Hi, in this article we are going to discuss step-by-step ways to achieve financial freedom. First, we have to understand that the meaning of Financial freedom could be different for different classes of people because we all have different relationships with money. So there is no universal definition of financial freedom or financial independence, but in simple words, it means that you have enough income or resources to cover your all living expenses in the present and future, so you can live your life comfortably and peacefully. No matter what financial trouble you have in the present day, financial freedom can be achieved with proper planning and implementation. In this article, we’ll share Top 12 simple steps to financial freedom.
#1 Understand Your Current Financial Situation.
This is the first step where self-observation is required and you have to understand your current financial situation.
Without knowing your starting point you can’t achieve Financial Freedom. You have to make a list of your all income, savings, expenses, loans, and all types of borrowings. Compile your list and find out how much money you have in savings and how much debt you have.
It is suggested that also write down the number of your future expenses or goal like child education, Marriage, retirement, etc. Because in real terms to achieve financial freedom we have to beat future expenses also. Remember these numbers as we work through the following steps to financial freedom.
#2 Put a Positive Attitude Towards Money.
To achieve financial freedom we must give regard to money because if we give respect to money only then can we understand the importance of money and can avoid unnecessary spending.
Don’t feel discouraged by the amount of your debt and expenses, instead of that put a positive attitude towards money to live a stress-free life. Remember that money is a good thing.
#3 Adopt Practice to Make Your Budget in Writing.
It is advised that make your budget in writing on a monthly basis. It will give you an idea about your spending plan. It will help you to keep track of your spending and money.
If you will able to do that in a disciplined way, you will be one step ahead to achieving financial freedom. It is one of the most important steps to financial freedom. Budgeting is a difficult task and ensuring that doesn’t make it flexible.
#4 Understand The Importance of Insurance.
You should understand the importance of insurance if you want to get financial freedom. Because an unpleasant situation like an accident, illness, or pandemic may wipe out your all savings and put your financial plan into a ‘Black Hole’.
To beat such type of unpleasant situation which may come in future you should have a good insurance plan.
#5 Create an Emergency Fund.
You should understand that no one can see the future, sometimes we have to manage unexpected expenses which could come in the future.
To understand this, here we take an example, assume that you are a salaried employee, and if a recession comes and stay long, then many could lose their job and you could be one of them.
These types of unexpected situations will give a hard impact on your budget. Therefore to tackle these types of unexpected situations/expenses you should have an Emergency fund that required a minimum amount of your six months of necessary expenses.
#6 Choose The Right Account.
Choose the right account for your money, as there is no single type of right account that exists for all your money.
What it means is that depending upon your need and goal choose an appropriate account for your cash e.g. Tax-favored 401(k) or IRA account is good for the placement of your retirement money, while 529 Plans is good to park your college saving.
Your emergency fund should be parked into a high-yield saving account. Emergency funds should be parked into such type of account/instrument which is highly liquid and insulated from market loss.
#7 Create a Disciplined Deposit Schedule.
In the previous step, we discussed choosing the right account as per your requirement and after having such accounts now you have to create a disciplined deposit schedule to fund those accounts.
You may set up automatic regular transfers from your bank account to other financial accounts which will help you to stay focused on your saving goal.
#8 Create A Good Debt Payoff Plan.
To achieve financial freedom it is very important to have a good debt payoff plan. Try to pay high-interest rate debt first, because in debt compounding works in reverse action and sucks your wealth.
You should focus all your extra money on one high-interest-rate debt while minimum on the rest. Remember that paying off debt is the most important step to financial freedom and lifts a massive weight off your shoulders.
After paying off your debt more funds or money will available to you which could be used to increase your investments to speed up the process to achieve your goal.
#9 Make A Good Investment Strategy.
Although your primary focus should be to clear your debts first but as well as you should also start investing in the right instrument according to your risk appetite.
It is not important how much you “earn” but how much you “save” at the end of the month. This saved amount will make you financially free in the early stage if invest it wisely.
You can take help from a trusted financial advisor to evaluate your current situation and make a good investment strategy.
#10 Monitor Your Spending.
You should develop a habit of noting down your spending/expenses on a daily basis for this you can use various online tools/apps. It would be helpful for you to cut down on unnecessary expenses.
Tracking your spending is an important step toward financial freedom. Monitoring your spending will help you make strategize for your financial plan and track your goals. you will able to know where you went over budget and how much debt you have.
#11 Spend Wisely.
To achieve Financial freedom your spending plays an important role. In step No.2 we have already discussed that give regard or respect to money which also means spending money wisely.
Spend your money on your needs, not on your lust. Always try to buy “assets”, not liabilities. If you don’t have an idea about assets and liability then in simple words “assets” means what put money in your pocket and “liabilities” means what took money from your pocket.
In a whole life, a normal person owns liabilities for example Car, a Phone, House, etc. It doesn’t mean that don’t live your life happily but it means Don’t spend money to pretend that you have money. This step is a key value step to financial freedom.
#12 Invest in Yourself.
To achieve financial freedom your investment plays a key role to meet your goals but investing is not only about money it is also about yourself.
Understand that you are the main source of your funds and always try to evaluate to increase your income. It could be done via investing in yourself.
In simple words, it means never stopping learning and always trying to sharpen your skill set. It can help you to increase your income or can help you to create additional sources of income.
There are many articles available net to create additional income sources, evaluate them, and choose the right one for you.
Calculating accurately your need in the early stage will lead you to the path to ensure Financial freedom. It saves you to become the victim of bad investment habits and spending.
Stay focused on your goal, spend wisely, and put the main focus on the payoff of your high-interest debt first.
Always monitor your spending on a daily basis and try to minimize your unnecessary spending. Apply a disciplined approach to your investments and pay off the debt to achieve financial freedom.
Financial freedom is nothing but all about taking control of your finance and more importantly your life so that you can live your life peacefully and happily. We hope our article about steps to financial freedom will help you in the journey to achieve your goal of financial freedom.