Financial freedom is not a one-size-fits-all concept; everyone has their definition.
For some, it means living their desired lifestyle and having money left over for things like an emergency fund and retirement. For others, it means getting rid of debt. However, for many, it means time-freedom or the ability to do what they love without worrying about money.
It doesn't matter how you define the concept, but how you manage your money to overcome the lack of freedom in your life matters.
In this post, we will discuss a comprehensive, somewhat-holistic approach to attaining financial freedom that can work for anyone regardless of their income or current financial situation.
How to Get Financial Freedom
The following steps and measures can help anyone achieve their idea of financial freedom and time freedom.
Start to Live Within Your Means
The first step is often overlooked. You have to learn how to live within your means, and this means you have to start spending less than or at least equal to what you earn.
It is an idea difficult for some to grasp, especially if your earnings are low. However, if you make a living wage, it isn't impossible. You need to adopt a budgeting mindset and save money to create a strong financial foundation.
Wealth is not just for high earners; it is something that anyone can attain with discipline and a clear plan that aims to end the cycle of living from paycheck to paycheck.
Understand Your Financial Situation
Many people do not fully understand their finances, and knowing your current financial situation is a key step towards economic wellbeing. You have to think rationally and take a hard look at your finances to calculate your debt, future income, and financial shortcomings like the lack of savings or insurance.
Only after you assess your finances can you start to make effective adjustments that bring long-term results. Consulting a professional, like a financial advisor, is perhaps the best approach to this step.
Set Up Proper Accounts
No single account is the correct account, and you need to diversify according to your plans. Money for college should go into a 529 plan, whereas retirement funds should go into a Roth IRA, traditional IRA, or 401(k) account, where you get the tax benefits.
If you have high-deductible health insurance plans, your best option is to set up a health savings accounts to meet medical expenses. An important one is your savings, which should be in a high-yield savings account to make some interest.
Remember that your savings account should be separate from your emergency fund, which you should always shield from market fluctuations and keep liquid for easy access during emergencies.
Set Up Automatic and Direct Deposits
After you have the proper accounts in place, you can set up a deposit system to fund them in an ideal manner. It is a smart choice to direct deposit parts of your paychecks into your checking, saving, and emergency fund.
401(k) deposits can be made directly from your payroll deductions as well. For various other funds or savings accounts, you can set up your bank account to make regular automatic transfers to other accounts.
Experts recommend stashing 10 percent of your monthly income for retirement and the same for savings or emergencies is a good way to start your journey to financial freedom and time freedom.
Stay On Top of Your Credit
Credit scores matter if you want the best interest rates for loans. Moreover, it may also affect your chances to get hired, get favorable insurance premiums, and much more. The biggest chunks of your credit score are payment history (35%) and amounts owed (30%), which you can easily improve by paying bills on time and reducing debt.
You have to stay on top of your credit, and most credit card issuers and financial institutions will offer you free reports on your credit to keep it in check. Federal law also offers you a free annual report through AnnualCreditReport.com.
Track, Assess, and Trip Your Spending
You may be living a hand-to-mouth existence, making savings, retirement, and emergency funds a pipe dream. Still, to learn how much you can save, you must first track and assess your spending. This means everything from your morning coffee to your bills and subscriptions.
These days, there are plenty of free, intuitive apps that make this process easy, and you should take advantage of them. If you are bleeding money on a subscription you no longer use, get rid of it. If you can live without some luxuries, do it.
Curb your spending wherever possible but don't forego important things like your morning coffee, fitness class, or renter's insurance. Bigger sacrifices make larger dents in your spending than smaller sacrifices, but you have to be smart about it.
Pay Off Your Debt
Paying off debts is a key milestone towards financial freedom for most people, but paying off your student loans or 30-year mortgage isn't always easy. Instead, try to focus on debts like your car loan or credit card debt.
The simplest way is to make minimum payments on all your debts except one. You can direct all your extra cash to that one debt till it's paid off while you keep up with the others. If you do this systematically and regularly, you will start to remove debts effectively.
The best and mathematically accurate approach is to start with the highest interest rate debts first. However, many experts agree that starting with the smallest value debts that are easy to pay off is great for motivation and to give your effort the momentum it needs.
Create an Emergency Fund
You shouldn't dip into your emergency fund to pay off debts because then you will have to resort to more high-interest debts when things go wrong. Split your money accordingly and gradually build an adequate emergency fund along with paying off your debt.
A good rule of thumb is to save 6-month's salary in your emergency fund. Once you have that, you can redirect your earnings on other things, like paying off debt, college loans, or pending expenses.
Not every high earner is wealthy. They may have a ton of debt. Similarly, not every modest earner is strapped for cash. Wealth and financial freedom do not have to relate to your earnings or inheritance. Many average people become wealthy by saving and investing consistently throughout their lifetime.
Safe options like mutual funds and bonds are a good place to start from because they are not as intimidating. Of course, you should always consult a professional financial advisor to identify the right investments for you. From there, it's a matter of discipline and patience.
Financial freedom and time freedom are not unattainable. You only need to have the right mindset, discipline, and plan, complimented by consistency. By following the mentioned steps, you can easily achieve financial freedom like millions of other people.
Do not relate your current income or financial situation with long-term wealth and financial freedom. You need to look beyond these things to understand what it takes to become wealthy. Of course, you may need some help along the way, and we highly recommend the professionals at Wise Family Group.
If you want to learn more about how to get financial freedom or about how Wise Family Group can help you with your time-freedom and wealth-building plan, visit our website today.