The path to financial freedom
Bodo Schäfer has managed to spread the concept of financial freedom not only in Europe but worldwide. In 1998, the year of publication of his book, “The path to financial freedom”, not many people knew what financial freedom is. Nowadays, this has changed a lot and there are already many people who know what the term financial freedom means or have at least a slight idea.
Index of contents
1.- The author - Bodo Schäfer
2.- The path to financial freedom
3.- Part 1: Fundamentals of financial freedom
3.1.- Assume responsibility
3.2.- Beliefs and attitude towards money
4.- Part 2: Practical script towards the first million
4.1.- Debts
4.2.- Increase in income
4.3.- Saving: Paying for yourself
4.4.- Compound interest
5.- The three phases towards financial freedom
5.1.- Financial protection
5.2.- Financial security
5.3.- Financial freedom
6.- Conclusion
1.- The author Bodo Schäfer
Bodo Schäfer is a German writer, speaker and entrepreneur known worldwide as the Money Coach, who deals with the topics of money, well-being and prosperity. He is also a pioneer in Europe in talking about financial freedom and the techniques to achieve it. He has written a dozen books, among which are several Bestsellers, which have been translated into more than 20 languages. Today we are going to talk about what is possibly his most famous Bestseller: "The path to financial freedom."
Source: Erfolgskongress.de
2.- The path to financial freedom
The book “The Path to Financial Freedom” is Bodo Schäfer's most famous bestseller and has sold more than 10 million copies worldwide. It is structured in two parts. The first part is the basics and the second is a practical guide to reaching the first million.
3.- Part 1: Fundamentals of financial freedom
The first part deals with beliefs, attitude towards money and taking responsibility.
3.1.- Assume responsibility
If we talk about taking responsibility, you may be thinking that it is something banal, since when you turn 18 you are responsible for everything you do. To explain what Bodo Schäfer explains in his book we are going to see an example:
We are going to assume that the subject of finances does not interest you too much, but you have a certain amount of money that you want to invest and that you have entrusted it to a banker. He has received a tip from a company with great potential and invests all his money in a Fintech company called Wirecard. After a while, you find that there is none of your money left as the company has gone bankrupt. The banker tells you that it is not his fault, that he could not have known that the company was going bankrupt.
Who is responsible in this case? Is it the company in which the money was invested? Is it the banker? I think you understand what we want to convey to you. Wouldn't it have been smarter to acquire a minimum of financial education? Didn't you know that investing all your money in one company is just as risky as going to the casino? Don't you know what isdiversification? Why do you leave your money in the hands of a banker who invests in a company that you possibly know nothing about?
Bodo Schäfer points out in his book thatwhen you put the blame on someone, at the same time you are also giving them the power. If, for example, you blame the banker for the losses, you are also giving him power over your money. Neither the State, nor circumstances, nor our partner, nor our education, we are responsible. logicallyYou are not responsible for all the events that happen to you in life, but you will always be responsible for how you interpret them and how you react.. When you take responsibility in your life, you also take responsibility for your finances. Therefore, if you do not understand finance, you should expand your scope of control around the subject of finance. Either you take care of your finances yourself or you delegate it to other people, such as a banker or financial adviser, but always fully understanding what they are doing.
3.2.- Beliefs and attitude towards money
Bodo Schäfer also notes that far too many people have subconsciously acquired a negative attitude towards money as a result of their family, education or their environment. This is reflected in the language when they say phrases such as "Money is obtained at the expense of health and family" or "If I earned more, I would have to pay more taxes" or "Money corrupts people" or "Las Rich people don't have real friends." This negative attitude towards money is very harmful for us, since in our subconscious we all want to have health, real friends and a close family. For this reason, it is very important to visualize all the good that money can do.
For us personally, money means freedom, freedom to do what really fulfills us without having to work at something we don't like simply to get a salary. In addition, money provides great security for the family and we can help other people who have not had the same luck as us in this life and thus return part of it to society. What are the positive aspects that you associate with money?
4.- Part 2: Practical guide to the first million
In the second part of the book, Bodo Schäfer explains concepts and gives practical advice for achieving financial freedom.
4.1.- Debts
Bodo Schäfer explains in his book his own concept to reduce debts. If you have debt, most financial advisors will advise you to pay off the debt and then start investing. From a financial point of view, this makes all the sense in the world, since generally more interest is paid on credits and debts than the interest provided by investments. However,Bodo Schäfer recommends using 50% of the money you don't need for your monthly expenses to pay off debts and the other 50% to increase wealth. Although from a financial point of view this is not very rational, it has a great psychological advantage and that is that if you only repay the debts, when you have finished paying them you will have 0 Euros and zero is nothing. Zero is not a very motivating goal, however, the increase in wealth is. That is why it makes more sense to repay debts and credits more slowly, but at the same time increase your wealth by investing. This has the advantage that you will be working for objectives that also motivate you to create a consciousness of prosperity. If you are only in debt, in an emergency it is very difficult to get more into debt by asking for new credits, but with the 50/50 rule you will always have money.
4.2.- Increase in income
The next point for financial freedom is the increase in income.Your income depends quite directly on what you contribute to the economic market. The market doesn't hate you or love you, pay what you're worth. Who has understood the point of responsibility, also understands that it is in his power to establish how much he earns. Bodo Schäfer also describes a series of tips in connection with the increase in salary:
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You won't get a raise because you need it, but because you deserve it.
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Always give more than anyone expects of you. Surprise everyone by exceeding their expectations.
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Assume more responsibility within the company making yourself essential. And if you are the boss of several people, delegate tasks and authority
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Continue training and position yourself as an expert
4.3.- Saving: "Pay yourself"
There are many people with negative beliefs about saving because they think that it implies limiting themselves and not fully enjoying life. Bodo Schäfer flips the tables by defining saving as “Paying Yourself”, which has positive connotations.Nobody gets rich just by making a lot of money. Wealth comes when you keep money. When paying yourself first, he advises transferring 10% or preferably 20% of your monthly income to a separate investment account. He also advises transferring 50% of each raise to that account. This two-account model is so important that it deserves a separate blog.
4.4.- Compound interest
The next important point to reach financial freedom according to Bodo Schäfer is themiracle of compound interest.With the help of regular contributions, performance and time you will make your money work for you.But on this topic we have already published a blog, which you can readhere.
5.- The three phases towards financial freedom
Next, we would like to introduce you to the three-phase model of financial freedom:
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financial protection
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financial security
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Financial Freedom
In the book, Bodo Schäfer represents the three phases in the form of cauldrons, emphasizing that it is very important to first achieve financial protection, then financial security and finally financial freedom, and fill the cauldrons with what is left over from the previous cauldron.
5.1.- Financial protection
Financial protection serves as a safeguard for you and your family in case your source of income suddenly disappeared, whether due to illness, layoff, bankruptcy of your company... Financial protection is the cauldron in which They must be found at least 6 times your monthly fixed expenses. For this it is necessary to calculate what your monthly fixed expenses are such as mortgage or rent, food, car, insurance, telephone, credits, etc...
Financial protection = 6 * monthly fixed expenses
Most people need protection from 6 to 12 months, so if you think you need more months to have income again, you must multiply that number of months by the monthly fixed expenses.
The financial protection money should be kept securely and readily available, because that money is there to make you feel protected. That is why this money should not be used to speculate, but rather must be kept in a safe or invested with low or moderate risk, but always with maximum liquidity.
5.2.- Financial security
If you've filled the cauldron of financial protection, you have a minimum of 6-month buffer and you can move on to the next phase, financial security. The objective of financial security is to be able to pay the monthly fixed expenses, which you have previously calculated, with the interest obtained from the investment of your capital. To calculate how much money you should put in the cauldron of financial security, multiply the monthly fixed expenses by 150. This money properly invested and generating interest and/or dividends of 8% net per year will allow you to live off the interest on your capital, since you will have covered the monthly fixed expenses.
Financial security = 150 * monthly fixed expenses
According to Bodo Schäfer, the main reason why people do not dedicate themselves to the activity that they really enjoy is the lack of money. This amount will allow you to live very reasonably without having to touch money and will allow you to dedicate yourself to the things you like and for which you have a talent.
5.3.- Financial freedom
Once you've filled the cauldron of financial security with 150 times your fixed monthly expenses, you can move on to the cauldron of financial freedom. The Cauldron of Financial Freedom is not based on fixed monthly expenses but on the amount of money you would need each month to live the life of your dreams. To do this you must make a list with all your desires (luxury car, boat, second home, etc...) and calculate the purchase and financing costs of these, then divide them respectively by the number of months for which you want finance them. Once you have the monthly costs of your desires, you must add the monthly fixed expenses that it would entail to lead that life of your dreams. Multiply that sum by 150 and you will have obtained the size of the cauldron of financial freedom.
Financial freedom = 150 * (monthly costs of your dreams + monthly fixed expenses)
You may wonder, but why not pay for luxury goods with the wealth achieved in financial freedom? Indeed, you could do it, but you would thus reduce your assets and thereby lose the long-awaited financial freedom. That is why you prefer to pay these great luxuries in installments with the interest on your assets.
6.- Conclusion
Now you know the assets that you must achieve once invested and generating interest and/or dividends of 8% net per year will allow you not to have to go back to work and lead the life of your dreams.
These have been some of the most important points of the Bestseller "The path to financial freedomby Bodo Schäfer. These points and many more are explained in much more detail in the book.
If the blog article has aroused your curiosity, we recommend reading the book. If you have any further questions or observations about the book, please leave us a comment.