Financial Independence: What is the Valuable First Step?

You can be financially independent when you have multiple passive income streams for your annual expenses. As Robert Kiyosaki said, financial independence is about having more choices. 

It is an essential goal for people for all backgrounds because it allows you to have enough income and afford opportunities for yourself and for your family. 

However, finding a way to financial progress seems complicated, especially if you don’t know where to begin. In this article, we shine a light on the path to where to start and where you’re going. You will know the first easy step to financial independence, including its whys and hows. 

Your Financial Situation as it Stands Today

Many of you desire to have enough wealth to live a life on your terms. To have six-figure salaries and high net worth, have an early retirement, no nine-to-five, and no worries about credit card debt and financial obligations — that’s the dream! 

But, in reality, you work hard to meet your daily needs. You hustle every day to survive and become tight-fisted with money. You realize hard work doesn’t pay off. Long hours of work don’t give you the guarantee of being financially independent.

It’s not just you.  Millions of Americans live their lives paycheck to paycheck and fall deeper into debt to pay off, including student debts, mortgages, health care, auto loans, and credit card debts. 

As reported by the Federal Reserve, consumer debt in the United States has reached a record-breaking $16 trillion. More worrying is that the increase in consumer debt for the fourth quarter of 2021 was also the highest since 2017. Not good news, right? But there’s something that you need to be excited about in this matter. 

Millionaires are made every day. Over the last decade, the number of ultrarich has increased incredibly. In the last few years, the number has grown by 24%. And these facts make you wonder. Why do these millionaires succeed amidst inflation? How do they make it?

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People succeed because they have the knowledge other people don’t.

It is a powerful message from Tony Robbins about the importance of “knowledge.” And he is right! There’s something that we should KNOW to change our status quo. So how should we start?

Be financially educated.

You need financial education to steer the wheel in your favor. You will learn about financial markets, financial operators, financial planning, market risks, investment products and services, stocks, bonds, cryptocurrencies, and cash flow through financial education. You will also know the risks, how they work, and how to use them. In simple terms, it helps people, young and old, be knowledgeable in gaining and managing assets.  

Reasons Why Financial Education is Important

Financial literacy is critical because it will realize that saving some portion of your income isn’t enough to accumulate wealth for your dream life.  Even your retirement money from the 401k and IRAs will not help you sail through the last leg of your life which could be up to 25 years of no earned income, thanks to ever-increasing life spans with healthcare advancements. 

Learning about finances will help you set short-term and long-term personal financial goals, make informed decisions about your investment portfolio and make financial plans for the future. 

Related: Smart Financial Goals: Here’s a Great List of Examples

No plan means leaving the life of your choice to chance.

In our late 20s that the middle class who faced retirement did not have a clear strategy about what retirement would look like for them. Some thought social security would take care of them for the remaining one-quarter of their lives. 

Others assumed that the house, stocks, and gold in the bank were their nest egg until they realized that without cash flow, they had to start selling off their assets. Different people have their time frame for retirement but don’t wait until 65 to have a nest egg. To be like Mr. Money Mustache, who retired before 30, have retirement plans. 

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A million dollar is not enough.

$1,000,000 is an excellent sum for retirement if you only have a few years to live. If you have 30 years ahead of you, your goal is $33,000 per year, less than $91 a day. You must pay essential expenses such as housing, food, insurance, transportation, taxes, and other costs. All of these add up fast. 

The average American household spends around $5,000 a month. That million-dollar would last you around 17 years, which is certainly not a long time. Do not forget that inflation devalues your money, which decreases your buying power with that same million. 

Charles Schwab says it takes $2.27 million to be considered “wealthy.” Inflation and living expenses never stop increasing. The need to multiply your dollars is urgent. You should consider working with a financial advisor who can provide specific information and financial help to multiply your dollars for early retirement and generational wealth. 

Related: Is $1.5 Million Enough to Retire?

Passing Wealth Through Generations 

With more incredible wealth, you can be a visionary. Pass your long-term wealth through your children and to the next generation. Income from work and other side hustle is insufficient because you have to deal with your current expenses and retirement plans. 

Find different ways to get high incomes and start saving for your emergency fund, spending, and long-term savings. How would you do that?

Think like an Ultrarich

Ultrarich people are brilliant at handling their finances. They understand money and time very well. They believe that money is not limited. But time is. The main point is that they invest in themselves through financial education to be adept at managing their finances without sacrificing their time.

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If you become educated as the ultrarich are, you will know the effective investment strategy for developing passive income streams. These are the different asset classes most of the ultra-rich are investing in:

1. Stock Market

It is the place where investors buy and sell shares of companies. Over time, if the stock market rises in value, the prices of a particular stock may rise or fall. It is reasonably consistent   but has high risk and high volatility. 

According to Trade Brains, 90% of people that invest in the stock market lose money because they are not willing or able to put in the time and effort it takes to invest successfully in stocks or stay invested through the volatility. Stocks typically provide an opportunity for greater returns than safer investments, though there is a degree of unpredictability to their performance.

2. Bond

A corporate bond is like a loan to a company, while an index fund is like a loan to the stock market. Bonds have lower risk, so they are better suited for long-term goals or saving for retirement years. 

They have lower returns and shorter maturities than stocks because investors get paid a regular interest payment instead of dividends but typically require less maintenance. The safer the bond, the less volatile your portfolio grows. It doesn’t change your lifestyle nor create generational wealth.

3. Cryptocurrencies

Cryptocurrencies are digital assets used as a form of currency. Most investors buy coins such as Bitcoin, Litecoin,  Etherum, and Ripple to wait for their market prices to rise. Once their price increases, they sell for a profit.  

A capital gain occurs when you sell a cryptocurrency for more than what you originally paid. This asset is highly speculative, high-risk, and high-volatility and the market is unregulated. The main threat to this type of investment is cyber hacking.

4. Commodities

Commodities are essential raw materials. Commodities were often traded in bulk and were considered a form of currency. These include gold, oil, silver, metals, wheat, and rubber. These products are produced naturally on the ground. Traders make money by buying commodities or commodity derivatives such as futures and options at one price and selling them at a higher price. 

Buyers of futures contracts hope that the market prices of the commodities will increase, thereby increasing their profits; sellers of futures contracts hope that the prices will decrease and they can buy back their contracts for less than the amount they originally sold them for. Commodities like vehicles could be a risky investment because it impacts the market supply and demand by uncertainties that are difficult or impossible to predict for an investor.

5. Multifamily Real Estate

Multifamily real estate has proven to be recession-resistant and more protected against economic downturns than any other type of property class. It is the one asset class that made more millionaires. 

After all, everyone needs a roof over their heads. Investments in these assets have high-entry barriers and tax advantages. It provides access to institutional quality deals through passive investments requiring no active involvement or management experience. 

Key economic indicators that drive the growth in the multifamily sector are lack of affordability of buying houses, migration patterns with shifting work trends like remote work adoption, job growth, income growth, shifting housing preferences of millennials from buying to renting homes, and retiring baby boomers moving to urban apartments to live in easy to maintain, community-friendly neighborhoods. 

America is becoming a renter nation. Demand for rental properties and multifamily housing will increase as homeowners and luxury renters are forced to find more affordable rental units in recession times. 

Investing in multifamily real estate that hedges against inflation and give you steady compounded returns has made that symbolic goal more reachable than ever. 

To know more about multifamily investments, read Multifamily Real Estate Investments: Easy Guide to New Investors or get a free copy of The Path to Wellth E-book.

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Learn about Passive Investing  

Although passive investing requires accurate information, time, and capital, it is meaningful work. It is the best way to achieve financial freedom without working for someone else for several years. 

It enables you to have a work-life balance and independent lifestyle and later achieve financial security. You have to aim for early retirement; otherwise, you will always fall back on your means and not live up to your dreams. 

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On your path to financial independence, choose and take the time to educate yourself about financial matters and study the individuals who have made it. 

The road to getting there may be long, it could take several years, but one step will lead you on the path to financial independence. Don’t wait for tomorrow to start your journey. Take that first step today. 

Be financially educated by tuning in to Wellthy Capital‘s podcast The Path to Wellth with Hannes Hennche on Apple, Stitcher, and Spotify and subscribe our Youtube Channel and gain new insights from our powerful weekly episodes with valuable speakers and wealth builders. 

And as you continue educating yourself, one day, you’ll be amazed when you see yourself celebrating your financial independence day. 

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