40 year olds want to achieve financial freedom, how?
The new living trend today is financial freedom and early retirement. However, financial freedom is not easy and carries risks. One of the central goals of financial freedom is investment and insurance.
What is financial freedom?
The keyword “Financial freedom” has been searched a lot lately. Financial freedom is also the goal of many people. But do you understand the essence of: “What is financial freedom?”
Financial freedom means having enough money to pay for daily living needs such as basic living, entertainment, personal interests, etc. Making financial decisions is not governed by money.
In simple terms, financial freedom is “enough” in money and assets to live comfortably, long-term without being affected by anyone or having to earn money to meet monthly expenses. To achieve financial freedom, you need to have more income than expenses.
What are the early retirement trends? Should I retire early?
Many new trends are formed along with the development of society and human thinking. Early retirement is a popular trend, attracting many young people worldwide.
What are the early retirement trends?
FIRE (financial independence – retire early) means reaching financial independence and retiring earlier than the average retirement age.
Early retirement is how people enjoy life, not affected by work pressure, office relationships, and partners. In many countries, there is a culture of working to the point of exhaustion such as in Japan, Korea, culture 969 in China… It puts a lot of pressure on the spirit and health of workers. Young people with new ideas, want to get out of the vicious circle of work, reduce pressure. Features of early retirement:
The average retirement age is 55-60 but young people can choose to retire at 40-45 years old or earlier with the tendency to retire early.
Early retirees will achieve financial freedom by having savings or another passive income source without working. With needs cut to lower revenues, spending decisions are not dictated by money.
Early retirees can spend free time on their own hobbies, doing what they like without having to worry about KPIs or deadlines. When you don’t have to worry about work, you can enjoy life in your own way.
The essence of FIRE is to move from active to passive income. If you’re still dependent on a part-time job, this isn’t early retirement yet.
An example of financial freedom
For financial investment, John Doe is nothing more than a blank page. Even though his current assets are close to $50,000 and he has a balance of $3,000 a month, John Doe wants to deposit all the money in a bank account.
After five years working, John Doe was promoted to General Manager in a music company in a small city; monthly income is more than $8000; At the same time, the side job helped John Doe’s income increase by more than $1000 per month. John Doe’s average monthly income is relatively good, plus without renting a house in this city, he is already economically well off.
However, the monthly expenses are not small, mainly in 3 items: work, travel and daily activities. Busy work, only 5-6 hours of sleep every day, he cannot accept that he has to walk 15 minutes from home to the bus stop, so he chooses to take a technology car. Thus, John Doe not only saves time but can also sleep in the car, which costs $500 a month for the vehicle.
Relationship building for a high-level person like John Doe is important, so he sets aside about $1000 a month for meals and social gatherings. Money to buy things and other living expenses, each month he tries to be in the range of $1500. He believes that these expenses cannot reduce any further.
Each year he calculates that he can only have $30,000 leftove
So he has planned to deposit the remaining money in the bank since 2018. But with increasing age, marriage is approaching, parents are elderly and were gradually appearing difficult in his career, John Doe began to “smell” the taste of financial pressure, but he was nothing more than a blank page.
To fulfill his long-term goals, John Doe intends to manage the assets independently and spends most of his time primarily developing his career. He wants to develop further and knows he needs to “climb up” to the position of market director. John Doe knows that it is very difficult, does not know how to prepare this “stepping stone”. Thinking about the long term, he hopes his ultimate career goal will be an investor and wants to learn how to accumulate from the present moment.
Here are some tips from financial experts for John Doe:
Step 1: Arrange investment
- The income per month and already have assets ($50K) to deposit in the bank every period, with a current interest rate of 0.36%, Mr. John Doe will face severe pressure. This solution saves daily expenses from 3-6 months, equivalent to $20-30K. Any remaining money should invest in something else.
- John Doe wants to realize an annual rate of return of 10%, he must accept a certain risk. Any risk and return of a financial management product must certainly be proportional to each other. If the risk is acceptable, I suggest spreading the funds and investing in products with a financial management structure, such as brokerage firms’ centralized financial management products.
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Step 2: Plan for insurance
Unintentional insurance: essential, one is to solve unexpected problems of customers, the other is to show responsibility for family members.
Elderly insurance: John Doe wants to be financially free at the age of 40, assuming life expectancy is 80 years old, then the other 40 years from 40 – 80 years old need to prepare well for old age, it is best to choose guarantee insurance. By several years of age.
Step 3: 40 years old realize financial freedom
- Assuming CPI stays typically at 3% constant, the current monthly expenditure is $3000 (excluding rent), and after 20 years, the actual monthly spending is $5000.
- According to John Doe’s estimate, the ideal state of profit next year is 10%, each year with a fixed investment of about $30K, almost $2M in financial freedom on demand. According to the future economic diversification situation, John Doe can carry out financial planning, including consumption, investment.
