What is financial freedom? Some people associate financial freedom with the ability to stop living paycheck to paycheck. For others, it’s all about having enough money in the bank to do what they want (when they want). Financial freedom means something different to everyone and once you understand your definition of it, it’s time to implement a plan for helping you reach this goal. It may not be easy. It may not be fun. And it may frustrate you at times. However, if you stick with your plan, you’ll look back and realize that you made a good decision. Here are five tips to guide your path toward financial freedom:
- Create a Budget
- Change Your Spending Habits
- Add Up Your Debts, Then Pay Them Off
- Try Earning More and Pay Yourself First
- Fund Your Future and Dream Big
Let’s dive into each of these.
1. Create a Budget
Did you know that less than half of Americans use a budget? That’s a huge number. Are you part of this group? Without a budget, there’s no way of knowing exactly how much money you’re earning and spending each month. Conversely, it’s a challenge to reach financial freedom in the most efficient manner possible. Fortunately, creating a budget is easier than ever before. If you don’t want to use a pen and paper system, you can opt for one of the many budgeting and personal finance apps designed for consumers like you. Creating and following a budget can be an adjustment, but it might be worth it.
2. Change Your Spending Habits
Not monitoring your spending habits could lead you toward an uncertain financial future. Does this mean you should save every bit of money, never taking time to enjoy yourself? Not necessarily, but what it does mean is that you may want to review your spending habits for a better idea of where you can save. Are you overspending on dining out? The average American spends approximately $2,800 on restaurant meals and takeout every year. This works out to $233/month or just about $8/day. Are you spending entirely too much money on rent? How about your car payment? What about travel and other entertainment expenses? You get the point. You can spend your money in many ways, but are some expenses stopping you from reaching your financial goals? Consider writing down all of your expenses and all of your income from the last few months. You may be surprised at what you find when you take an honest look at the numbers. To begin making progress towards a fiscally sound future, it may be helpful to build a lifestyle that can operate within the parameters of your means by setting financial goals. In other words, spend less than you earn. It’s a simple and basic rule in creating a budget and financial plan, however it’s one that many people struggle with, even those making six figures.
3. Add Up Your Debts, Then Pay Them Off
After the previous exercise, you may have noticed that high-interest debt is what’s holding you back from reaching financial freedom. Some 80% of Americans have at least one of six different types of debt. To make more progress on paying down debt, it may help to not only set the goal of paying off your debt at some point in the future, but of paying off your debt as quickly as possible. Combining all of your balances with a personal loan can help, not only in simplifying the debt pay off process, but also, in some cases, by reducing your interest rates — saving you money today and in the long-term.
4. Try Earning More and Pay Yourself First
An alternative or supplemental strategy to cutting back your spending is increasing your earnings. Take the time to see if additional income streams could reshape the landscape of your financial reality. Increased income may allow for the greater flexibility that characterizes the freedom of choice and options that enable any future dreams.
You’ve probably heard about paying yourself first in the past, but you may not know exactly what it means. This has nothing to do with how you earn your money, but everything to do with your approach to savings. In short, paying yourself first means prioritizing putting money into your bank and retirement accounts. Tip: you may want to look at funding your bank and retirement accounts like they’re bills that need to be paid, rather than an optional contribution.
5. Fund Your Future and Dream Big
Break down your financial goals into simple numbers and concrete next steps. For example, if you want to go on vacation next year, calculate the total cost, then figure how much money you need to save every month between now and the date of your departure to reach that total. By setting financial goals and breaking each down into a tangible number and next step, the enormity of saving $1,000 or $10,000 may be far less daunting. If you find that you need a helping hand in reaching some of your larger financial targets, a personal loan can serve as a powerful tool in responsibly paying for big-ticket purchases. Be they unexpected life emergencies or celebratory life events, personal loans provide an alternative to other high-interest forms of debt. You also shouldn’t be afraid to dream big. It’s okay if you want to retire by age 40 (and you’re already 35) and live in Hawaii. It’s okay if you want to bank $1 million. Dreaming big gives you the motivation you need to push forward, day in and day out. Even if you fall short, there’s a good chance you’ll still be happy with where you end up. Let these five tips guide you as you strive for financial freedom. The right strategy, combined with persistence and dedication, should have you making progress in no time.