Financial freedom may look like a distant dream to most people. This is because the majority of Americans have an average of $37,584 in student debt. In addition to student loans, people also have credit card debt, car loans, and other personal loans. It’s no wonder that 80% of Americans are currently in debt.
However, there’s hope. No matter what financial situation you are currently in, there’s a way for you to get back on your feet and achieve financial freedom. All you need is careful planning and commitment. Today we’ll give you some great tips on how to achieve financial freedom.
What is Financial Freedom?
As the name suggests, financial freedom means having freedom from stress caused by debt, living paycheck to paycheck, and sudden events that would cause financial stress.
Financial freedom means that you have control over your finances and your life. It means that you’ve managed your debts and have enough money to live the life of your dreams. For example, being financially free may allow you to retire early or take a job that you enjoy rather than taking the job simply because you need the money. Whatsmore, financial freedom means that you have a long-term financial plan that provides security for your future.
How To Achieve Financial Freedom
Financial freedom requires you to be wise with your money. You unfortunately won’t be able to gain financial freedom through living a lifestyle where you are trying to keep up with the Jones’. This type of lifestyle involves spending more than you bring in. It is important to understand where you are financially and the steps you need to make to achieve financial freedom.
The following steps will set you on the right path.
1. Come up with a plan
The adage is true that if you fail to plan, you plan to fail. The reality is that your first step towards financial freedom is to come up with a plan. Do you have a personal financial plan? A plan helps you track your progress. It helps you understand how you spend your hard-earned money and make the necessary changes that will lead you to success.
The first step towards creating your financial plan is setting your goals. Ideally, a plan should include a list of all your debts; mortgage, car loans, credit card debt, student loans, and any other debt that you may have accumulated. Most people find compiling their debt as a frustrating experience. This experience is eye-opening and helps you create effective goals that will lead you to achieve financial success.
Included in your plan should be a budget (we shall discuss this extensively below). Some examples of financial goals may include; planning for retirement, an emergency fund, and other short and long term financial goals. Overall, a financial plan as well as a budget helps you see where you are sitting financially and offers a strategy that will help you gain future stability. Think of this plan as a roadmap that will help you reach your goals. Click here to learn more about creating financial goals.
2. Change your mindset about money
Mastering the art of money may feel like a daunting task. However, if you want to succeed in life, you need to change your belief about money, yourself, and how money shapes your world. Every single day, your financial decisions will either take you forward or backwards.
Your mindset about money constitutes your beliefs and attitude about money. This mindset drives your decisions around saving, spending, and handling money. For example, instead of saying, “it is impossible to reach my financial goals, so I should just keep spending all the money I get from my paycheck,” you should say, “If I budget and make small changes overtime, I can reach financial goals.” This mindset helps you change your perception of your debts, your attitude towards helping the less fortunate, and your ability to invest confidently.
When you start looking at money positively, you will increase your chances of making it, keeping it and multiplying it through investments.
3. Save! Save! Save!
In order to achieve financial freedom, it is important that you commit to saving. As a rule of thumb, at least 20% of your income should go towards saving. But if you have never committed to saving, you should work towards saving as much as you can. Begin by building an emergency fund that will last you six months. This emergency fund will cater for everything from sudden job loss to medical emergencies. An emergency fund works wonders for your mental well-being.
Secondly, you should aim to build a long-term savings plan by contributing to a 401(K) plan or other investment options.
The best way to successfully save is to commit to paying yourself first. You can have an automatic withdrawal once you receive your paycheck that allocates a certain amount of money to your emergency fund or savings account. You can also use a high-yield savings tool like Acorns to set you on the right track. You can also get $10 when you sign up today.
4. Learn how to manage your money
Learning how to manage your money goes hand-in-hand with learning how to budget. It requires you to take a critical look at your finances and see what issues you need to rectify. What is your debt-to-income ratio? Do you have a checking, saving, and investment account, or are you mostly using credit cards? What’s your financial situation?
Overall, managing your finances requires you to make a plan for your Money. This includes making a budget and applying strategies that will limit your expenses and increase your savings. Managing your Money also requires you to find a budget method that works for you.
5. Make a budget
When looking to achieve financial freedom, it is essential to create a budget. Make a monthly budget and stick to it; for instance, you can use the envelope budgeting system. With this method, you set every cent of your monthly income towards your expenses, savings, and investments. Some of the tips that we recommend you put into practice include:
- Create a budget before the next month starts.
- Cover all income and expenses.
- Track your spending as the month progresses.
6. Develop the habit of tracking your spending
Tracking your spending goes hand-in-hand with budgeting. Using tools such as Mint, help you track how much you spend. When you have this information and are aware of your spending, you can work towards reducing your spending habits.
What we like about the Mint app is that you can set goals in the app. You can set a time frame for your goals and keep track of how long it will take you to achieve those goals. Also, these types of apps help you stay focussed and motivated, as you see yourself making the steps you need to realize your financial goals. Other similar apps include Expensify, Goodbudget, and YNAB.
7. Live within your means
This is a step that most people tend to overlook, yet it is detrimental to achieving financial success. Again, this starts with you changing your mindset. You need to examine your relationship with money and recognize that most people live paycheck to paycheck because they are pursuing a comfortable lifestyle.
What you need to understand is that wealth is not only attainable by those with high-incomes. Rather, when you switch from living a comfortable lifestyle to living within your means, you increase your chances of achieving financial freedom. What does it mean to live within your means? For starters, it means spending less than you earn and looking for ways to boost your income and savings.
8. Open the right accounts
Opening the relevant accounts will help you achieve your goals. As stated earlier, the main accounts you need are a checking account, a savings account, investment, and retirement savings account.
You should place your money for retirement in a 401(k) or IRA account. If you have kids, then you should consider saving for college in a 529 plan. This strategy aims to avoid spending money that you will need in the future. It is essential to complete research before opening any account, because you want to look for accounts that provide the least risk and most benefit. For instance, instead of placing your emergency savings in a normal savings account, you can open a money market or high-yield savings account and this will allow the money to compound over time. This essentially means your money is already working for you.
9. Pay off debt
You should not off-put paying your debt for savings or investment. As much as the latter is important, you also need to develop a plan that will help you get rid of debt. Remember, money that you constantly have to put towards debt is money that you would have been able to invest elsewhere. A lot of people are relieved when they clear their debts. You can also do the same by using either the snowball method or the avalanche method.
The snowball method starts with the smallest debt first, whereas the avalanche method means that you start with paying off the debt with the highest interest rate. Look for ways that work best for you and will allow you to commit to paying off all of your debt, including what you may owe your friends and family.
10. Look for investment options
Now that you’ve crafted a saving plan, you need to find an investment option that works for you. Investments help you build wealth, and the earlier you start, the better. Presently, there are investment solutions that allow you to start saving with little capital.
Similarly, stock investment options are a great way of investing, thanks to the magic of compound interest. You can work with a financial advisor and start reading about the investment to increase your chances of success here.
11. Increase your income through a side-hustle
If you are serious about achieving financial freedom, then we recommend you get a side hustle. Passive income is a great way to build wealth and ensures that you have income coming in beyond your 9 to 5 job.
Some of the ideas that you can pursue include:
- Offering online courses, if there’s a skill that you’re good at.
- Pick up odd jobs on Craigslist or Taskrabbit.
- Look for online jobs on Upwork or Fiverr.
- Sell stuff on eBay or Etsy.
- Try dropshipping on Oberlo
- Invest in stock
The way you decide how best to increase your income stream depends on how much time you have on your hands. Do you have time to pursue another active income aside from your 9 to 5, or do you want a passive income option?
These articles may help you on your journey:
- 23 realistic ways to make money on the internet
- How to make money on Tiktok
- 27 Exciting hobbies that make money
- How to make passive income: 24 passive income ideas
- How to successfully make money on Fiverr
- How to make money writing in 10 key ways
- Need a business idea? Here are 34 ways to make money
- How to make money from Instagram
- How to make money from Youtube
- 7 ways that podcasts make money
12. Find a financial advisor
A financial advisor is a good approach if you are deep in debt and need help throughout the process of paying off debt. Since they are experts in financial matters, they can help you make financial decisions to assist you with achieving your goals. Not everyone necessarily needs a financial advisor. For example, if you’re just starting in your financial journey and don’t have much in terms of savings and investments, it may be best for you to learn the tips for financial success on your own. But if you have a lot of financial obligations and struggle with managing money, a financial advisor can guide you. Learn more about getting financial assistance here.
13. Be careful with your career choices
It is true that your choice of career can affect your ability to achieve financial freedom. A dead-end job can make you miserable, especially if you are not earning enough to make ends meet. It is important to work towards landing a job that you enjoy while also supporting your vision of financial security. One of the questions that you need to ask yourself is, “what is your income earning potential?” You may not be making your dream salary right now, but if there’s a chance to increase your income, then you should take it.
Take time to think about your career. If you have an opportunity to grow, then, by all means, you should pursue it.
It is also important to understand that you can have a great career without having a college degree, click here to learn more.
Benefits of Attaining Financial Freedom
Achieving financial freedom helps you live the life of your dream. When you attain this freedom, you are able to:
- Choose the career you want without worrying about money
- Support a charity or give to others generously
- Plan for a trip of your dreams
- Enjoy the retirement that you want
- Retire early
- Live a less stressful life
- Manage your time as you see it fit
- Pursue your passions
The truth is that financial freedom gives you options. You don’t have to stress in the event of a medical emergency or job loss. Whatsmore, you don’t lose sleep over your debts. Such a life may seem too good to be true, but it is possible but it’s up to you to make it a reality.
The Bottom Line
Anyone can achieve financial freedom through trusting the process. You may find your financial challenges to be overwhelming. With the steps mentioned here, you can overcome those challenges and live the life you have always wanted. If there are any tips that you use and haven’t shared here, please add them in our comments section.
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