In budgeting/ Investing

How to attain financial freedom with 9 to 5 job

When talking about financial freedom and passive income, especially in travel blogging scene, the tips to attain this is always about having your own business, website or blog. This is a fine plan and definitely works for some people, but it is difficult and risky. I guess these recommendations come from people that has been successful in creating businesses and blogs.

I am here to claim that you can attain financial freedom of your own by working on the very same job you have currently.

What this requires is not any get-rich-quick schemes or grandiose plans. What I am suggesting is saving your hard-earned money and investing it all back to stock market. Specifically companies that give out steady dividends or investing into index funds and ETF-funds.

I wrote an article about why everyone should start stock market investing, check it out here.

So, first thing that comes into mind is: How much do I need to save in order to live off of my dividends?

That is jumping over one huge question. First, you need to decide: is your goal to supplement your current income or live off of dividends for good. Supplementing your monthly income gives you already a large amount of financial freedom. Retiring from traditional jobs all together requires way more time on saving.

 First step to financial freedom: figuring out how much do you spend?

I wrote an article on how to budget, you can read it here. First step is making some calculations on how much money you need each month. This is  best done by looking at how much you are spending currently, and finding spots where you could cut back on your costs. Find a spending amount that is reasonable and learn new habits to spend less. This is crucial!

The point is to find a level of income that you have some room to do nice things, but cut down on extra spending that does not actually increase your happiness. We have all heard the saying that a lottery winner is no happier than before after a while. It is important to find happiness trough other outlets than buying more stuff.

Now, that you have learnt the true amount you spend each month, it is time to make some rough calculations.

How much of your income can you save?

If the objective is early retirement and you start with zero:

–> 66 % (2/3 of your net income) saving from your net income it is possible in 10 years

–> 50% (1/2 of your net income) you can retire in about 18 years

–> 20% (1/5 of your net income) it is possible in 37 years

–> 10% (1/10 of your net income) the goal takes about 50 years

You see now why it is crucial to first look at your spending habits?

This plan is slow and steady, but it is achievable for everyone. It is a good thing to have higher goals, but also it is a good idea to have realistic goals in mind.

 How much can you potentially accumulate in 10 years?

If you decide to save 500 euros/ month for 10 years with 7% interest, you’ll have 82 898 euros in ten years. In comparison, if you did not invest the same amount but just saved it, in 10 years you would have 60 000. So, investing will definitely make a difference even with moderate interest rate.

If you decide to save 1000/month for 10 years with same 7 % interest, you’ll have 165 797 in ten years. Annual investment column tells you how much you would save if you didn’t invest it anywhere, just saved the 12 000 each year. Capital income will show you the compound interest effect and how much more money you will have in the long run. The speed of the compound effect will become more powerful each year.

If you save the same 1000/ per month, for half a million, it would take 20 years and for 1 million, it would take 28 years. So, the longer you save, the more the amount will accumulate. You don’t need any lottery tickets to become a millionaire, you just need patience and a plan.

Just for fun of it, if out beat the stock market and make 12% interest for same 1000/month investments, in 10 years you would have 249 501 euros! For 1 million, it would take 20 years.

The rule of thumb is than in every 10 years, your savings will double if you invest it.

 

These are all some thoughts of mine about the issue, please share your opinions with me if you feel like it! What is your plan for the future

 

 

 

Please follow and like us:

You Might Also Like

Enjoy this blog? Please spread the word :)