Financial freedom is one phrase that most people want to have related to them. However, different people have different definitions of what these words mean. A person overwhelmed with too much debt may define financial freedom as being able to live debt-free.
On the other hand, some people relate this freedom to being ready to retire from work at an early age. Since financial freedom is dependent on the perspective of a person, both definitions may be considered correct.
What is Financial Freedom?
Financial freedom is the ability to take control of your finances. This means that you have enough money to live the lifestyle that you want without worrying about debt and paychecks. However, financial freedom does not necessarily mean that you do not need to work. A lot of people who are rich enough to avoid work still clocks in a 9-5 shift just because they are passionate about their jobs. This choice of always going to work is also one indication of a person with financial freedom.
Steps in Achieving Financial Freedom
Reaching financial freedom may be a long and hard journey; nevertheless, it is a road that anybody can take and conquer. Yes, that is true, no matter how dire your financial situation is today, you always can bounce back. Here are some of the steps that can lead you to a life without financial worries.
- Step 1. Know Your Financial Starting Point. If you want a roadmap to achieve financial freedom, you must first know your economic starting point. Determine how much debt you have. Include all the money you owe creditors, your friends and relatives, student loans, and any other mortgages you may have accumulated. Now compare them with a list of all your real money from your savings, trust funds, retirement plans, and any recurring income that you may still have. Subtract what you owe from all your savings. That number will be your financial starting point.
- Step 2. Write Down Your Goals.What financial aspects of your life do you want to change? What are your goals for getting money? Why do you need money? When you write down your financial goals, you must integrate these goals with your value system. For example, if you value family, then your financial goals must be designed with your family in mind. After writing down your goals, articulate your goals into a monetary value. This is the amount of money that will equate to your financial freedom. This amount may vary from one person to another.
- Step 3. Improve How You Handle Your Finances. Compare the value that you obtained from step 1 with the money amount you decided for step 2. Is the discrepancy significant? If the values are too far apart, then you have to find ways to improve how you deal with your money.
Minimize your expenses by spending money only on essentials. Manage your debts properly by paying off debts with high-interest rates or consolidating your debts for more manageable repayments.
Look for simple ways to increase your income by adding other ways to get more revenue. Put your savings into investments that earn more interest than savings accounts.
There is no single roadmap that you can take to reach financial freedom. Next, the steps that you follow will depend on where you are starting from and where you want to go financially.