What is financial freedom? That’s the first thing to ask yourself before starting your journey to financial freedom.
Well, financial freedom may have varying meanings to different people. However, it simply means the ability to pay for or do what you want in life without worrying too much about money. It’s the ability to afford your current expenses and also meet your life goals.
It doesn’t necessarily mean being super rich, but at least being able to plan and control your finances. This way, you have enough investments, savings, and liquid cash to keep your life rolling. Also, it ensures you don’t get shaken by minor financial emergencies that life throws your way. But how do you reach this stage in life? This guide outlines the essential steps to achieve financial freedom this year.
Best Ways to Achieve Financial Freedom
Want to learn how to achieve financial freedom? Here are seven essential steps:
Have Clear Financial Goals
What does financial freedom mean to you? And how can you work towards reaching that desired financial position?
Defining your financial goals helps pave a clear path to achieving financial freedom. They allow you to visualize where you want to be and how you can reach there.
However, ensure that your financial goals are SMART goals. This means they should be specific, measurable, attainable, realistic/relevant, and time-bound.
For example, if you want to achieve $200,000 worth of investments in 5 years, how would you hit that target with a $4,000 monthly income? Well, you need around $3,400 a month towards investments. This is undoubtedly unachievable with your current income.
As such, you need to lower your target or find supplementary income. For instance, you can take a second job or find a side hustle that pays well. Either way, you need a concrete plan to achieve this.
Track your Income and Spending
In most cases, people fail to achieve financial freedom, not because they don’t earn enough money, but because they overspend in the wrong areas. That’s why you need to know your income and evaluate your monthly spending.
This way, you can determine whether to increase your monthly income or streamline your spending. By tracking your expenditures, you can also see where most of your income is going and redirect it to the most relevant expenses.
You can manually track your income and expenses by listing them on paper or a spreadsheet. Better still, you can streamline the process by using various expense-tracking apps in the market.
Come Up with a Budget
A budget is paramount when it comes to streamlining your finances. It involves allocating money to different sectors.
You need to decide what amount of your income should pay for what, and what expense is more important than the other. With a budget, you can quickly reduce or trim unnecessary expenses and redirect that money towards better use, like investments or savings.
A budget also helps you define the amount of your income that goes to the main financial goals: necessities, wants, and savings/paying debts.
Try the 50/30/20 rule for this. It suggests that 50% of your income should go to paying for life necessities, 30% to wants, and 20% towards debt repayments and savings.
Have Several Income Streams
Besides budgeting and tracking your income and expenses, you need more money to reach your financial goals fast. Therefore, look for a second job or search for lucrative side hustles.
Luckily, there are numerous side hustles that you can engage in during your free time and make more money. Even better, there are money-generating options that don’t require much effort or even stepping a foot from your house.
For instance, if you have some skills in graphic design, you can get a freelance graphic designer job and earn up to $43 an hour. Other incredible side hustle options include freelance writing, web design, food deliveries, pet sitting, etc.
Focus on Paying Off Your Debt
Debt is one of the most frustrating aspects of your financial life, especially when it’s out of control. It not only derails your life plans but also adds too much pressure and stress to your overall life. Therefore, clearing your debt as fast as possible gives you peace of mind and allows you to achieve other life goals.
Paying off your debt is not easy, but it’s also not impossible. However, you need a solid plan. For instance, you can try earning more income and channeling that extra income to pay off debts. You can also restructure your expenses to direct more money towards debt repayments.
The main debt repayment methods you can adopt include:
- Debt avalanche: involves paying high-interest debts first
- Snowball method: involves starting with small debts
- Debt consolidation: involves putting all your debts into one bigger loan with lower interest rates
Grow your Investments
Investing is the best way to ensure a stable financial future. It allows your money to work for you, to make even more money. This way, you no longer have to go to work to make money.
However, you must find the best investments to venture into. For instance, choose long-term investments, as they offer better returns. Since your target is a better financial future, short-term investments might not be ideal.
Also, don’t put all your eggs into one basket. Diversify your investments. This cushions you if one investment fails or doesn’t yield many results.
Start Saving
Last, but not least, prioritize savings in your journey to financial freedom. That’s right!
As you budget, ensure you set a certain amount towards savings. This not only helps you cater to financial emergencies that come your way, but it also accelerates your financial freedom journey.
Savings also offer a safety net for future expenses if you lose your income abruptly. Therefore, have a savings plan and stick to it.
Conclusion
These steps are just the beginning of your financial freedom journey. They might not solve your financial woes instantly, but they can help you form better habits leading to financial freedom. Simply ensure you have a set of goals, a plan to achieve them, a budget, and consider investing and saving. You can achieve financial freedom only by changing your spending habits.
