Financial freedom is a feeling of control over your finances and an absence of stress about your current budget and financial future. The exact definition of financial freedom is different for everyone, but you’ll know you’ve achieved it when you feel prepared for big life decisions and unexpected expenses. Your monetary responsibilities won’t disappear, but you’ll feel ready to take them on and less worried about everyday expenses.
If you’re living paycheck to paycheck, freedom from stressing about your finances may seem like an impossible goal. However, by following specific steps to financial freedom, taking responsibility for your financial decisions, and being mindful of your monetary habits, you can begin to have a stress-free attitude towards money.
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Defining Financial Freedom for Yourself
Financial freedom is a common goal for many because it symbolizes financial control and is associated with a stress-free monetary lifestyle. Since many people have different outlooks on finances, their personal visions of financial freedom may also be different. Depending on what’s important to you, your vision of financial freedom may include:
- Having enough money in your savings account to cover unexpected expenses, such as a car repair.
- Contributing a portion of your paycheck to your retirement plan.
- Making payments toward your student loans or credit card debt each month.
- Contributing a certain amount to your savings or money market account each month.
- Being able to make a big purchase, such as a new car or home.
You have financial responsibilities that loom over you every month, such as your rent, insurance, or grocery bills. These expenses, along with other unexpected financial burdens, can make you feel like it’s too hard to achieve financial freedom. However, once you envision what your own financial freedom looks like, you can attain it by following specific steps.
Steps to Achieve Financial Freedom
Since financial freedom is different for everyone, your plan will be specific to your situation and goals. There is no one canned formula for financial freedom that can be followed by everyone who wants to achieve it. However, there are some common steps you can follow.
Set Specific Goals
Setting specific financial goals will keep you motivated to improve your financial situation, and it will also allow you to better measure your progress. A goal of achieving financial freedom is too broad, so it’s important to analyze exactly what being financially free means to you.
The goals you write down should include specific numbers and deadlines. While it’s important to be realistic about these goals, push yourself to make changes to your lifestyle so you can truly achieve them. Review your goals often to ensure you’re on the right track.
Set a Budget
One of the best ways to understand where your money goes each month is to create a budget. By reviewing your current spending, you can decide where you can cut expenses to free up a little cash each month.
This extra money should be used toward one of the financial goals you wrote down, such as paying off a bill within a certain timeframe, boosting your savings account balance, or creating a retirement plan. By keeping your money organized through a strict budget, you’re less likely to splurge on purchases you don’t need and more likely to stay focused on your financial goals.
Pay Down Debt
Your credit cards, student loans, and other debts are usually the biggest roadblocks to achieving financial freedom. Any free money you have each month is thrown at these debts and can’t be used to build your savings account or contribute to your retirement plan. If your debts have high interest rates and you take too long to pay them off, you’ll waste money that could have been used to achieve your financial goals.
Identify the debts with the highest interest rates, which are usually your credit cards, and pay them off first. To become debt-free, you’ll need to consider:
- Using interest-free balance transfers, if they’re beneficial for your situation.
- Calling credit card or student loan companies to negotiate a payment plan.
- Looking into debt consolidation.
- Paying more than the minimum balance required each month.
- Putting any unexpected income, such as work bonuses, toward paying off debt.
You’ll also need to adhere to your monthly budget so you can stop using your credit cards for purchases. This will prevent you from increasing the same debt you’re working so hard to pay off.
Start a Savings Plan
Being prepared for both expected and unexpected expenses is important if you want to set yourself up for financial freedom. If a hefty car repair bill or a fancy dinner out with friends would send your monthly budget into a downward spiral, it’s time to focus on your savings plan.
Every time you receive a paycheck, set aside a certain amount and put it into a savings account. Use your budget to figure out what you’ll feel comfortable contributing to this savings plan each month. Create a minimum balance that you know you want to keep in the account.
If you have to use the money for an expense, get back on track and contribute to the account again until you can replenish the balance. The buffer of a savings account can prevent you from dealing with a financial disaster if you can’t stick to your budget for a month or two.
Live by Your Means
The only way to truly get out of debt and experience financial freedom is to live within or below your means. Make paying off your debts and adding to your savings plan your top priorities each month. Analyze where your money is going now and try to omit the expenses you can comfortably live without. By cutting down the number of times you and your family go out to eat or spend money on an outing, you can free up money to use toward achieving your goals.
Create a Long-term Financial Plan
Once you pay off your debts, build up your savings account balance, and start a retirement plan, your hard work isn’t over. You’ll still need to continue following these steps to financial freedom. Repeat this cycle to ensure you stay on the path to achieving your financial goals.
If you let yourself slip and stop following your budget, you may find your debt beginning to build or your savings account balance beginning to dwindle. Avoid sliding back to the financial situation you started with and continue to strive for financial freedom by sticking to these financially responsible habits.
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