People who are wondering how to achieve financial freedom in 5 years face a pickle. On the one hand, financial freedom is a fantastic goal to pursue.
On the other hand, trying to accomplish it in 5 years is extremely difficult. But I’m not trying to dissuade you.
Generally, achieving financial freedom is hard. It takes patience, persistence, grit and determination. But trying to do it in such a short time span is like climbing a steep mountain.
For some people, it may not even be possible. Now, I sincerely believe that financial freedom is possible for everyone. But the time frame might take longer than 5 years.
However, if you think you have what it takes to achieve financial freedom in 5 years, I say go for it! After all, you really have nothing to lose by practicing excellent financial habits regardless. So, here’s how to do it.
Achieving Financial Freedom in 5 Years
Step 1: Calculate Your Expenses per Year
The first thing you need to do in order to achieve financial freedom in 5 years is to determine how much money you spend per year. In order to do this, first calculate your average monthly expenses.
To do this properly, you must include all of your monthly expense. These will include things like:
Rent or mortgage payment
Food and household goods
Entertainment and miscellaneous expenditures
Did you know that the average American household spends $5,102 every month? So in our example, let’s say you find that your total monthly expenses equal up to $5,000 per month to make it a nice round number. Then, you can calculate your average annual expenses as follows:
Average Annual Expenses = $5,000 x 12 months = $60,000 / year
So in our example, every year, you are spending about $60,000. Now, if your annual income is substantially higher than $60,000, you will be in relatively good shape to start putting away money to help you achieve financial independence in 5 years.
Step 2: Calculate How Much You Need to Save
When determining how to achieve financial independence in 5 years, you first calculated your expenses per year. To be financially free, you’re going to need to be able to cover these expenses each year without worry.
In general, you will need to do this through passive income. That way, you will be earning enough money to cover your expenses without having to worry about your day job or any other activities.
In our example, you must have enough money saved to generate at $60,000 in passive income per year by the end of 5 years. So, how much money will you need to do that?
Let’s assume in this example that if you invest your savings, you can earn 10% on your money every year. That means your portfolio will be slightly more risky than the S&P 500, which tends to return about 8% per year on average. To generate $60,000 per year with a 10% rate of …read more
Source:: Investment You