Financial freedom means different things to different people, but in basic terms, it is the freedom to pursue your interests and goals without worrying about money. For some people, financial freedom means having investments that bring them income without working. For others, it means several streams of income that allow them to spend their time and energy however they like without worrying about unpaid bills. Most people want this, and it’s possible to get it.
7 Steps to Financial Freedom
1. Pay Off Your Debts
The debts you owe are like invisible chains that can hold you back from realizing financial freedom. A student loan might have helped you get through your postsecondary education, but if you want to attain financial freedom, you need to pay it back as soon as possible. You are unlikely to take a vacation when you are always paying for a student loan you took almost a decade ago. Find a debt repayment strategy that works best for you and incorporate it into your monthly budget.
Financial experts advise people to pay off debts with the highest interest rates first. If you have several debts, you should consider debt consolidation to help you deal with one loan at lower interest rates.
2. Monitor Your Spending
It is important that you know where your hard-earned money is going. Whether you spend it on recurring household bills, repaying loans, savings, or entertainment, ensure that you can account for your money. While tracking your spending habits might seem like a mundane task, it is a crucial part of financial management. After a while, you might actually enjoy doing it, especially as your money grows.
Monitoring your spending promotes accountability and optimization of available resources. This way, you can cut on unnecessary spending and divert your money towards investment opportunities or into a savings account.
3. Become an Investor Not a Consumer
There are more consumers than investors in the world. However, to build wealth, you need to become an investor instead of a consumer. The temptation to get a new car, designer clothes, or something fancy after receiving a check is sometimes too strong. While spending money on yourself is not a bad thing, have the financial discipline to know when investing will add more value than buying. Instead of spending money on a new boat, check some real estate listings in your area that you can invest in.
4. Pay Yourself First
Before you spend your hard-earned money paying your bills or repaying loans, pay yourself. Set some money aside for your savings account. Decide the amount of money you will pay yourself monthly or at the end of each pay period. Once you pay yourself, use the remaining amount to settle your debts and cover your other obligations.
If you find that the remaining amount is not enough to cover everything, do not reduce your pay. Instead of going into your savings account, find an extra stream of income or a side hustle to cover any expenditures that your current income is unable to cover.
5. Have an Emergency Fund
Most financial experts agree that a good emergency fund should have at least $1000. As the name suggests, an emergency fund is a savings account that comes in handy during an emergency. Life is full of surprises, and we can never be too prepared. Your car can break down without warning, you may need a new air conditioner, the roof might start leaking, or the hot water heater might stop working. All these are possible emergencies that can force you to turn to your credit card for help.
With an emergency fund, you are in a better position to catch the curveballs life throws at you without going into debt.
6. Save 3–6 Months’ Worth of Expenses
Sometimes market forces are unpredictable, and the unexpected can happen. Seasoned investors know that your fortune might change even after a long streak of successful deals. To prepare for this turn of events, you should always have some money set aside to cover at least 3 months of expenses if your source of income is fairly secure, and at least 6 months of expenses if your source of income fluctuates.
Calculate your monthly expenses and save 3 to 6 times the said amount, depending on the stability of your source of income. Put this money in a safe and easily accessible money market or savings account.
7. Diversify Your Income Streams
One of the keys to financial freedom is having multiple income streams. Avoid putting all your eggs in one basket. Instead of investing all your money in one venture, spread it across different industries. This way, you will always have something to fall back to in case one of your sources of income collapses. There are many investment options for someone with capital. You can even turn some of your hobbies into money-making ventures. A side hustle is not only good for your financial health; it also helps you break from a monotonous routine.
You are unlikely to get bored when you are making money from two or more businesses. You may get paid as a freelancer for some skills you possess but never get to use in your current line of work.
Are You Free?
Many people will never attain financial freedom simply because they do not know how to get there. Some are afraid of leaving their 9-5 job because of the uncertainties that come with self-employment or freelance work. However, with the right mindset, self-discipline, patience, and the information we have provided in this article, you can confidently start your journey towards financial freedom. Many people have built vast business empires with way less. All you have to do is believe in yourself and be brave enough to chase your dreams.
