What is financial freedom ?
Everyone’s definition of financial freedom is going to be different. My general rule of thumb is that financial freedom is living a life you design, one that’s not owned by any one else. Financial freedom might mean not living paycheck to paycheck, or having a nest egg. So how do you get there? Here are five simple steps to get you started. The rest is up to you.
1. Set Goals
You will find it hard to get somewhere if you don’t have a plan. Goal setting can be challenging but if you do it and stay focused, you will reap the rewards. Set goals that are simple, yet clearly defined. Your goals should be measurable, like saving certain amount within a certain time. For example, “I plan on saving $500 for my vacation by Dec 25th.” When you set a clear and measurable goal with an intention, it takes the mystery out of achieving it. Doing this enables you to track your progress as you move closer to your goal. In addition, you can experience the joy of success when you check your account balance and find the goal is achieved. Don’t worry yourself with how the goal will be achieved. The point of goal setting is to create the destination, not the map.
2. Pay Yourself
Most of us, if given the opportunity, can spend every dime we earn. If that is your definition of financial freedom, I not knocking the “shop until you drop” lifestyle. All I am suggesting is that you are worth all of your hard work, so why not pay yourself first? When we fail to do that, we shortchange our financial future. For some of us, money in the bank is far too tempting, so here are some ways to sock it away for good.
You should pay yourself at least 10 percent of your salary. One way you can achieve this is by setting up an automatic savings plan. Open a savings account and set your automatic plan to move money in to the account every pay period (most banks will do this for you free of charge). Even better, contribute to a retirement plan or 401k (if your employer offers one)—again, set it up to deduct from your paycheck. It may seem like you won’t be able to live on 10 percent less, but trust me—you will find it’s just one less latte a week.
3. Let Go of Debt
If you can learn to let go of debt, you can be on your way to financial freedom. In many people’s lives, debt is the big white elephant in the living room. So how do you eat an elephant? Piece by piece. The trick with debt is to bite it off in small, measurable pieces. Starting with your credit cards, make a list of everything you owe to others. Then organize the list from smallest to largest. Finally, list the interest rate and minimum payment. Begin paying the regular minimum payment on all of your financial obligations, except the smallest. The one with the smallest balance should get any leftover money, including bonuses or refunds. Continue to do this until it is paid off, then move on to the next debt. Following this simple plan will have you on your way to being debt-free in no time.
4. Plan, Plan, Plan
It is a good idea to plan for the future. With that in mind, there are a few planning suggestions that will help you on your way to financial freedom. Plan for emergencies—the best way to do this is to have six months’ worth of normal monthly expenses in a savings account. If that seems impossible, then if you can set aside some savings and a credit card or line of credit you keep with a $0 balance for those “just in case” scenarios. If you own your own home, you can look in to setting up a line of credit secured to the equity in your home. Planning in life helps us respond to the challenges rather than react. If we are better prepared to deal with the little upsets, then we can move on and continue toward financial freedom.
5. Invest in Your Future
No one plans on working forever, but if you don’t plan for retirement you may find yourself doing just that. It does not matter what age you are; you should be saving for retirement. There are a number of different way to save for retirement, but it may seem confusing. First, start with your employer and find out if they offer a retirement plan in which you can participate. These are usually a great benefit and untapped resource. The employer plans often come with added benefits like company match (which is like getting free money from your employer). If you are self employed, consult a CPA or tax professional because you have other options that can help you save for retirement and give you great tax advantages. If you’re like me and you like to keep life simple, you can always contribute to a traditional IRA. Either way, you are now on the road to financial freedom.