3 Investing Steps to Reach Lifelong Financial Freedom

By Michelle Clardie on 02/19/2023.
Reviewed by Josefin Gatsby
Reaching financial freedom is a lofty goal. Financial freedom means that you are not reliant on a day job for the income to cover your living expenses. And the reward is well worth the effort! Imagine a life free from financial stress, where all your needs are met, and you get to decide when (or if) you want to work. 

Millions of Americans have learned how to reach financial freedom. And the formula is simpler than you might expect. In just three investing steps, you can go from a negative net worth to financial freedom! It won’t happen overnight, but if you commit to these three steps, it is achievable. And we have tips to make the process as easy as possible.

Before You Start Investing for Financial Freedom

Before you start building your financial freedom investments, you want to make sure your foundation is solid. This just requires two things:

  1. Setting your financial goals, and 
  2. Getting your debt under control. 

Setting Financial Goals

Setting goals is about designing the life of your dream. And then figuring out how to finance it. 

For some, the goal is to fund a minimalist, nomadic lifestyle. Others want to live comfortably in a house large enough to host the entire extended family. Decide what you want, then set a monthly budget to estimate the expenses of that life. This will tell you how much income you need to support your chosen lifestyle. And then you can use our three steps to financial freedom to help you meet that goal.   

Getting Your Debt Under Control

Some people choose to be debt-free before investing. But paying off all your debt isn’t a prerequisite for our lifelong financial freedom plan. In fact, some debt is smart. Take mortgage loans, for example. Mortgages allow you to leverage debt to purchase an asset that grows in value. And since the interest rate on mortgages is lower than the rate on most other debts, a mortgage does not represent the same financial drain as, say, credit card debt.

To make our plan work, you just need to get your debt under control. This means

  • Paying off credit card balances. 
  • Paying off any loans with comparatively high interest rates (like auto loans or personal loans).
  • Reducing your monthly recurring payments (for subscriptions like phone plans, streaming services, and entertainment/recreation passes) to a comfortable level.

When you have a plan in place and your debt under control, you’re ready to start investing for financial freedom!

3 Investing Steps to Reach Lifelong Financial Freedom

To achieve financial freedom, you really only need three types of investments:

  1. An emergency fund
  2. A retirement account
  3. Lifestyle investments

Step 1: Establish an Emergency Fund

The first step on the path to financial freedom is to ensure you’re protected in case of emergencies.

Unexpected expenses can derail your carefully laid financial plans. Cars break down. Air conditioners go out. Accidents happen. These expenses are inevitable, so preparing a “slush fund” to cover them will help you keep your plans on track. 

Aim to save enough money to cover three to six months of living expenses in your emergency fund, depending on your personal comfort level and risk tolerance. This amount should be enough to cover most minor emergencies. This amount should also be enough to protect you in the event of a job loss; you’ll have enough in savings to cover your living expenses while you find a new job. 

Your emergency fund should be kept liquid (easily accessible). A high-yield savings account is a solid option for your emergency fund investment. Your money won’t earn a high return, but it will be kept safe, insured by the FDIC, and can be available at a moment’s notice when it’s needed. 

Step 2: Start Saving for Retirement Early

With fewer companies offering pension plans, and the future of the social security system uncertain, investing for retirement has become critically important. And investing early will allow you to take advantage of compound interest to grow your wealth over time so that your savings essentially makes money on its own.

There are several options for retirement savings, including

  • 401(k)s. The traditional employer-sponsored retirement account, this program allows employees to contribute pre-tax dollars, which are automatically withheld from their paychecks. Some employers even offer contribution matching, in which they will contribute to your retirement account when you do.

  • Solo 401(k)s. A retirement plan for self-employed individuals. This plan has the same basic structure as a 401(k). 

  • IRA (Individual Retirement Account). IRAs allow individuals to invest pre-tax dollars for retirement.

  • Roth IRAs. Roth IRAs work similarly to IRAs, but they use after-tax dollars. The benefit of a Roth is that you don’t have to pay income tax on the withdrawals from your Roth in retirement.

Most retirement accounts offer stock and bond investments, but it is also possible to invest in real estate with your 401k or IRA. Understanding the stock market vs real estate will help you decide how much of your retirement portfolio to keep in each asset class. 

Step 3: Invest for the Lifestyle You Want

With your emergency fund and your retirement accounts established, you can move into more exciting investments to achieve financial freedom. 

There are many investments to choose from, so let’s break down your options by timeframe. We’ll look at several short-term, mid-range, and long-term investment options. In most cases, it’s advisable to hold investments in each category because each category provides unique benefits. But you can start slowly and build up your portfolio over time. 

Short-Term Investments

Short-term investments are typically understood to mature in two years or less. The primary benefit of short-term investments is that your capital is returned fairly quickly, freeing it up to be reinvested in new opportunities as they arise.  

Short-term investments are often most appealing during times of economic uncertainty. They’re also ideal for investors who want to keep their savings growing, but who also plan to use the money for other purposes in the fairly near future. 

Mid-Range Investments

Mid-range investments typically mature in around two to five years. The primary benefit of mid-range investments is that they offer a good balance of liquidity and return potential; you might see higher return rates than with short-term investments, and your capital will be freed up in just a few years.

Mid-range investments can be a smart way for investors to grow their savings for a specific purpose. If, for example, you’re saving money to buy a second home, you could use a mid-range investment vehicle to grow your savings while you wait to accumulate enough money for the purchase. This can help you reach your goals faster. 

Mid-range investment options include

  • Individual corporate stocks.
  • REITs (Real Estate Investment Trusts).
  • Index funds.
  • Mutual funds. 

Long-Term Investments

Long-term investments are intended to be held for five years or more. The primary benefit of long-term investments is the appreciation of the asset over time. But many long-term investments come with another key benefit: cash flows. This is where financial independence is achieved. When your passive income replaces your earned income, you are financially free!

Long-term investment options include

With dedication, you can achieve financial freedom. And before long, you’ll be ready to take advantage of the high net-worth investing strategies reserved for the independently wealthy. 

Tips to Help You on The Path to Financial Freedom

Here are five tips to help you stay on track as you work toward financial freedom. 
  1. Consider Meeting With a Financial Advisor. A certified financial advisor can guide you on which retirement account best suits your situation, and which stock market securities are a good fit for your goals. 
  2. Automate Your Savings and Investments. You can arrange automated transfers to your savings and investment accounts from every paycheck. This automation allows you to “set and forget” your financial planning for months at a time while your money works for you!  
  3. Reinvest Your Proceeds. Rather than spending the proceeds and profits from your investments, reinvest them to grow your wealth faster!
  4. Buy Assets, Not Liabilities. Assets grow in value over time while liabilities decrease in value. The more of your money you spend on assets, the greater your wealth grows, and the more financially independent you become. 
  5. Take Advantage of Tax Benefits. Keep the tax implications of your investments in mind. Certain asset classes, like real estate, offer far greater tax benefits than other classes.  

Investing for Financial Freedom with Gatsby Investment

When it comes to lifestyle investments that create financial freedom, Gatsby Investment has you covered. We offer expertly managed short-term, mid-range, and long-term real estate investments with low minimum investment amounts.

Gatsby Investment is a real estate syndication company, which means that we pool funds from multiple investors to purchase unique properties with high-return potential. With our carefully-developed investment models, we averaged annualized returns of 24.22% from 2017-2022! And we’re excited to help make financial freedom accessible to investors all over the world.

Take a look at our available real estate investment projects, and choose which properties you want to add to your portfolio today!   

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