How to Achieve Financial Freedom

Having financial freedom can look different for everyone. For some, it might mean being debt-free. For others, it might mean having enough money for traveling, pursuing a passion, or enjoying peace of mind.

No matter your vision, financial freedom starts with a long-term plan. Then the discipline to follow it. This article will give you some tips to help you define and pursue what financial freedom means to you.

What is financial freedom and what does it mean to you?
Your step-by-step plan to achieve financial freedom
Start your journey to achieving financial freedom

What is financial freedom, and what does it mean to you?

Financial freedom generally means having enough savings, investments, and cash to live comfortably. Your personal definition may vary. It depends on your financial situation, lifestyle, goals, and future plans. The benefits financial freedom can bring to your life are unique to you, but several common goals include:

Reduced stress

You may want to get beyond the stress of living in debt or paycheck to paycheck. Achieving financial freedom can mean not feeling anxious about unexpected expenses. Or you could be looking for the peace of mind that may come with a financial cushion—like an emergency fund—that gives you the ability to handle life’s surprises without panic.

Affording your lifestyle

Living the lifestyle you enjoy within your means is another form of financial freedom. It could be dining out, traveling, or upgrading your home. It’s not about being wealthy—it’s about having enough money to enjoy life your way, without making trade-offs.

Achieving goals

Everyone has money goals. Being able to achieve yours is another form of financial freedom. Your goal may be buying a home, funding your child’s education, starting a business, or retiring early. It’s the ability to achieve the financial goals you’ve set through planning and persistence.

Control over finances

This is the foundation of all types of financial freedom. It means knowing where your money goes, making informed decisions, and being proactive rather than reactive. Budgeting, saving, and investing wisely all contribute to this sense of control.

Your step-by-step plan to achieve financial freedom

Reaching financial freedom doesn’t happen overnight. It requires intentional planning and consistent action. No matter where you’re starting from, the following steps could help you get closer to achieving financial freedom.

1. Define your financial goals

The journey to financial freedom starts by defining your long-term goals. Think about whether you want to pay off higher-interest debt first, make a big purchase, or work toward a dream retirement scenario.

Remember, long-term financial freedom is different from more immediate financial stability. A strong financial position is something you’ll want to achieve as soon as possible. But your financial freedom goes well beyond addressing the here and now. Financial stability now can help you gain momentum on your path to financial freedom and your other financial goals.

By understanding what’s most important to you, you can determine what your financial freedom is and what it means to you.

2. Make and stick to a budget

A budget is a spending plan that accounts for your income, expenses, and goals. It’s designed to serve as a roadmap to help you reach your financial destination. That's why it's important to create a budget that works for you.

Examine your spending

A budget will help you get a firm grasp of your spending habits. Some expenses are fixed, like your mortgage, rent, or car payment. Other expenses might be optional, like what you spend on entertainment, travel, fitness, or dining out.

Compare your income and bills

Compare your monthly income to how much you spend each month. This will allow you to establish a baseline understanding of your current financial situation. Are you regularly spending more than you take in or do you have a surplus?

Choose a budgeting strategy

Once you know your income and expenses, you should be ready to choose a budgeting strategy that works best for you. One example is the 50/30/20 rule. It suggests allocating your after-tax income across three broad categories: 50% to needs, 30% to wants, and 20% to savings and debt repayment.

Consider reducing your expenses

Reducing your fixed expenses could take time and involve major changes to your lifestyle, but it might be worth doing to support your quest for financial freedom. For other expenses where you have greater control, it can be helpful to review your spending habits for a better idea of where you can save.

3. Find ways to increase your income

Increasing your income might speed up your path to financial freedom. Consider options like negotiating a raise, taking on freelance work, starting a side hustle, or monetizing a skill or hobby. Even small increases in income could make a big difference when applied toward savings or debt reduction.

4. Set realistic financial goals you can achieve

Setting achievable financial goals can help keep you motivated and focused. Such goals may include saving money in an emergency fund, paying off a credit card, or investing for retirement. Realistic goals can give you clear direction and measurable progress. Start small, build momentum, and adjust as your financial situation evolves.

5. Make a plan to pay down your debt

A key step on the path to financial freedom is creating a plan to pay down your debts quickly. The amount of debt you carry can be a barrier to reaching your goals.

This might be especially true if you’ve accrued higher-interest rate debt or debt with steep fees like payday loans or some credit cards.

To help pay down debt fast, you should first know what you owe and how much you’re paying in interest and fees. When you lay out each debt and the interest rate you’re paying, your repayment priorities should be clear. Then, there several actions you might consider. You could try trimming your expenses, paying more than the minimum on all of your balances, and avoiding adding any new debt.

A personal loan for debt consolidation could be part of your solution. With a fixed interest rate and repayment term, a debt consolidation loan could help you save money on interest, which can go towards savings or other financial goals. In fact, 93% of surveyed debt consolidators said they saved money or time by taking out a Discover® personal loan.*

Is higher-interest debt blocking your way to financial freedom? Use our debt consolidation calculator to see how you might be able to pay down debt faster or save on interest.

Estimate Your Savings

6. Focus on saving and investing

Saving and investing can be useful steps on your way to financial freedom. It helps to be intentional about saving. Try to regard savings and retirement accounts as you do regular monthly bills. In other words, don’t treat saving as an optional expense if you have leftover money. You might even automate your savings by setting up direct deposit from your paycheck or scheduling automatic debits directly from your checking into your savings account. That way you won’t be tempted to spend your savings.

Take advantage of retirement accounts

If available, you can take advantage of any retirement savings plans offered by your employer. Typically a 401(k), these accounts deduct pretax dollars from your paycheck. Many employers also match your investment amount up to a certain percentage. It can speed up your savings. But the best part is that this is another set-it-and-forget-it approach. This money never hits your bank account, so you won’t be tempted to spend it. If you don’t have a 401(k) available, there are a variety of individual retirement accounts (IRAs) that you might want to consider.

Speak with a financial consultant

For detailed advice and insights about savings and investment strategies, including your 401(k) and IRA, you may want to speak with a financial advisor.

7. Watch your credit score

Maintaining a healthy credit score is another key to successfully achieving financial freedom. A strong score may help you get approved for loans such as mortgages, car loans, and credit cards with favorable interest rates.

It's a good idea to regularly check your credit score. If you’re unhappy with where your score stands, there are ways to improve it over time. They might include lowering your credit utilization ratio, building your credit history, and paying your bills on time.

8. Create an an emergency fund for peace of mind

An emergency fund is a cash reserve separate from your primary savings. These are funds that you’ve specifically set aside for unplanned expenses or financial emergencies. These might include car repairs, sudden damage to your home, or unexpected medical bills.

Surprise costs have the potential to derail your plan for achieving financial freedom. By establishing an emergency fund, you may be prepared for the unexpected and stay on track with your goals.

The amount of money you need in your emergency fund depends on your personal situation. But, if possible, you should aim to have three to six months’ worth of living expenses in reserve.

Start your journey to achieving financial freedom

Financial freedom is all about being in control of your finances instead of being controlled by them. No matter what your definition of financial freedom is, achieving it requires long-term discipline and dedication.

The path begins with a proactive mindset and a comprehensive plan. When creating your plan, be mindful of the steps involved. Remember, no matter your age or financial situation, there are always ways to help improve your long-term financial health.

Ready to begin your journey? See what benefits a personal loan for debt consolidation might provide you on your way to achieving financial freedom.

What is Financial Freedom?

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