In this article, I will summarize the book “Financial Freedom: A Proven Path To All The Money You Will Ever Need” written by Grant Sabatier.
This book is one of the most significant ones for people who want to earn money most legitimately.
If you want to take my recommendations, this is the best book for the age group 18-40 and especially for Indians, and you can save many years by just reading this article.
The AuthorAuthor suggests seven steps to financial freedom; with its help, anyone can achieve financial independence. He says that money is unlimited, but time is limited.
It is simple you can earn millions, but you cannot buy even a second in that money.
With the help of these seven steps, you will know exactly how much money you require for financial freedom.
I will also share a brilliant framework to help you earn more from your current jobs and start some side business.
Also, it will reduce your monthly expenses without putting any extra stress. This means that this article can make you rich if you thoroughly read it till the end.
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The story started in August 2010, when the AuthorAuthor of this book was unemployed and staying with the family in America; being unemployed is ok but living with the family at the age of 24 is not customary in the USA. Generally, children leave their parent’s house once they reach 18 years.
And they live their life in their way.
The AuthorAuthor tried hard for three years, and he failed miserably by only having $2 in his bank account.
If you look at the current trend, people of this generation cannot save as much as people of the older age also the inflation rate is too high. They are also taking education loans to study, which is again a burden for them.
That is why the AuthorAuthor thought that if he did a regular job of 9-5, he would never be able to retire and become financially free.
That’s why the AuthorAuthor planned to do something different to help him become rich and do something people generally do after retirement.
His principle was simple; he wanted to become an entrepreneur and investor. He wanted to learn everything about personal finance.
He has developed three strategies for becoming rich.
He calculated he needed exact $ 1.25 million.
He made an effective plan, i.e.:
- He will do one full-time Job
- Two side business
- Investment in stock markets
The result of this effective plan and strategy was that now after five years, he has $ 1.25 million in his bank account.
The AuthorAuthor is currently:
Let’s understand financial freedom seven phases:
- Clarity: In this phase, you need to understand your circumstances and plan to move ahead.
- Self-sufficiency: In this phase, you can pay your bills and rent effectively without any default.
- Breathing room: In this phase, you depend heavily on your salary, and your income is equal to your expenditure with no saving at all.
- Stability: Now you are in a bit stable mode. You have six months of saving without any loans.
- Flexibility: This phase is better than stability as you have invested almost two years of income.
- Financial independent Phase: This one is my favorite, and I assume that you will reach this phase if you follow my articles and abide by them. In this phase, your investment generates income, and you can quickly retire and follow your passion and goals.
- The abundance of wealth: In this phase, you will have enough money for generations to come. Neither you nor your children need to worry about money.
The first lesson which I learned from this book is that:
For financial freedom, you have to calculate your Annual expense :
The author wants us to understand the power of compounding as well all know the famous scientist Albert scientist has said that “compound interest is the 8th wonder of the world”.
In simple word the interest earn on you principle is reinvested to help compound the overall amount.
Let’s take an example:
FD of 1000 rupees for three years @5%
After one year your money will become 1050
Now for the second year, you will get 5%interest at 1050 and not 1000.
This is Compound Interest.
The author then recommends calculating our total annual expenses. You need to figure out how many loans you have and how much tax you are paying annually.
If you are living on rent, then how much are you paying in a year. How much you are paying for the education of your children and all other expenses.
After adding, you need to add inflation into this to know how much you need to have at your future time.
This means you need to do a simple calculation i.e
Annual Expense / 4% = Principle
This much you require to live your life on compound interest while buying anything as per your wish. The author recommends 4% because we can earn a minimum average of 7% from compound interest. Rest 3% will grow automatically.
Calculating Networth before Starting the Financial Journey
Before we proceed on a road journey, we generally plan it. Else we will find ourselves in a difficult position.
That is why financial freedom requires proper planning. The author recommends that you are in the right direction of reaching financial freedom if you know your net worth.
To calculate your net worth, you need to use a simple formula, i.e., ASSET-LIABILITY.
Let me explain to you in simple words what we mean bt=y asset and Liability.
Assets are Bank Balance, Properties, Gold, etc
Liabilities are loans, rent, food expenses, etc.
And that’s why Asset-Liability = Networth.
Networth will be positive if your asset side is more, and it will be negative if your Liability is more.
The author recommends everyone see their net worth daily for 5-10 minutes, i.e., how much we have in banks, how kuch we have to pay bills, etc.
This can sound a bit stressful, but the author says we train our minds to become financially free.
Find out How much work-time you are exchanging for each item.
With this strategy, the author explains a beautiful mindset to reduce our unnecessary expenses. He explains that we need to calculate how much time we have spent earning all that money whenever we buy any product. For example, if you purchase a phone cost RS 50000 and your salary is 25000/month, you are spending two months of hard work.
For financial freedom, you have to calculate your per-hour income. And trust me, it’s not that easy; we all think that to get per hour income, we need to do this calculation:
Per hour income = Income/Time, but the problem with this formula is we are not including time like:
- Dropping off your child at School
If you include all these hours, your per-hour income will be significantly less, and we need to take advantage of it. Whenever you buy something, calculate how many hours of hard work you need to do to buy that specific product. This will help us in conscious spending.
Saving more money by reducing housing transport and food costs.
The three most considerable expenses are accommodation, travel, and food; the author explains that if we can save money by spending less, we will have more money for investments.
Let’s take the housing example first; generally, buying housing is an exceptionally costly affair in India. We spend almost 1/3 of our life saving to buy a home.
Whenever anyone buys a home worth Rs 1 Cr overall, they spend almost 30% more on furnishing and decoring it.
At the same time, you have to pay a society fee as well for a whole year.
Now this money of Rs 1.3 cr, either you will pay in full or through a bank loan which will tale almost 1/4 of your lifetime repay it.
A better strategy would be to live in rent at a fully furnished home of around 30k-40k. In this, you will save your hard-earned RS 1.3 cr. The author also recommends that we live in a rented apartment that is not costly and will eventually save a lot of money for investment purposes.
The second most significant investment is the car; the author recommends using public transport as much as one can as it saves money a lot that can be used for investment purposes.
When you buy, you first pay for that car, then you need to pay for the fuel, then for insurance, maintenance, tax, and parking.
We have to get rid of that show-off attitude.
For saving on food expenses, always buy it on promotional days or purchase an annual membership to get a discount on all products.
You can buy from Grofers, BigBasket, or the local market as well.
If you save long term on all three things, you eventually will save a lot on it. And you can earn huge money in compound interest.
Optimization of Salary
You can do the below things to optimize your career and salary
- Identify your skill and contribution. If needed, please improve your skills.
- Market research of your salary
- Apply to different companies.
- Ask for salary raise in % on giving assurance of value and time.
- Ask for work from home to save both company and your resource as well as time.
Start a side business with your current Jobs.
With this strategy, you need to continue working in your job and at the same time start some business with very little capital. The aim of this side business is just to become profitable, so in the future, if you think that you want to increase your revenue, you can easily do so.
We have seen in western countries that they do odd jobs after their regular career; the intention is clear that apart from earning from the job, they are learning some core business skills.
The author recommends diversifying your income. it will help you increase your income level and help minimize the risk in this volatile market.
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