5 Steps To Achieve Financial Freedom
Financial freedom is a state almost everyone desires. Although different people have different definitions of financial freedom, it simply refers to having financial resources such as savings, investments, and cash to live a lifestyle without worrying about money. Some people have achieved financial freedom, while others are working to achieve it. When you have financial freedom, you retire early and don’t need to work unless you want to. However, achieving financial freedom isn’t as easy as it sounds. It requires commitment, hard work, sacrifice, and proper planning. To help you out, we’ve compiled essential steps that will empower you to emotionally connect to your goal of achieving financial freedom. Pay Off Debts The first step to achieving financial freedom is clearing all your debts, such as student loans, mortgages, and car loans. This is because paying lump sums to lenders and banks every month rather than saving distances you from financial freedom. Being debt free allows you to build a good foundation for wealth accumulation. Therefore, throw every extra cash to pay your debts until they’re all gone. If you have multiple loans that are stressful to pay, consider taking debt consolidation loans. These are single loans taken to pay off multiple loans. Although paying off debts is difficult, it’s worth it because when you clear the debts, you’ll only have to save the money you earn every month. Discover Extra Sources Of Income If you’re serious about achieving financial freedom, you have to sacrifice and put in the work. Income can’t help you achieve financial freedom as it isn’t enough to clear your debts, cater to your expenses, and save. Therefore, you need to find other income sources to help you reach your goal. Experts recommend having several sources of income to achieve financial freedom, including active and passive income. Active income is where you trade your time for money. Examples of active income include freelance writing, being an uber driver, or helping with household tasks. Passive income is the money that comes in even when you’re not working. This income is ideal for individuals who don’t have time to work. Examples include investing in stocks or renting out properties. Determine Your Current Financial Conditions And Spending Knowing your financial condition is also a great step in achieving financial freedom. Start by comparing your income against your monthly expenses. If your expenses exceed the income, start to track and analyze your spending to understand where your money goes and identify where there’s room to cut extra costs. Tracking your spending helps you reduce bad habits such as dining in an expensive restaurant instead of cooking at home. Financial freedom can seem impossible if you aren’t tracking your budget. Learn to give every dollar you earn an assignment at the beginning of the month, or you’ll find yourself wondering where your money went. Tracking and analyzing your spending apply even when you achieve financial freedom, as it will help you stay on top. Document Your Financial Goals Everyone desires financial freedom. It’s a dream come true for many people. However, a dream without a goal is just a wish. Therefore, write down your financial goals. For instance, your goal may be to pay off your debts or save a certain amount of money. Having a financial goal gives you something to work towards. If you aren’t working towards something specific, you’re more likely to overspend, thus limiting your ability to achieve financial freedom. When setting your goals, including both short-term and long-term goals because short-term financial goals will lay a good foundation and give you the confidence to achieve larger goals that take more time. Furthermore, remember to set specific and realistic goals. For instance, say your goal is to save money, it’s a great goal, but it’s not specific. A specific and realistic goal would be to save USD$50,000 in two years. Have Enough Savings Having enough savings is essential for achieving financial freedom, especially since it’ll help fund your desired lifestyle after retirement. For effective saving, consider automating your money. This means setting aside a certain amount to be transferred automatically to your savings account every month. You should note that savings should be paid before expenses because when you pay for expenses first, you’ll have little or no money left to save. However, when you save first, what’s left will cover your expenses; if it’s not enough, you’ll have no option but to figure out how to cover them, even if it means having a side hassle. By saving first, you’re guaranteed that money is continually accumulating to help you achieve financial freedom.
