Financial Education, Savings & Investments
Financial Freedom and 4 Steps to Start Achieving It
Financial freedom is certainly a goal most individuals would like to achieve. The definition of financial freedom can vary from person to person, however the underlying themes typically remain constant. This usually includes having enough savings, being debt free, being in control of your monthly spending and setting yourself up for long-term wealth. Essentially, financial freedom is having the ability to live the life you want to live. If you’re not burdened by debt and you have a savings built up for the unexpected, your money will work for you, not the other way around. Achieving financial freedom isn’t easy, it takes a lot of self-control and discipline, but the rewards are worth it. Here are four steps to take to begin your journey towards financial freedom.
- Manage Your Money
The best way to manage your money is to establish an effective budget. If you find yourself wondering where your money goes at the end of the month, you’re not alone. A budget allows you to track your money and understand where your money is going on a monthly basis. Tracking your income and expenses are the basic foundations for a budget. This bird’s eye view of your spending helps identify areas in which you’re overspending or perhaps neglecting. At the end of the day, we all need something to keep us on track and a budget help prevents any temptation for unnecessary spending. Managing your money and ensuring your funds are being used correctly will contribute to financial independence and freedom.
- Establish Savings
There are many different reasons to save, one of the most important being we can’t predict the future. Having a short-term savings fund will help pay for the unexpected car repairs, medical expenses, job loss or other unforeseen expenses. Financial freedom can only be accomplished with a cushion for the life events we can’t see coming. Make sure to prioritize paying yourself first. Learn to feel gratification in saving money. Should you get an unexpected bonus or larger than normal tax return, save it. You can also automate deposits into a savings account or from your checking to savings. Having cash on hand gives you peace of mind and is a critical part to financial freedom. On average, most financial experts say that you should have a savings of six months of your expenses. However, don’t let that overwhelm you, it’s recommended to start small and before you know it, you will get there.
- Pay Down Debt
Financial freedom is difficult to accomplish if past money mistakes are keeping you down. High interest credit card debt can make you feel like you’re drowning in debt and there is no end in sight. Make sure with your newly establish budget, you’re directing all of that extra cash toward your debt. Paying off debt is hard work, but there’s nothing like the feeling of actually keeping the money you bring in every month. There are many different tactics that can help you with paying off debt. Some opt for tackling the smallest debt until it’s gone, keeping the snowball rolling. Others start paying off the highest interest rate first, eliminating the excess money being accrued. There is also the balance transfer option, moving a high interest balance to a lower interest rate card, saving money if paid off on time. Whichever route you decide, make sure that once you’re debt free, you stay there! Having debt sabotages any ability to feel financially free. For more tips on paying down debt, read our How to Pay Down or Get Rid of Debt
- Build Long Term Wealth
Despite what you might think, you don’t need to be a millionaire to create long term wealth for yourself. Chances are you’ve already started this process by contributing to a 401k or similar work-sponsored retirement plan. To get the most out of this savings vehicle, make sure to take advantage of your employer’s match and make sure to never withdraw the money early. Maximize your contributions if your budget permits. If your employer does not offer a retirement plan, consider opening an Individual Retirement Account (IRA) to start the process of long-term investing. SDCCU offers great IRA accounts (https://www.sdccu.com/banking/ira-retirement-account
) giving you access to speak with a financial advisor about your long term goals. Whichever route you go, make sure to start early. In this instance, compounding interest is your best friend and will lead to the financial freedom you’re seeking.
What have you accomplished on this list so far? What more do you need to do? Your journey to financial freedom will hinge largely on your ability to accomplish the steps listed. Financial freedom is more than just having a lot of money in your bank account. Imagine the feeling of being debt free or knowing you’re prepared for retirement? That feeling is financial freedom!
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