Financial freedom is the ability to have control over your finances to comfortably maintain certain living standards and afford many of your life goals.
It can be achieved in a number of ways, including saving enough money to live comfortably without needing to work, being able to pay off debt, and investing in a way that allows you to choose how your income is spent.
Financial freedom can be short-term or long-term. There are many ways to get there, and no one path is necessarily the best. Also, financial freedom is not solely about money, but also about priorities and how you spend your time and energy.
There are a variety of factors that can contribute to this, such as saving money on your own, paying off student debt, or having a solid income source. It’s also important to consider lifestyle choices like buying a house and getting married.
Having financial freedom can give you a lot of freedom to make decisions about your life, like where you want to live and what kind of job you want to do. You can also start investing in things like retirement accounts and stocks. This is the ultimate goal of most people who want to become financially independent, so it’s worth making sure you’re well on your way before you think about quitting your job.
Maybe you feel like you have too much debt. Or you simply don’t know where to start to increase the level of your financial literacy.
Expanding one’s financial literacy can provide an array of advantages that extend beyond personal financial gains. An individual who acquires a comprehensive understanding of economic concepts and financial management strategies can enjoy greater autonomy, financial stability, and security. Furthermore, financial literacy can unlock a broad range of opportunities, from successful entrepreneurship to investing in lucrative ventures, all of which can result in significant wealth accumulation.
Possessing advanced financial knowledge can aid in making informed decisions regarding mortgages, loans, credit card debts, and other financial obligations, ultimately allowing for better financial planning and risk management. By cultivating a sophisticated comprehension of financial matters, individuals can master the art of budgeting, long-term saving, and wealth preservation, ultimately leading to a better quality of life and a brighter financial future.
What is financial freedom?
Financial freedom can look a little different to everyone because we all want different things in life. However, it starts with taking ownership of your personal finance. You move through paying off debt, begin to build up passive income sources and build monetary safety nets, and the end goal is to be able to do what you want, instead of being tied to a daily grind through financial circumstances.
When you are knee-deep in debt, this can seem like a dream. Something only the very rich could possibly think of. While no one’s path is the same, however, working towards this financially free end goal is not impossible. No. Not for anyone- you included!
1) Taking your first steps to financial freedom
We cannot close our eyes, click our ruby slippers together, and wish to be financially free. It’s a journey and will need some work down the line. But you can’t even start until you know exactly where you are right now.
Many people don’t like this part! But it’s important to tough through it. There’s no way you can start your journey to financial freedom without it.
You need to sit down and honestly take stock of where you are at. Account for all debt, long- and short-term. See what savings you have, and other investments. What retirement funding do you currently have?
2) Set your financial freedom goals
Now take some time to pin your financial goals to paper. What do you want to achieve? What can money do for you? Be realistic.
Don’t skip this step! Having an emotional investment in your financial freedom is one of the best ways to achieve it.
When setting your goals toward financial freedom, it’s crucial to explore various strategies and understand their potential impact on your financial journey. One such approach is the fire movement.
The fire movement, an acronym for “Financial Independence, Retire Early“, provides a blueprint for achieving financial freedom. It’s more than just a financial plan; it’s a lifestyle shift that requires commitment, discipline and a clear set of goals.
The fire movement sets an ambitious goal of saving and investing a significant portion of your income, sometimes as much as 50% to 75%. The ultimate aim is to accumulate wealth that allows you to retire significantly earlier than the traditional retirement age.
3) Start tracking your spending
For the first few months, you may want to simply record everything– and we mean everything- that comes out of your accounts so you can see where you really are, not what you wishfully think your budget is.
Many user-friendly budget apps exist to help you with this. Then it’s time to sit down, break down those figures, and see what’s going on. Where can you save? Where are you overspending? What is essential and what isn’t?
4) Make a budget
Next, it’s time to make a budget. You can create a budget template for going forward that will allow you to increase your savings and reduce the possible liabilities.
It won’t mean anything if you don’t stick to it, however! Also, tracking doesn’t stop here- make this your regular habit, as controlling waste is going to be one of the most important parts of this journey.
5) Pay yourself first
You’ll hear this phrase used a lot when we talk about being financially free. It means putting away some savings (even small) before you pay anything else, bills included. Why? Because it’s easy to keep an airy ‘I wish I could save’ mentality going and never do anything to find that money. If you know you need to find 50 extra pounds for your phone bill, however, you will do what it takes.
It galvanizes you to action. It also encourages you to see your savings as important, another critical ‘bill’ to pay. So put away your savings target before all else- then make sure the bills get paid. You are the priority in your own financial freedom, not the afterthought.
You may also want to look at things like automating retirement savings (or having your company divert part of your salary to them). Try to save 3-6 months of expenses as a buffer against hard times.
6) YOLO, so no FOMO
FOMO is another budget killer. So what if the people down the street just got a new car? Will they be paying for your retirement? You are in charge of your life and your financial goals, and you won’t meet them if fear of looking ‘bad’ on the ‘Gram is where you are directing your money and attention.
If Warren Buffet, one of the richest men alive, can live in a modest ranch house most of his life and Mark Zuckerburg can wear the same three tees in rotation, you can stop pandering to what the Joneses think too and work yourself financially free.
7) Debt snowball method
What is snowballing debt? You start by paying minimum balances on all accounts but the highest-interest debt, which you plough as much as possible into. When that’s resolved, roll that same amount into the next, and so on until you’ve tackled your high-interest debt one snowball at a time.
8) Create more- and passive- income
If the changes you’ve made to how you live and spend aren’t enough with just your 9-5, you may have to look at onboarding a side hustle to help out.
Having said that ultimate goal of being financially free isn’t working more. It’s developing passive income. A source of income that doesn’t require your constant effort or attention.
9) Start Investing
A variety of investment options are traditional roads to passive income. A few of them are:
- stock dividends
- government bonds
- corporate bonds
- dividend index funds and exchange-traded funds
- savings accounts
- peer-to-peer lending
- buy to let properties
10) Stay informed on financial issues and developments
There are many different ways to keep up with the latest news and financial developments. Some options include subscribing to a newsletter, joining a financial group, reading blogs, following pages focused on finance on social media, and watching financial news programs.
Also, it is always a good idea to participate in online and in-person education programs to increase your level of knowledge about finance and economics.
By learning about financial topics and gaining financial literacy, people can better understand how to manage their money and plan for the future.
Bottom Line
The concepts behind personal financial freedom are simple, and anyone can start their journey, no matter where they currently are financially. However, it takes diligence, effort, and focus to stick to the plan and not let immediate gratification tempt you. If you want to be financially free, it’s time to get started!
John is a prolific writer and expert in the realm of personal finance, distilling complex financial concepts into digestible, actionable advice for his readers. His articles cut through the noise, providing clear and concise advice on managing money wisely and creating sustainable income streams. John is passionate about empowering individuals to take control of their personal finances and believes that with the right tools and knowledge, anyone can craft the life they desire.
With an innate knack for numbers and an analytical mind, John delves into the intricate world of financial planning, tax strategies, and investment portfolios. His expertise encompasses a wide range of topics including budgeting, debt management, wealth creation, side hustles, passive income, retirement planning, and risk management. He has the unique ability to turn abstract financial principles into simple, relatable advice that everyone can apply in their daily life.
John is especially skilled at helping individuals and families make sense of their tax obligations and minimize their tax liabilities, an often overlooked but crucial aspect of personal finance. He believes in the power of sound investment strategies and provides detailed analysis on stock market trends, bonds, real estate, and other investment opportunities.
Additionally, John sheds light on the importance of retirement planning, offering insights into superannuation, pensions, and other retirement income strategies. He emphasizes the necessity of risk management, illustrating how insurance and diversification can protect and grow your wealth.
His financial literacy extends to the intricacies of credit and loans, where he offers advice on maintaining a healthy credit score, managing student loans, and navigating the mortgage process. John’s understanding of personal finance isn’t limited to long-term strategies; he also shares valuable insights on everyday money matters such as savvy shopping, smart saving, and frugal living.
John’s writing is fueled by the conviction that knowledge is power, and financial knowledge can lead to financial freedom. Through his articles, he strives to simplify the world of finance and inspire his readers to create the life they truly want, bolstered by robust financial health.
