Financial freedom is one of those buzz words that you see online to describe a position of complete fiscal stability, giving you the freedom to enjoy all of life’s benefits without the stress of going bankrupt. But what is financial freedom? And, more importantly, how do you achieve it?
What Is Financial Freedom?
To have financial freedom means that you have enough money saved up, good credit ratings, valuable assets, smart investments for the future, and a plan with clear objectives. Being strictly disciplined about your finances today will allow you to enjoy a high standard of living and genuine freedom.
In modern society, we are all afforded the freedom to live our lives as we please. But there’s one very difficult barrier to overcome… the burdens of financial commitments. However, you can choose a life beyond either working in a cubicle your entire life or homelessness and starvation.
There is a third choice, financial freedom. This article will explain what financial freedom is and the best strategies to put in place to achieve it.
Before you get started on your journey to financial freedom, you need to define what this concept is to have a clear idea of what you want.
Do you ever look at your friends, see them going out every week and on vacation once a year, then wonder how they do it? I know you probably think they just earn more money than you, but this isn’t necessarily true. Financial freedom is NOT making so much money that you can afford anything.
On the contrary, financial freedom is about not spending more than you can afford and ensuring that you can afford to sustain the same standard of living when you retire or in the event of an unforeseen expense.
That’s not to say that financial freedom isn’t a long-term goal that will take a long time and a lot of commitment to achieve or that you won’t reap most of the benefits of it until you’re much older.
However, financial freedom is something that you can achieve and enjoy no matter what you earn or what stage you are at in your career. The sooner you start working towards financial freedom, the better!
In the 21st Century, meeting our daily needs and living a particular lifestyle will always boil down to one thing: money. Money makes the world go round, as the adage goes. So, financial freedom means that you are free of the financial burdens that put restrictions on your freedom to live the life you want.
And, yes, a high-paying job will help you achieve financial freedom. But even rich people can go broke! And at the same time, you could afford to take a vacation overseas if you adhere to a strict financial strategy while earning minimum wage.
The book explodes the myth that you need to earn a high income to be rich and explains the difference between working for money and having your money work for you.
Financial freedom is about working towards financial goals by living within your means and setting aside the correct provisions for your future self. You need to save, invest, and meet all of your short-term needs and commitments while practicing frugality. It’s about making sacrifices today so that you can reap the benefits tomorrow.
And you need to create and implement an intelligent strategy to get you there.
So, if you want to achieve financial freedom and live the lifestyle you and your family deserve, the best time to get started was yesterday! But, the only way to cut your losses is by getting started today.
Make a commitment to yourself and follow our fourteen steps to financial freedom and, before you know it, you’ll get right into the swing of things and thank yourself in the future.
The only way to reach the point where you have complete financial freedom is to clearly define your goals and break them down into smaller goals. The only way to get to the top of that mountain is to put one foot in front of the other. And one great way to feel like you’re progressing is to get the feeling of gratification that comes with achieving each goal, no matter how small it is.
Maybe your goal is to retire at the age of 60 with $2 million in the bank and enough to sustain yourself financially deep into your twilight years. That $2 million will take a long time to save up. Start with a smaller goal, like simply opening a savings account.
Next goal, set aside $200 every month and set a target to accumulate $5,000 in savings. While you steadily watch your savings build-up, you will feel like you’re achieving something. After just over two years, you’ll reach that $5,000 mark, and you should celebrate it! Next goal, $10,000, and then $20,000… and so on.
As you take each step forward towards your grand goal of $2 million, celebrate it. Reward yourself, acknowledge your achievement and motivate yourself to keep going.
Your goals can be whatever you want them to be. Perhaps you want to buy yourself a new car or the latest gaming console; it doesn’t matter. As long as you’ve clearly defined your goal, established a direction, and broken it down into smaller steps or stages, you’re on the right track.
But avoiding complacency is just as important, so make sure that your goals give you the sense of gratification that you need to stay motivated until you’ve reached your “big” goal.
Otherwise known as “passive income,” earning an independent income (regular payments which don’t require work) can take you a long way towards financial freedom. You can make an additional income from sources such as a business that doesn’t require day-to-day management, a second property, or even government benefits.
This independent income that requires little to no additional work can free you from your dependency on your salary. You will be financially free iff you can grow your independent income enough to cover your living expenses and have something left over for disposable income.
Even if your independent income can’t cover everything, however, it will go a long way towards relieving some financial stresses, saving for the future, and/or living a better lifestyle.
Some of the best assets to invest in include cash savings in a bank account, property, and securities investments. For most people, you will service these assets over a long time.
For example, you may be making monthly contributions towards a 401(k) – and if you’re lucky, your employer will match that payment – which will secure your financial stability when you retire and yield higher returns the earlier you invest in it.
Or you may have bought a home by taking out a home loan (mortgage) with the bank. The bank will be charging you interest on your mortgage, but over time the value of your property will increase by more than enough to cover your losses. And you’ll have a place to live, without having to pay rent.
Otherwise, you could rent a second property out and receive enough rent to cover your mortgage payments while retaining ownership of this valuable asset.
However, accumulating fixed assets can also be risky, and if you don’t strike the right balance between fixed and liquid assets, you could find yourself cash poor. In other words, if you are confronted with an emergency expense, you’re not going to be able to sell your home in time to get the cash you need to pay it.
Nonetheless, accumulating assets in whatever form is a great long-term strategy that can benefit you in the short term as well, as you target financial freedom.
Before you learn where to spend your money, you need to figure out what you’re spending it on right now and how you can cut back on expenses to free up the cash required to be put into savings, investments, and assets.
Therefore, you need to put together a monthly spending plan and adhere to it. You have to ensure that all of your bills are being paid while setting aside enough to keep on track with your long-term goals. This may mean that you will have to eat out less and cut out other unnecessary expenses that aren’t helping your cause in the long term.
A good budget will routinely clarify your objectives while giving you the willpower to limit your spending. It’s very easy to give in to the temptation to spend without inhibition.
Debt is the most common killer for anyone that has failed to secure financial freedom. It is essential to know that your first port of call is to understand exactly what you’re getting yourself into when taking on debt, be it student debt, a business loan, mortgage, or a credit card. Always ensure that you’re clear on the details and getting the best deal with the lowest interest rate.
It is critical that you factor your debt repayments into your monthly budget and pay your dues religiously every month. Failing to do so will impact your credit score, which will affect your future loans and can create an endless cycle that will serve as a massive hindrance to your quest for financial freedom.
Building up savings serves as a foundation for anyone that wants to live with financial freedom. Always put your savings first. If you’re eligible for employee benefits like a company retirement plan, where your employer matches your contributions, count yourself lucky.
Otherwise, set up an Individual Retirement Account and make contributions by yourself. Over time, thanks to compound interest, that little nest egg will start to snowball and will be far more helpful in your old age.
It is also wise to set aside money for an emergency fund in case of unforeseen expenses such as a car accident or a medical emergency. You want an account that would allow you to access this money quickly and efficiently so that it can serve its purpose as a safety net.
There’s an ongoing debate in the financial industry about what the appropriate amount of money to save is, but one of the simplest methods that have been recommended is the 50/30/20 rule.
50% of your income should go towards necessities, such as rent, health insurance, transport, and groceries. Thirty percent of your income should service non-necessities like travel and entertainment, while 20% of your income should be saved or invested.
The 50/30/20 rule is just one budgeting strategy, though. If you are looking for a financial plan to suit your goals and financial situation, it’s best to seek the advice of an industry professional.
Investing is the tried-and-tested strategy to secure your financial future and grow your money. You can invest in an Individual Retirement Account or a 401(k), or anything else that has the potential to offer great returns. But this doesn’t mean you should throw your money into every get-rich-quick scheme that you can find.
Instead, you need to put in the hours of research (or hire someone who knows what they’re doing) and make sure that you invest smartly. And remember that an investment offering high returns in terms of interest is probably far riskier in the long term than one that provides lower yields.
Make sure that your investments are sound, sustainable, and in line with your financial goals.
Many people tend to think of heckling and negotiating prices to be cheap. But that shouldn’t discourage you, and you need to put your financial future first. So, whenever the opportunity arises, negotiate. And when you’re buying groceries, for example, always ensure that you are getting the best deal for yourself.
For example, if you’re paying $4.50 for a carton of milk at your favorite grocery store but can buy two for $8 at the store down the road, the 50c that you save for every carton of milk adds up over time.
And you’d be surprised how many stores are open to negotiating the prices of their products and services. They often know that there’s a markup on their products, and a sale at a lower price is better than no sale at all.
It’s critical for you to have an idea of what you’re doing. Understand the concepts of interest rates, bond yields, and other important financial costs before making any significant financial decisions. Keep up to date with the latest market news and current affairs, or enlist the services of a professional in the finance industry to manage your accounts and portfolios for you.
But, whatever you do, don’t dive head-first into the fast-paced, risk-laden world of finance if you don’t know what you’re doing. It would be terrible for you to make significant progress towards achieving your goals only to lose it all with one wrong decision.
Particularly when it comes to fixed assets like homes or cars, bear in mind that it is far less expensive in the long run to maintain something than it is to replace it entirely when it eventually falls apart. For example, your car may need servicing this month, or there may be a pipe leaking in the bathroom.
Rather pay for the service or to fix the leaking pipe today than have to buy a new car when this one starts breaking down a few times a month or risk structural damage to your bathroom from mold and other long-term hazards.
Always opt for maintenance over replacement. In the long run, you’re saving yourself money and avoiding potential financial emergencies.
Living below your means is certainly not easy. It is the most difficult of all our tips to be disciplined about. Remember, you’re setting up a budget – not a target. Just because you earn X every month doesn’t mean you should spend every last cent. And just because you’re earning a higher salary, you don’t need to move to a bigger house or buy a newer car.
The minimalist approach doesn’t mean you should live like a pauper your entire life, it just means to live smartly and spend your money responsibly on items that matter.
As I’ve said, keeping on track with your journey towards financial freedom is far easier said than done, particularly if you lack the knowledge to make informed decisions. This is why financial services exist – to give people the sound advice they need to make smart financial decisions.
So, if you feel a bit lost, don’t turn to the Internet and convince yourself that you have all the answers. Rather, spend some money on a financial expert who can help you with your accounts, investments, goals, and strategies. It may seem like an unnecessary expense, but making the wrong investment or taking the wrong turn on your journey would be far more costly.
It’s often something that goes unsaid when talking about planning for financial freedom… you need to prioritize your physical and mental health!
For starters, living a healthy lifestyle has all kinds of benefits for health insurance, such as lower premiums or other rewards. Furthermore, it gives you the energy you need to be a productive, self-aware worker – which means potential raises, promotions, and general progress in your career.
Not to mention, what are you saving for if you’re not going to live to retirement?
Take your health seriously, eat well, exercise, and practice sober habits. The long-run benefits include not only longevity and a better experience of life itself when you’re older, but there are several financial rewards as well.
Finally, for you to thrive on your journey to financial freedom, it’s important to check in with yourself from time to time, keep track of your money, see where it’s going, adjust for changing circumstances, and correct yourself when you venture off track.
Reevaluate your budget, look out for better insurance deals, monitor your credit record. Effectively, make sure you’re fully aware of your financial situation, make sure that you’re still on the right path. And, being aware of where you are will help you to remain disciplined.
Financial freedom is a lofty goal, but it’s something we all want to achieve in this life and it is possible if you know what you’re doing and remain disciplined. If you take our tips to heart and start working towards financial freedom today, it may just be the best decision you’ve ever made.