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How to Start Investing With Little Money

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How to Gain Financial Freedom and Retire Early
wealth architects kenya - How to Gain Financial Freedom and Retire Early

Financial freedom means that you will never have to work for money if you don’t want to and achieving this is what many of us strive for. So what is your vision for early retirement? Travel the world, spend your days at the beach, spend with family or simply pursue your passion.

In order to gain financial independence and retire early, you will need at least 25 times your annual expenses invested, about 300 times your monthly expenses. This estimated amount invested is important because it allows you to withdraw 4% of your assets without running out of money before the end of a typical 30-year retirement.

Therefore, if your goal is to achieve financial independence and retire early, you will need money to last you more than 30 years, if you retire before your 50s. You will be required to have over 33.3 times your annual expenses invested and withdraw at a lower rate of 3% to reach financial freedom and extend your retirement years.

Steps to Take To Achieve Financial Freedom

Take note that financial independence doesn’t necessarily mean you completely stop working and retire. It means that you don’t have to work for money for a given extended period of time. Many people, therefore, continue to build businesses, change careers after they have achieved financial freedom. This makes financial freedom permission to pursue your passion.

Cut Back On Expenses

Cutting back on your expenses can help you reach financial independence sooner. By simply cutting Kes. 1,000 a month of your expenses, for instance, lowers the amount you will need to reach financial freedom by KES. 300,000. What if you cut your monthly expenses by Kes. 10,000, that will decrease your financial independence number by Kes. 3,000,000. Take leaps, numbers don’t lie. 

These small changes to your expenses will have you have more to invest each month and speed up the accumulation of investments needed to generate the income you will need to be financially independent. 

A word of caution, don’t go overboard with the cutbacks and live a miserable life. Only cut as much as it makes sense to you by simply cutting back on things you don’t value.  Ensure that you keep expenses that make your life richer and fuller. 

Learn More: 6 Big Risks to Your Financial Success

Increase Your Income

While it may be easy to cut back on expenses, there is a better way to achieve financial freedom faster and that’s by increasing how much you earn. You can start a business or take on a side hustle that generates income. A general rule of thumb is to have at least 7 income streams for added extra security. This rule has become even more important during this time of the pandemic as our finances are really put to the test.

With more income streams in place, you’ll be surprised at how much more you can achieve. 

Invest

Investing for retirement is a big part of your retirement plan.  It determines how much you save now and how much you’ll have access to upon retirement. The rate at which you invest is what connects the two – be it 4% or 10% per annum. All in all, the more money you put towards your financial freedom, the sooner it is you can achieve that goal.

Let’s break this down a little with a 30-year retirement time frame below:

Amount Invested 4% annual return 10% annual return Difference
500/mo 416,129 1,130,243 714,114
1,500/mo 1,248,387 3,390,731 2,142,344
2,500/mo 2,080, 646 5,651, 219 3,570,573
5,000/mo 4,161,293 11,302,439 7,141,146
10,000/mo 8,322,586 22,604,879 14,282,293
Assuming a 4% and 10% annual return over a 30 – Year Time Frame.

Learn More: How to Calculate Your Financial Independence Number

Take Action

If this is your vision, then take action today. You don’t need to make major changes to your life right now. Start by making small changes over time that are sustainable and likely to propel you into financial independence, with better long-term results. Track your net-worth, income and expenses, so that you can get an idea of what changes to make along the way to progress towards financial independence. You will be surprised to see how quickly you can grow and eventually, perhaps even retire early –  if that’s what you want.

Happy Investing! 


Image credits: Top by bongkarn thanyakij from Pexels

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