How to Become Financially Free

6/12/2024

Financial freedom can be defined as your passive income covering not just your current lifestyle, but the lifestyle you’ve always wanted. Financial freedom isn’t necessarily about being incredibly rich, but rather, being able to spend more time on the things that matter to you, instead of allocating most of your time to earning a living.  Breaking free from financial stress starts with clearly defining your goals and diligently working towards achieving each one.

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Assessing your finances

Take an assessment of your net-worth before you start your journey to financial freedom. Your net-worth is a culmination of all of your current assets and liabilities.  This calculation will establish if your net-worth is negative or positive, and if you’ve been tracking it, if it’s increased or decreased over the last couple of years. You’ll also be able to identify any financial issues. If you have a lot of debt, and you’re noticing it’s beginning to creep up, you’ll be able to rectify the issue and improve your financial situation over time.

Once your net-worth is established, you’ll need to think about how much money you really need. Many people know they want to retire and reach financial freedom, but they haven’t determined what that looks like in terms of real numbers. Think about what your ideal life will look like and what you’ll be doing with your time when you’re not working. Putting this all together will help you determine the investment goal you’ll need to reach financial freedom. Then, you can work backwards to discover how much money you’ll need and the time it will take to generate it.

Steps to reach financial freedom

The following key tips can help you improve your chances of achieving financial freedom in the future and empowering yourself in the process.

• Establish your financial goals

Start the financial freedom process by clearly establishing your financial goals. It’ll be hard to achieve financial freedom if you don’t first establish what that means to you personally. Goals should include short-term plans as well as long-term objectives. The more specific you are at defining your objectives, the easier it’ll be for you to formulate a targeted plan. It may also be helpful for you to analyze your beliefs about money and examine your relationship with it. Make sure your goals are SMART goals. This means your goals should be specific, measurable, achievable, relevant, and time bound. Learn more about SMART goals here.

• Track your spending

To find out exactly how much you need to be financially free, you need to understand how much you spend. Take a month or two to track where your money goes, from major bills to cash you spend on small purchases. You can opt for the tracking method that works best for you, whether using pen and paper, filling in a spreadsheet, or using an app.  Tracking expenses requires diligence and a significant shift in behavior for some, but seeing where your money goes over time is a crucial step.

• Draw up a budget

A budget outlines how you expect to use your money each month. As you create your budget, consider whether the items you list will bring you closer to your financial goals. Your budget is a tool that must be constantly worked on and updated. Budgeting aims to have some savings after you pay your living expenses, so be sure to allocate for a saving category. Learn more about creating a budget here.

• Dominate your debt

Debt is a significant roadblock between you and financial freedom. For most, financial freedom means eliminating debt. If you’re finding it difficult to eliminate your debt on your own, reach out to a non-profit credit counseling company, such as Navicore Solutions. Contacting Navicore can help you get on track with your debt repayment journey and accelerate your progress toward financial freedom. You can learn more about Navicore and get started here.

• Create an Emergency Fund

Without an emergency fund, you risk going into high-interest credit card debt should an unexpected expense occur. Instead of prioritizing debt over savings or vice versa, direct a portion of your available cash to each priority every month. Start out by saving 3 months’ worth of living expenses in your emergency fund. Then, make your way up to saving 6 months’ worth of living expenses. You can learn how to start your emergency fund here.

• Invest for the future

Many become financially free because they save and invest throughout their lives. Once you know how much you will need for your goals, you can create the appropriate savings and investment strategies to potentially help you reach the needed amounts. For your retirement goal, you’ll likely need to contribute regularly to your IRA or 401(k). Focus on long-term investments and diversify your portfolio. Invest in risk-appropriate assets in line with your risk tolerance and be prepared to weather the ups and downs of the financial markets.

Read More: Getting Started With Stock Market Investing

• Diversify your income

Creating multiple income streams will help you achieve financial freedom. The more money you earn each month, the easier it is to pay down your debt and avoid going deeper into debt in the future. Consider picking up a side hustle such as driving for a rideshare company or walking dogs. If you have a skill you can share with others, teach courses or create products you can sell for a profit. You can also apply for a part-time job to enhance your income stream. Get creative and brainstorm opportunities to create new sources of income.

Start your financial freedom journey now!

Start your financial journey now, even if you’re young. This will help put you on your way to being financially free well before the average retirement age. By starting young, you’ll have less to save when you’re older because you have used a larger timeframe to build wealth. If you start early, you can invest with less money and watch it grow over time due to the magic of compound interest. With each passing year, your compounding interest grows exponentially until it exceeds your principal investment and is responsible for most of the growth in your account.

It’s very tempting to live beyond your income, but the consequences can negatively impact your life for years to come. Be smart about your spending, have patience, and save for the things you really want. The process of becoming financially free takes time and can be a little discouraging at times. That’s why it’s important to think back to your initial goals, the reason why you want to achieve financial freedom.

 

 

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