IFB18: Your Path to Financial Freedom Explained

 

Welcome to session 18 of the Investing for Beginners podcast. Today we are going to talk about financial independence and some ideas to help you achieve that.

* Understanding what financial freedom is
* Finding the motivation that inspires you to achieve your goal of financial freedom
* Creating income that you can live off of without having to dip into the nest egg
* Setting a budget first is paramount to any success
* Following the course and setting up automation for everything financial
* Utilizing the tools available to you for budgeting, automation, and staying on target

Andrew: Obviously the tagline is your path to financial freedom and I think it’s important to explain what that is and obviously our podcast is focused on beginners. It is a good starting point if you can understand exactly the kinds of things financial freedom can give you. Then number one you can have the motivation to want to continue and to put in the work of establishing that base when it comes to the knowledge of how to invest.
Establishing patience, the wisdom from other successful investors that we have seen. And taking that responsibility upon ourselves instead of letting some professional manage the money for us. So if you can understand what financial freedom is then, it can help push you along the path to becoming a better investor. Honing your skills and maybe even finding a passion for it like Dave and I have.
My idea of financial freedom and what’s accepted around, if you want to call it the financial community is this idea that you save enough money where you can live off of the income from your investments without having your investments shrink.
Dave and I like to talk about dividend stocks, well maybe I am speaking for Dave when I shouldn’t. But because it is a big piece of my goal of financial freedom.
Imagine you have, and I am just going to throw out easy numbers because they are easy, it’s not necessarily going to be a relevant example. Let’s say you have a million dollars as a nest egg and you have a million dollars of stocks, bonds, whatever it may be that is your pile of cash.
If you have financial freedom that would mean that the million dollars, whatever dividends, bonds interest that is coming through the income from your investments, whatever that can fund your current lifestyle.
I’ve talked about this before in a blog post, and I apologize, but I can’t remember which series or guide I mentioned this in. You can go to the investing for beginners website, and I have a getting started for beginners link up at the top, from there one of the posts should show you some of the real beginners basic stuff when it comes to finances and investing.
What I talk about is this thing called the 25X rule. You take whatever your income is now, or whatever income you’re comfortable with, and you multiply it by 25 times. Then that’s the number that your pile of cash needs to become to be able to do exactly what we are talking about with financial freedom and being able to live off of your investments without drawing from them.
The reason why it’s 25X is that it’s the inverse of 4%, basically this idea that finding 4% yield on average for someone who is later on in life and not taking that much risk. It depends on the market conditions obviously, but it is a nice round number, and it’s a good to goal to aspire too.
At a 25X you would only need 4% yield per year from dividends stocks, bonds, or whatever your investment is. And that is going to give you the expense number that you need, and that is going to support you and allow you to do whatever you please with y...