Do you want to get out of your financial slump? Do you want to live a financially comfortable and worry-free lifestyle when you get older? If you do, then what you need to take are the slow but steady steps to financial freedom.
The average American has a debt of $39,000. Today, adults aged 25-34 have the most debt, which is an average of $45,000. Most of this debt is from credit card balances, student debt, and mortgages.
Whether you have a debt that large or not, it is always good to learn how to achieve financial freedom. In this guide, we will show you seven steps you can take to reach financial freedom. Keep reading to learn what you need to do to live a comfortable life when or before you reach retirement age.
1. Make a Budget Based on Your Income Each Month
One of the best things you can do to ensure that you’re making your way to financial freedom is to budget. Try to make a budget every month based on your income. Notice the keywords “based on your income,” not your expenses.
This means you have to plan a budget that only revolves around the money you have. Look at how much money is coming in and where it will go. In an ideal budget, your income must be greater or equal to the expenses.
This is also where you will be cutting off expensive hobbies or habits. If you like to go shopping every weekend, you may want to stop. Before you make a budget for those pleasures, you want to make sure you have got the necessities covered.
2. Keep a Starter Emergency Account
The next step is to save $1,000 as soon as you can. For the next few weeks or months, stop buying what you don’t need. Instead, put what you can into an emergency savings account.
Your goal is to save $1,000 or more. Keep this money in a savings account or money market. This little sacrifice can go a long way later.
However, remember that this money mustn’t be accessed unless it’s for emergencies.
You can only use the money from this account when your water heater or car dies and similar situations. Don’t try to pull money from it if you’re going to buy a present, throw a party, or get a new iPhone. You can make a budget for pleasure purchases later once you’ve got more financial security.
3. Learn How to Achieve Financial Freedom When You Study Investing
Next, learn how to invest your money. This includes learning to invest in the stock market, education, or retirement. Investment plays such a vital role that over 50% of US households have investments in the stock market.
Only some families have direct investments in the stock market, of course. Yet, the majority of people who’re invested in it invest through other means.
Don’t know how to invest? While you may find tutorials on YouTube, it’s always better to seek the advice of a financial advisor.
With this knowledge, you’ll also learn where you mustn’t invest or use your money. Learning to invest your money is also a great way to learn how to achieve financial freedom. Learning how investment works can get you interested in the stock market or buying real estate.
4. Contribute to Your 401k and IRA
The 401k is there to help you optimize your finances. Make sure you optimize it, but only enough to maximize the employer’s match. Try to find out how much your employer matches your 401k contribution.
Often, your employer will use your salary and match the contribution to a percentage of it. Let’s say your employer matches 50% of the first 5% of contributions. In this case, you also want to contribute 5%.
Try completing the financial tips we mentioned before you go through with this step. If you focus on your contributions 401k or IRA contributions, you will have a hard time saving for emergencies. Only then can you start taking advantage of the free money from your contributions.
5. Pay All Your Debts
Understanding and managing your debts is a vital aspect of financial planning. When calculating your monthly budgets, it is essential to be fully aware of the amount of debt you owe.
To keep track of your debts, maintain a comprehensive list, arranging them from the smallest to the largest. Adopting a systematic approach to debt repayment can yield significant benefits. While making minimum payments on all loans, focus on eliminating the smallest debt first by paying as much as you can each month. By doing so, you will effectively reduce your debt burden, providing a sense of accomplishment and motivation to tackle the subsequent items on your debt list.
Consider joining a debt relief program to help you manage your debt with ease. These programs have grown in popularity as worldwide debt has increased. For example, if you live in Dallas, you will discover an array of debt relief programs in Texas that offer invaluable assistance. Whether you have credit card, student loans, or mortgage debt, contacting a professional can help you transition into a debt-free life.
6. Increase Your Income to Save More
After you save an emergency fund, pay off your debts, and pay for contributions, it is time to make money. This is the step where you will start making and earning money. This is where you can start spending on your dream vacation, dream home, and more with financial independence.
Before you can do any of that, you want to invest in yourself and increase your income.
Get a higher-paying position or job. If you built and managed a business well some years ago, you’d be earning more money from it by now. However, remember that not all businesses will flourish.
The goal here is to reflect on your personal growth and to see how far you’ve come. It’s rare for a person’s level of success to exceed his or her level of personal development. Often, success is something a person attracts by the person he or she becomes.
7. Be a Consistent Saver
The secret of learning how to make smart financial decisions is consistency. You can’t save money if you only try to do it in a month or two. The steps to financial freedom will take years of work, consistency, and discipline.
Like all things, consistency is key, so make sure you become a consistent saver. Remember, a penny a day can keep your financial troubles away. However, once you reach this stage, you may also want to give back what you have. True financial freedom means that you have the ability to support good causes and help other people as well as yourself.
Enjoy Your Financial Freedom
That ends our seven-step guide on how to achieve financial freedom. Save, invest in retirement, pay your debts, and follow a budget to ensure that you don't owe anyone anything.
Of course, financial freedom doesn’t end with these financial baby steps. Do you want to know more about finances and saving money? If you do, we invite you to our library of financial guides right here! Financial independence and fiscal freedom are right around the corner!
