Step Seven: Achieve Financial Independence

Managing a portfolio with the goal of achieving financial independence and not having to work anymore involves a combination of prudent investment strategies, risk management, and ongoing financial planning. If you have now invested about 10 years worth of your net income to the stock market, there are some tough choices to be made. Do you really want to keep saving your money and go tto work every single day, or do you already want to harvest the fruits that you have earned?

Determine Financial Goals:

Clarify your financial goals, including your desired lifestyle, expenses, and the specific financial milestones you want to achieve. You can either decide to reduce your workload and use some of your passive income for your living or you can decide to keep working and maximize your passive income to get to step eight of the ladder as fast as possible. Of course you could take the third and final round and see if you could reitre early and just not work anymore.

Let Your Passive Income Work For You

If you want to work less but still want to keep growing your portfolio, you could invest the money in an ETF that focuses a lot on dividends. This would keep your money at the stock market, slowly increasing yout welath while at the same time provide about 3% dividends each year. That would be the equivalent of 3-4 months of your work. So in Order to keep your living standards, you could now work three to four days a week.

Maximize Your Passive Income

If you want to reach the final step of the financial ladder as fast as possible and get financial independence, just keep on working and keep on maximizing your passive income. At this point there is litereally not much you can do wrong anymore, as you have the safety net of your money and savings.

Reach Financial Independence Early

If you would like to just retire early, take a pencil and do some math. How much do you really need for a living, how many years do you want to cover with your savings until your old-age pension kicks in to cover some of your costs. If you have not reached financial independence yet but still want to make a living from your savings, you need to calculate: A word-ETF will offer about 7-10% growth per year on average, so lets calculate with 7% to be on the safe side: 10 years of net income in your world-ETF will give you a 30% loss in income whilst you will regularly sell some stocks to keep the same amount of money in your portfolio. If you have 1 Million Dollar, you can expect 70.000 each year and still have 1 Million Dollar for the rest of your life. But dont forget that inflation will effectively decrease your welath over time.

Assess Risk Tolerance

Evaluate your risk tolerance to ensure that your investment strategy aligns with your comfort level. Consider factors such as age, time horizon, and your ability to withstand market fluctuations.

Diversify Your Portfolio

Diversification is crucial for managing risk. Allocate your investments across various asset classes such as stocks, bonds, real estate, and possibly alternative investments. This helps mitigate the impact of poor performance in any single area. Also growing older you might want to change the ratio between your savings and your investments to further reduce fluctuation.

Regularly Rebalance

Periodically rebalance your portfolio to maintain your desired asset allocation. This involves selling assets that have performed well and reallocating funds to those that may be underrepresented.

Consider Income-Generating Assets:

Include income-generating assets in your portfolio, such as dividend-paying stocks, bonds, or real estate investment trusts (REITs). This can further provide a steady stream of passive income. If your savings account will provide another $ 10.000 each year, you will reach your financial independence earlier than expected.

Emergency Fund

Still maintain a sufficient emergency fund to cover unforeseen expenses. This ensures that you won’t need to liquidate your investments in case of unexpected financial needs. Still check here if you are unsure about how much you should have as emergency funds.

Regularly Review Expenses

Keep a close eye on your spending. Regularly review your expenses and adjust your budget as needed to ensure that your lifestyle is sustainable over the long term. Financial independence is not only about having money, but also about not having to spend a lot every month. Check if you can cut some of your expenses.

Continuously Monitor and Adjust

Regularly monitor your portfolio’s performance and make adjustments as needed. This may involve tweaking your asset allocation, revisiting your financial goals, and adjusting your strategy based on changes in your life circumstances.

Did I Reach Financial Independence?

Maybe you have done the math and came to the conclusion: You have done it, you are already at the final step of our financial ladder and you are financially independent. Please, continue reading our last part of this series to find out what to do now!