Having financial freedom is one of the most enviable positions you can find yourself in. Not only do you not have to stress about money but you can use all of your time as you please. This includes spending time with your loved ones, enjoying your hobbies and traveling around the world. However, you can never be free financially if you don’t know how to get there so here’s the path I would advise you to consider if being free is a high priority on your financial to-do list!
Before I share with you the one money rule that will free you financially, I think it’s worth going over what it truly means to be financially free. The goal of many people today is to become financially free but I think anyone would agree that it would be difficult to achieve this goal if you don’t even understand what it is. So how do you know when you’re financially free? Is it even possible to become financially free? I’ll explain shortly.
There are several definitions of financial freedom and that makes it difficult to determine when someone has reached this financial milestone. Chances are, if you still worry about how to pay your bills or have sleepless nights because of an emergency repair on your car, then you are not financially free.
If you ask me, financial freedom is:
having the ability to afford the type of lifestyle you want without having to worry about how you will pay the bills.
In other words, financial freedom is personal and it involves the ability to make choices. If you can do the type of job that you love without worrying about how you will pay the bills, then you are financially free. For instance, you can say that you are financially free if your dream job is to be an artist and you’re making enough money to afford the type of lifestyle that you want through your profession.
Therefore, you don’t need to become the richest person alive to achieve financial freedom. A person earning $40,000 annually is financially free if they can afford the lifestyle that they want compared to another person earning $100,000 but who’s income can’t afford them the lifestyle they desire. Now that you understand what financial freedom is, let’s talk about some of its benefits.
Firstly, 85% of people who hate their jobs can become happier if they achieve financial freedom. If you hate Mondays and only love the weekends because of your job, you’re going to be unhappy for most of your life. The average person works for 31 years before they retire. Luckily, you can do the type of job that you love if you are free financially without having to waste decades of your life being unhappy.
Furthermore, financial freedom gives you more security and of course, freedom! You don’t have to worry about debts or how to pay your bills anymore when you are financially free. You could also spend your time the way you want because you’re in control. You could choose to pursue your passion and do only the things that align with your values.
So now that you understand what financial freedom is as well as some of the benefits, let’s talk about that one rule that will free you financially. This rule is called “the 10% rule” and you can use it to speed up the time it takes to achieve financial freedom. And the good part is anyone can use it to achieve financial freedom.
Recall I mentioned earlier that financial freedom means doing what you love without worrying about how to pay the bills. Well, the 10% rule helps you achieve financial freedom in less than 10 years by allowing you to gradually switch from your current job to doing what you love while maintaining your current lifestyle. For instance, let’s assume that you hate your current job as a dentist and you desperately want to quit and follow your childhood passion of becoming a writer. Firstly, you shouldn’t quit your job to become a writer. I understand you hate your job but it’s the same job that pays your bills so you must plan carefully before making that move. Therefore, you should be able to establish yourself as a writer, maybe by publishing a book or signing a contract, before quitting your job. And how do you know when it’s time to quit? That is where the 10% rule comes in.
Now, I’ll give you a practical example which will help you understand exactly when you’ll be financially free. Let’s assume that your annual take-home pay after taxes and deductions from your current job is $50,000. Also, if your annual living expenses are 90% of your take-home pay, that means you spend $45,000 annually. The third assumption is that you are being promoted regularly at your current job and each year, your take-home pay and expenses increase by 2%. Therefore, if you want to follow the 10% rule to become financially free, you’ll have to start writing as a side hustle without quitting your current job.
Importantly, your goal is to make at least 10% of your current take-home pay from your side hustle in the first year. That is, you should make at least $5,000 from your writing and that is 10% of $50,000. This goal is achievable and you only need to make about $420 every month to achieve this. You could write a book every month and upload it on Amazon or start a blog where you could write about your passion and make money from it. Remember that writing is just an example I used here for you to understand and you can as well look for ways to make money from any side hustle you’ve decided to do.
Next, your goal for the second year is to scale up your side hustle and make at least 20% of your annual take-home pay. Also, your take-home pay would have increased by 2% to become $51,000 instead of $50,000. Therefore, your 20% must be at least $10,200 for the second year. I’ll assume that you’ve become a better writer and you have more books published in your name so increasing your sales shouldn’t be a problem. You’ve also signed more writing deals and you’re writing for others as well. Again, there is always a way to increase your income no matter what your side hustle is.
More so, you should be able to make the same amount that you make from your current job from your side hustle after 10 years by following the 10% rule. However, after the 9th year, your side income should be able to cover your annual expenses, which would be about $52,725. You are now financially free if you decide to quit your job and continue working full time on your side hustle at this stage. However, is that the best decision to make?
Taking the “Side” Out of Side Hustle
Firstly, don’t quit your 9 to 5 job simply because you have a side hustle. Even if you dislike your job, the best decision might be to continue working there until you’re sure that your side income can finance the type of lifestyle that you want continuously. The income from your 9 to 5 job is more predictable but there might be times when you won’t make enough money from your side hustle. Also, keeping a 9 to 5 job and having a side hustle means that you could be making more money and building more assets.
So let’s talk about the best way to transition from a 9 to 5 job to a side hustle using the example of a writer. Luckily, you don’t need a degree in creative writing to pick a writing career. Some of the greatest authors in the world today only had the passion and that was enough for them to start. Most of them didn’t quit their day job because they understood they had to keep it to pay the bills while they worked on their dreams. You could dedicate just 2 hours every day after your regular job and more time on the weekends to work on your writing. Also, you could use your existing influence to market yourself and tell others what you do.
Furthermore, you shouldn’t allow your 9 to 5 job to suffer because of your side hustle. Make sure you arrive at your job on time, work hard and produce good work. If you’re not disciplined with your regular job, it will also reflect in your side hustle. Know how to plan and distinguish the time for your side hustle and regular job so that the two won’t interfere with one another. Get to work a little earlier and plan your day so you can be more productive. By doing so, you will be motivated to work on your side hustle later in the day when you get home from work. And if you commute via train or bus, make the most of your commute by doing some of your side hustle tasks for the day. For example, as a writer, you could use that time to send emails to publishers or listen to a podcast or jot down ideas for your writings. Who knows, you may just be the next J.K. Rowling who had the idea to write Harry Potter while delayed on a train!
Lastly, before you quit your 9 to 5 job, make sure you have enough savings you could fall back on in case things don’t go as planned. If you follow the 10% rule, you would be able to quit your job after 9 years because the income from your side hustle would be equivalent to your living expenses. However, you could work for a few more years and start building more savings before you resign from your job. I assume you’ll choose a side hustle that you have passion for but for it to succeed, you need discipline. Therefore, whatever your side hustle is, make sure you treat it like a real job and not a hobby.
Now let’s quickly talk about how to increase the income from your side hustle. There are two major ways to achieve financial freedom faster. The first way is to reduce your living expenses. For example, it would take 9 years for your side hustle income to be equal to your living expenses if they currently took 90% of your take-home pay. However, you could achieve financial freedom in 7 years by reducing your living expenses to 70%. But the truth is that there is a limit to how much you can reduce your living expenses. Therefore, the other way to achieve financial freedom faster is to increase the amount you make from your side hustle. And to give you an idea, start by choosing the right type of side hustle. Some side hustles will be more profitable than others so before starting your journey, analyze how lucrative your options can be. Also, treat your side hustle like a real business because it is one! Most people fail in their side hustle because they treat it as a hobby instead of a business. Finally, keep upgrading your knowledge to discover new ways to make money with your side hustle.
In conclusion, building a successful side hustle is not going to be easy but it is very possible. Have a goal to make at least 10% of what you make at your regular job by doing what you love. And you can start by following the money rule you’ve learned if you want to become financially free!