By Ken Brokaw
Everyone these days wants to gain financial freedom. The idea of never having to worry about financial problems sounds like the perfect situation. But how do you get there? The truth is, you can gain financial freedom by making the household-average income of just $50,000. Financial freedom is not just for the wealthy. Your mindset matters most.
In fact, some of the wealthiest people I have met are truly struggling financially and living paycheck to paycheck because they have yet to learn to live below their means. Living below your means is the foundation which financial freedom can be achieved. It doesn't matter if you are a multimillionaire or drive-thru attendant at Starbucks. You need to be living below your means.
Living below your means does not have to be complicated. It simply means you live a lifestyle below your net income. It's ideal to stay within a certain percentage, which I have found to be between 20-40 percent. This means that, if after tax you net:
- $50,000, you should live like you are making $40,000
- $100,000, you should live like you are making $75,000
- $1,000,000, you should live like you are making $600,000
This is a key mindset of the truly wealthy. Although many people may seem to have a lot of money, they are spending that money on high-end expenses. If you cut off their income for a period of 12 months, many of them would not survive. But what's the point of making the money if you can't spend it, right?
Although true, if you always learn to live below your means, you can use your funds for investments such as starting a business, real estate, cryptocurrency and other opportunities to increase your wealth status. This way, you can more-than-double your current net income, all with little to no risk to you or your family. As you start to increase your take-home pay with your new investments, you can scale your living costs appropriately without losing sight of the original mindset. This is how the wealthy stay truly wealthy.
I have a list of 10-20 different investment opportunities at any given moment. I track the type of investment (new business venture, real estate, stocks, etc.) and, more importantly, I track how much time and money it will cost to get off the ground. Some investments, like selling information products online, cost very little to get going. You simply need the time. For others, like buying an apartment building, you may need to save up for a bit in order the gain the benefits. Keep an ongoing list and highlight which opportunity you want to pursue first. I have mentored entrepreneurs who save for years to buy an apartment building and ones who just save enough to start an online business the very next month. Both use the same strategy to pave the way to financial freedom and both are living a truly wealthy lifestyle.
The difficult piece is always staying true to living on 60-80 percent of your net pay. The strategy I use was inspired by Profit First by Mike Michalowicz. Profit First was written to give businesses owners a way to pay themselves first so that their expenses never exceed their revenue. I have found that this strategy works when applied to your personal income too. In addition, if you are currently being paid through a payroll company, ask for them to split your paycheck 60/40 or 80/20 just like you would if you are putting money toward an IRA. That way, you don't even see the 20-40 percent being saved for future investments. Start slow. I suggest starting at 1-10 percent at first and working your way up to 20 percent and beyond. This way, you're not living on scraps. Just like in Profit First, you will find that 5 percent will not make a difference in how you live. You will start to adjust to less income and be able to make smarter decisions about what you do with your money. Then, you can raise that amount in small increments.
Make sure you choose a bank account you do not see often. By doing this, you will not see your entire net pay in your checking account and you cannot spend what's out of sight. I remember starting this exercise and transferring money to my savings account that was attached to my primary bank. When I would log in to my online banking account, I could always see what I was attempting to stash away and I would justify taking money from my savings and putting it into my checking account so I could afford that new TV or go out to eat one extra day. It wasn't until I chose a completely separate bank that I tricked myself into never touching those funds until I was ready to invest.
As you start to increase your net income, the key is to stay between 20-40 percent no matter what you make. This way you can rest assured that you will truly live financially free no matter what.
Author of Leveling Up Your Life: Build a Business Around Your Life, Not A Life Around Your Business. See more at www.LevelingUpYourLife.com.