1. Invest in your education

2. Secure your pension

3. Save for a rainy day

4. Avoid [unproductive] debt

5. Pay yourself first

6. Invest what you save

7. Generate passive income

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What is financial freedom for you? Is it an ability to go on fancy vacations five times a year, or being able to travel all year long. Or simply providing to your family on all their needs. You can achieve this with proper financial planning and a bit of hard work.

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I want to give you tools and habits that will help you reach your financial goals. And I don't mean tips like don't buy that coffee, tighten your budget, move out to the village or live on coupons. The goal is not to reduce your quality of life, but rather to give you a map and a clear pathway how to navigate the world of money.

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7 Pillars of financial freedom

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1. Invest in your education

The most important investment that you can make is investment in your education. It does not need to be formal education. Take time to read books, blogs, research papers which broaden your perspective and teach you new skills. I am sharing with you the summaries of most important books in finance in the books section.

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2. Secure your pension

Most of us while we are young never even think about what we will do in our pension and how we will save for it. However with the worsening demographic situation one can no longer rely on kids, siblings or the family in the time of old age. Therefore make sure that you have:

• A government sponsored pension (so called 1st pillar pension). If due to some reasons you are not eligible to the government pension see next point

• A defined contribution pension plan (so called 2nd pillar pension or 401k plan in the US) - contribute the max allowed amount to this plan as usually your employer is obliged to match it, and all the contributions are tax free

• A voluntary 3rd pillar pension plan which is nothing more than a locked investment account, but has two very important benefits: 1) discipline - you are encouraged to invest on periodic basis and are only allowed to withdraw the money at certain moments; 2) tax benefit - all contributions up to some level are tax deductible

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3. Save for a rainy day

Have enough cash or cash equivalents (deposits) to cover 3-6 months of your regular expenses. If you live in a country where social security is good and you are eligible for unemployment benefits, 3 months should be enough. While if you live in a country where unemployment benefits don't apply then you should rather target 6 months. Also make sure that you have the following things covered:

• Healthcare and accident insurance

• House and car insurance

• Life insurance if you have a family that depends on you

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4. Avoid unproductive debt

You should no avoid debt all together, as we will see there are productive types of debt, but try to reduce the debt that does not help you generate higher productivity or larger returns. Let's have a look at few examples:

Unproductive debt:

• Credit card debt - while in many cases it might be beneficial to use credit cards due to discounts, cash backs or miles connected to the purchases, do not use it as a piggy bank and always pay down the balance every month (even better, don't have negative balance). Credit card interest rates are excessive and drain you very fast

• Consumer debt - using debt to buy a new TV or go on vacation is typically very bad for your financial independence

Productive debt:

• Mortgage on your home - there are many tax benefits associated with mortgages, and interest rates are typically quite low. Therefore as long as you have enough equity in your house 20% or more, having a mortgage (in the currency of the country where the home is located!) is not a bad thing

• Car leasing (only in some cases) - when the car that you buy you would be able to afford to buy in cash, but instead decide to invest that amount of money into a medium risk investment strategy, which yields a higher return than the leasing interest

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5. Pay yourself first

After you have paid all the necessary bills, pay yourself! It should be the first thing that you do after receiving your salary. A rich person is defined not by the amount of money he has, but by the amount of money that he can put aside every month. If you can put aside 10-20% you can consider that you can save enough for your retirement. If you save more than 20% of your income every month you can consider yourself rich!

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6. Invest what you save

Given that you pension and rainy days are taken care of, you can use your savings to invest them into instruments that carry some risk. You should hold a diversified portfolio of equities, real estate, bonds and gold. More about this in the section portfolio. 

Once you have reached this level you should think about investing into alternative asset classes. More about this in Private Wealth section.

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7. Generate passive income

As you diversify your investments, you should also diversify your sources of income. And you do not necessarily need to quit your day job to do this. Here are some examples of passive income:

• Renting real estate

• Teaching other people on Skilshare or other platforms

• Creating a YouTube or Instagram channel if you have talent for that

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If you follow these seven steps you will not need to worry about your financial freedom.

Once you do not need to worry about your financial freedom you can share with the people that you care about.

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