Financial Freedom Lesson #1 – How to Fund, Invest and Live Off the Earnings of a Financial Freedom Account

Today I’m going over Financial Freedom Lesson #1 – How to Fund, Invest and Live Off the Earnings of a Financial Freedom Account.

How to Fund a Financial Freedom Account

The first step towards financial freedom is designating some of your money to become your financial freedom account(s). I started with my work 401K and a brokerage account. Later I also added in a high yield savings account.

Open an account and start putting money in it regularly. It can be daily, weekly or monthly. I suggest setting up automatic debits from your regular account.

If you can’t afford to move money from your regular account, then start with a Financial Freedom jar. Just put money in it everyday, even if it is just a penny.

How to Invest and Live Off the Earnings of a Financial Freedom Account

Once you have money in your financial freedom accounts, you can now invest the money. After you invest the money, you can withdraw the earnings for spending. The key to a financial freedom account is NEVER spend the money you invested (the principal), only spend the money your principal makes.

In a 401K or IRA there are usually funds you can choose from to invest. The default a company will use is usually a target date fund estimating when you will retire. It is a mix of bonds and stocks. You live off the earnings in a retirement account until you are at retirement age, so this is all I will say about this account for now.

In a brokerage account such as Schwab or Etrade, you can invest money in Treasury Bills/Notes/Bonds, Municipal Bonds, Corporate Bonds, Stocks, Preferred Stocks, Index Funds and more.

I personally think investing in stocks and bonds is fun and I have learned how to invest for dividends, mostly in preferred shares. Take some time and learn how to invest in dividends, whether you buy individual stocks or an index fund. Be sure to always check if you pay any fees when you invest (all index funds and mutual funds have fees, check the prospectus).

In a high yield savings account all you have to do is transfer money in and it earns interest. The nice thing about a high yield savings account is that you don’t lose money (unless the bank goes out of business), and it increases every time you add money. This can be very satisfying.

I also use TreasuryDirect.gov to invest the money in my savings into Treasury Bills. It pays higher interest than a savings account.

Conclusion

I hope you learned Financial Freedom Lesson #1 – How to Fund, Invest and Live Off the Earnings of a Financial Freedom Account. It’s the key lesson to becoming financially free.