Financial freedom is not just about having money. Rather, it is about being able to run your life according to your needs and wishes. Instead of money being a burden and source of constant concern, the goal is to put yourself in a position in which you call the shots. That way, when unexpected events take place (and they will), you will be able to land on your feet and keep moving ahead.
Define financial freedom
Achieving financial freedom is a matter of goals set. But before that you have to take a good look at your circumstances and define what would help you feel financially independent. In a specific case, freedom might entail factors ranging from career choices, retirement timing, all the way to being able to afford items that will make you happy. It can also mean helping others in need.
Here are some of the steps that you can take on the path towards your financial independence:
If you are aiming for financial freedom, planning is crucial. Put yourself in a position where you will plan and account for every penny that you and your family spend each month. Be rigorous and, no matter how wealthy you become in the process, keep maintaining a strict budget that you adhere to. Do not despair if your plan needs adjusting as you go along. That is normal and will only lead to long-term control.
Next goal: debt-free
You cannot begin to accumulate wealth (and control) before clearing your debt.
After you start budgeting, you should notice an increase in your funds. Use this to save up a sum to keep aside for unexpected events. Once there, you start eliminating your debt. It is an uphill battle, and there are no quick solutions. However, few things can compare with the feeling of actually becoming debt-free. Finally, your income will indeed be yours. That should be your main motivation.
Choosing your career
Your career – and the income stemming from it – is your main asset. Still, when making choices, there are other factors to consider apart from the size of your salary. You do not want to be doing a job that doesn’t fulfill you, no matter how good it pays. The trick is to keep a good balance between those factors. Other important factors to keep in mind: long-term career plans, growth possibilities, and retirement options. Remember that the choices you make here will have a major influence on the way in which you handle your finances, in years to come.
Once you manage to get rid of debt, the next step should be to start building a savings fund to cover a) short-term emergencies b) large purchases or expenses such as vacations. That way, you’ll get more flexibility and options in your overall financial planning. And, more importantly, a foundation upon which you can take the next step.
With the previous step completed, you are ready to seek a financial advisor and consider your investment options in the long run. Begin by planning your retirement savings, aiming to find a tax-favorable solution to invest up to 15% of your income. Be sure to make use of any form of tax relief in the process, such as the Roth IRA retirement plan, for instance. Speaking of long-term, your next step could be to invest in an Education Savings Account. ESA also implies that, once paying for your kid’s college, these expenses will be tax-free.
Another form of investment is to pay off your mortgage, thus become the real estate’s owner. That way, your home will not be a burden, but rather, a part of your financial independence.
After that, and after you’ve used every benefit of tax-favored accounts, you can think of moving into taxable investments. Having a financial advisor pays off here, as you will be able to rely on quality pointers regarding the choice of mutual funds to invest in. Also, when choosing your advisor, you will need a reliable expert who will help you minimize risk, keep an overview of options ready for you, and keep an eye on the long-term goal: financial freedom.
Getting to the finish line
As you will come to realize, financial freedom means much more than simply being able to cover any expense. When you get to that point, you will be able to think beyond limitations and help others in need, too.
The path towards independence is by no means an easy one. But it is very worth taking!