Today I would like us to talk about planning your route to financial independence and we will look at 5 routes to financial independence. Most people you have a casual conversation with about money seem to or yearn to become financially independent, but very few people get there.
This is because many people get excited about this route to financial independence, but not a great deal of people understand how they can go about doing it and how to create a personal plan for themselves for this purpose.
You need to immerse yourself in this article because this article will help you start to really personalize this journey for yourself.
The Path to Financial Independence – Five Paths To Financial Independence.
Table of Contents
What we need to know before we look at these five points is that all five of them are not mutually exclusive. You can mix and match and combine them based on what works for you.
Savings Rates
The first route to financial independence is the path of the savings rates. This is the most popular path, because it’s the one that people understand the easiest.
This is because most people generate an income from one source usually which may be their main job or career as we call it.
The savings rate is a proportion of your net income or your after tax income that you commit towards saving and investing each month.
Now, what you invest in or can invest in each month may differ, but most people typically invest consistently, for example, through the stock market or broad based index funds, for example.
That investment could also be going towards paying down your mortgage, which we’ll cover very shortly. So the savings rate is the first route to financial independence.
Property Investing
This is the second route to financial independence. Property investing is absolutely phenomenal if you can get it right and the reason for that is because you are using leverage.
We are essentially using other people’s money, namely, the bank, for example. And this is very common in economies such as the UK, the US, bits in Europe, for example, or in other countries, in Asia, and Africa.
That is wherever it is possible to get mortgages.That is the only limitation of using this route to financial independence is when you don’t feel you are able to easily get a mortgage.
This method works by you investing in a property or properties and then letting your property or properties out for rental income.
The Two Methods Of Exploring The Property Route Investing To Financial Independence
The two methods of exploring the property route that will work really well are:
(A). Buy To Let of A Single Dwelling
Here you buy a property and you let it out to maybe a professional individual or a couple or a family.
Or buy a property as a single unit of maybe a two bedroom or three bedroom apartment or a house in a very good location and let it out to some students. With this model location is super important.
This is how it works normally. You are put down a deposit, which you would have saved up for initially, though, some people come up with more creative ways of building up that deposit.
You can either save that money up or generate it through an extra job or side hustle as example.
So you have a deposit, you then approach a bank and get a buy to let mortgage. But before the transaction you do the maths on the location and the rental income just to make sure this actually works for you.
You then conclude the transaction with the bank and then you let it out the property when purchase is completed with the owner and you can start to generate some rental income monthly.
You can scale it up to owning multiple houses or flats or condos but always ensure you factor in taxation in your calculations.
(B). Buy To Let For Multiple Occupancy
The second method is one called the house of multiple occupancy, the HMO. The difference is you’re investing in a property to convert to multiple rooms or slightly larger property with the aim of letting out individual rooms.
This usually has higher margins because you are generating a lot more income per room. To give you a very good example of how this works, a friend of mine called Martin Smith has five houses in a city in the UK called Liverpool.
This is a town with good Universities. This makes it an ideal location for student accommodation.
What he did was turn the five houses into 34 rooms generating 500 pounds each on average. That’s mind blowing and game changing in his path to financial independence. His income each month for that alone is £17,000 each month.
So how did he create that income stream?
He started with one, by buying one unit, bearing in mind these strategies for financial independence work over time and you don’t just achieve all this within a year.
That is why I advise everyone to start small and the growth will come instead of waiting for more capital to start what you want to do, start modestly. It’s taken Martin 8 years to build up these five properties.
He started by saving and built up enough savings to use for the down payment of 35% of the first property. He bought four bedroom property in a very good location.
Why is it a good location?
It is a good location because Liverpool has 4 Universities, that is, University of Liverpool, Liverpool John Moores University, Liverpool Hope University, and Liverpool School of Tropical Medicine.
The student population is almost half a million including international students coming in from the Middle East, China, Africa, USA, and Europe to study. I am sure we can all agree that there will be a healthy demand for rentable rooms in such a town.
Additionally, he chose Liverpool because property prices are quite cheap. You’ve got this premium of four Universities, which means he will potentially have customers for life.
Let’s do some maths here. He bought a four bedroom house for about £200,000, then he spent about £75,000 to £100,000 pounds transforming that four bedroom house into an eight bedroom house by extending sideways, backwards and upwards.
He then converted each room into an ensuite so that each room then has its own toilet, shower, bedroom and a desk as his intended renters were going to be postgraduate students or PhD students.
This strategy was because postgraduate students are more matured. They spend most of their time on campus and mostly just need a desk, a bed and a shower, preparing a nicer communal area.
We can all see how amazing this works out because it’s a very repeatable formula. The strategy is buy, convert, make it bigger and rent out. That’s exactly what he did and every month generates 17,000 pounds from all his 34 units with almost no void in a long while.
How did he buy the second property?
The question on most minds will be, okay that’s great for the first property but how did he buy the second unit of property?
I am going to show you his strategy which you can also adopt. After completion of the first property extension, the property then becomes worth a lot more. Martin is able to go back to the bank and do a remortgage to get more money on the same property.
He is able to take out more money because it’s now worth more and he’s able to take the difference between what it was worth and what it’s now worth in terms of value.
Martin takes this money then reinvest that money into a new four bedroom property that he then converts again. You need to bear in mind that this doesn’t happen in months but we talking of years may be one to four years.
That process could look like this. You buy the first one in year one, in year three you buy another one, you buy another one in year five, or six, and you buy another one in year 8.
This is because it takes some time to execute on this strategy. But what you get over time is diversified income generation, and capital gains are also happening over time.
Folks, that’s property investing, and though there are other strategies for property investing, those two are ones that anyone can execute really well with some really careful thinking and planning.
So far in this article, we have looked about savings rate and property investing. The third route to financial independence if paying off your mortgage.
Paying Off Your Mortgage
Now let’s focus on paying off your mortgage. If you have a mortgage, paying off the mortgage is extremely powerful for two reasons.
(1) Reduces Your Expenses
The mortgage is usually the most expensive thing you’re paying for each month. Getting rid of that reduces your expenses massively each month.
Generally, if like most people you spend your main monthly spend is groceries, lights, heating, insurance, fuel for your car or cars, council tax, and other overheads like subscriptions etc, and you have don’t have to pay for mortgage or rent, then the amount of money you need for financial independence become drastically reduced. That is obviously depending on your financial independence aims.
You can use the financial independence calculator spreadsheet in the resource section for working out your financial independence amount depending on how much you save.
If you did your financial independence calculation and you had no mortgage to pay, you realize that your required amount for financial independence will be much smaller.
Now you may be wondering how do I pay my mortgage off faster? A great way of getting an idea how quickly you can pay off your mortgage is by doing some forecasts about when you are likely to get it paid off.
This calculation is important so you are working with a realistic set of figures. You can use the mortgage overpayment scheduler spreadsheet in the resource section for working this out.
An example, if you start overpaying on your mortgage by doing lifestyle adjustments which is important if you are going to achieve financial independence sooner, it will slash years from when you can finish paying for the mortgage.
We can all see that getting rid of that mortgage just frees you up!
(2) Frees You Up
The second benefit of doing it is that getting rid of the mortgage just frees you up! It changes behaviour and you are no longer are not having to go for jobs that pay you the highest to pay for the mortgage.
That freedom of not being shackled down by a mortgage means you are freed to pursue other income generation objectives without constantly thinking about how quickly it will turn around for you to be able to pay the mortgage so paying off that mortgage is extremely powerful and one of the best things in life. Wouldn’t you agree with me?
You become a lot more open to options, you will be more daring and you will enjoy life more. You would have done something different to most people because most people just carried on paying forever.
I am very much aware of the other school of thought that eloquently believes that the interest on mortgage are very low and they are forms of cheap finance.
This is so up your alley if you are financially secure at the moment with enough stocks and other investments not to worry about the debt. In my opinion It only works for people who are financially secure already.
For most people the home is sacrosanct and with job security a thing of the past, even the thought of their inability to pay for the mortgage for the home where their family lives is stressful.
That is why I prefer and teach complete repayment of mortgages. I would absolutely say if you can and if you can work towards it over 8 to 15 years do it and it will actually change your life. Pay that mortgage off!
My desire is for everyone no matter what job you do is to be financially independent, and you can by following the candid pieces of advice here.
Extra Jobs and Businesses
The fourth route to financial freedom is to create businesses and (or) start extra jobs or side hustles as we call them.
This is powerful, because most people just rely on their jobs. But folks, most people have skills and abilities that are dormant outside of their working hours. We need to utilise these skills for wealth creation.
To create businesses and side hustle we need to use existing skills and abilities. If you are creative use them, if you are mathematical, use that skill, if you are hands on, use them.
To use these existing skills and abilities you will need to explore existing marketplaces or new marketplaces, and present those skill sets to serve that marketplace to generate an income.
You can find in the resources section list of potential side businesses you can create.
So a good example is this blog you are reading at the moment. I set up investments Mastery to help people with ideas for business, entrepreneurs and existing businesses to accelerate their path to financial success as a business and financial independence for the owners.
I added this blog as a side hustle to reach out to more people and written mostly from my study at home in my own spare time.
This is in addition to other businesses I own like gtghosting.com, hcmastering.co.uk, halisisolutions.com and Smart Mobile Solutions.
All these things work towards accelerating one’s financial independence and helping one build that Financial independence pot of money quicker.
So create those business and side hustle of all sorts that you can manage part time, and maybe even potentially full time One day.
Every little bit of income helps and when you start running these businesses you will begin to see the synergies they bring in your quest for financial independence.
Digital Assets
The last but not the least path to financial freedom is to create digital assets. This is my favorite and as I have mentioned previously my blogs are examples as part of side hustles.
And it also fits in neatly into his last category of digital assets, which is a great path to financial independence.
What I mean here is essentially creating things like blogs, podcasts, youtube channels, ebooks, things that generate an income in a sticky way.
An Example To Illustrate
A blog can generate income from at least three different sources and different types of income. Other sources of incomes are Ads revenue, affiliate marketing of products and sponsorships.
Ads revenue is a great way to generate income from blogs and whatever the day it is, whatever the financial situation, whatever the weather – snowing or raining there’s no day that your blog cannot generate about $40 a day of ad revenue.
This gives you about $1200 per month of passive income from the ads because you really don’t do anything to the ads. They are published on your blog by the advertising networks.
All you need to do is write good content like what you are reading in your niche once a week, and I encourage you to absolutely have your own blog as part of your income streams in a niche you are familiar with.
There is great content in your job of life experience that others will like to hear. You can read this blog post about why you need to start a blog. It is not too late or the market too saturated. Quality is key!
Digital assets are powerful and you should re-imagine what role they can play in helping you achieve financial independence.
Not Mutually Exclusive
All five methods are not mutually exclusive. So you can as an example, work on the rate of your savings and some of those savings could go towards investing through the stock market and some can go towards paying down your mortgage.
Or you can focus on your savings rates whilst also running starting other businesses or extra jobs. Or you could focus on your savings rate, paying down a mortgage and running a side hustle.
We can see there are various combinations. It’s an amazing fact that you have these various choices.
All these choices does not mean you are not focusing on your career. In another blog we will be talking about how you can make time to be able to work on the businesses you create since we all only have 24hours per day.
Conclusion
There you have it, five detailed routes to financial independence. I hope this blog has been useful. If you had value from this blog, share it on your facebook, twitter or pinterest.
Next steps to achieve financial independence
I suggest you set aside some time in the evenings or weekends and give the various routes to financial independence some detailed thought with considerations to what route is most suitable for you.
Consider the path you think you should explore or exploit. Exploitation will focus on doing an existing thing a bit better and that might be for example, focusing on your career prospects, whilst exploration will focus on venturing into new arenas entirely.
This can be exploring extra jobs, side hustles or exploring blogging or exploring something totally new that you never anticipated.
Thanks for reading.
Post Views:1,192
