amazing for a few weeks, I realized I would definitely start to get restless. I mean, if you are the type of person that wants to retire by 40, you probably aren’t lazy before 40 and you won’t be lazy after 40. It’s just not the way you are.
Instead, I consider financial freedom as the ability to control what, when, and if I work. It’s the freedom of choice. I’m certain I will be working after I’m financially free, but it’ll be on my own terms.
- I want to be able to take a few weeks off and take care of my parents if they need me, without worry about the number of sick days I have saved up or whether not a commission check is going to come in this month.
- I want to pursue work that I truly want to do, not have to do. One of my favorite quotes that I tell my children all the time is “We have to do the things we need to do before we do the things we want to do.” Right now, I need to be working my butt off. After I’m financially free, I’m only going to be doing the things I want to do.
How To Become Financially Free by 40
Now that we’ve talked about what is financial freedom, let’s talk about how to get there. Here are the two main steps:
- Increase your income or decrease your expenses so you have disposable income
- Convert your disposable income to passive income
Let’s start at the end and work backwards.
Step 1 – Increase Your Disposable Income
By definition, your disposable income is the amount of money that you have leftover when you subtract all of your expenses from your income (typically calculated on a monthly basis).
Disposable Income = Income – Expenses
It’s pretty clear to see that in order to create more disposable income, you either have to dramatically increase your income AND/OR dramatically decrease your expenses. Interestingly, when my husband and I first started on this financial freedom journey, he immediately focused on decreasing our expenses. For example, we went down to one car instead of keep two. He is the accountant in our family and manages all of the expenses and knows where the money is coming in and how it is going out. This is also vitally important since you need to know your living expenses in order to know exactly what your “number” is to achieve financial freedom.
Myself, however, took the other approach – why don’t I just make more money? This was one of the reasons that I became a real estate agent (in addition to the fact that I had a life-changing horrible experience with an agent when I tried to buy my first home.) One of the reasons I love real estate is because I have the ability to directly control my income. I’ve seen countless agents add $100k+ to their income every year, just by how hard and how smart they work!
In reality, you need both perspectives in order to become financially free by 40 (and actually enjoy the journey). There needs to be one person that can just go out and make more money and stay focused on that (that’s me!). If we had two of me in a relationship, we would never know if our spending was out of control or not. On the other hand, if we had two of my husband, then we would be penny pinching everywhere to save. So you need both perspectives in order to accelerate the amount of disposable income you make.
Step 2 – Convert Disposable Income into Passive Income
There are a million ways to convert your hard earned disposable income into passive income. I will lay out the three main ones that we are pursuing.
- Real estate investments – We’ve got several rentals that bring in passive income for us. They are all managed by a property manager, so we are hands off in the entire process.
- Dividend stock – We also have a large portion of our assets in dividend stocks that create passive income.
- Making money online – This is probably my most favorite and most fascinating way to make passive income. I love the idea of creating something once and then having people buy over and over again. It is one of the reasons I started this website and a few other ways that I make passive income online.
So that is our basic strategy to achieving financial freedom and living the life of our dreams! What do you think? Do you think it is possible for you to become financially free by 40?
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