14 Steps to Financial Freedom
We all know the feeling—the panic that arises when you see a bill for an unexpected car repair. But what if, instead of worrying, you could pay that bill without a second thought? Imagine a week later, having completely forgotten it even happened! That's how little it affects your financial situation; it's not an emergency, but merely a hiccup. Feel that sense of relief? That’s the essence of financial freedom.
What is Financial Freedom?
Financial freedom means having the ability to make life decisions without significant stress about the financial consequences. This is possible because you're prepared for whatever life may bring; you are debt-free, you have savings in the bank, and you are investing for the future.
In other words, you have control over your finances rather than being controlled by them. When you attain financial freedom—often referred to as financial peace—you have choices. You no longer have to worry about whether your bank account can cover unexpected expenses, like replacing a hot water heater, or if you can afford to help a single mother who has just lost her job.
How to Achieve Financial Freedom
The journey to financial freedom is not a quick scheme to get rich. Achieving financial freedom does not mean being free from the responsibility of managing your money wisely. On the contrary, achieving full control over your finances takes diligence, dedication, and investment of time. However, all of this effort is ultimately worthwhile!
Here are the ways you can start achieving financial freedom today:
- Learn How to Get Control of Your Expenses
- Get Debt Out of Your Life—For Good
- Set Financial Goals
- Be Smart About Your Career Choice
- Save Money for Emergencies
- Plan for Big Purchases
- Invest for Your Retirement Future
- Look for Ways to Save Money
- Live Below Your Means
- Pay Off Your Mortgage Early
- Make Your Health a Priority
- Get the Right Insurance in Place
- Work With a Financial Advisor
- Be Generous With Others
Ready to learn how to build a life of financial independence for you and your family? Let’s dive right in!
1. Learn How to Get Control of Your Expenses (i.e. Budget)
Regardless of age, having a budget and having control of your expenses is crucial to financial freedom. While budgeting is crucial for getting your finances on the right track, it doesn't stop there. Even after achieving financial freedom, you should create a unique budget each month. Regardless of your financial situation, having a plan is always necessary
With market fluctuations, inflation, and future uncertainties, it's wise to consult a professional for guidance on navigating these challenges. Just as no team wins a major championship by chance, you won't reach financial freedom by accident either. Budgeting is the first vital step in building wealth intentionally. Start budgeting confidently and take control of your finances.
2. Get Debt Out of Your Life—For Good
If you have debts such as credit cards, student loans, or car loans, it’s time to eliminate them. Why? Because as long as you’re sending hundreds of your hard-earned dollars to banks and lenders every month, you’ll never truly experience financial freedom. Your income is your most powerful tool for building wealth. You won’t reach your financial goals if all you have left after paying your debts are small amounts.
Paying off your debt helps you lay a solid foundation for lasting wealth. Before you start tackling your debt, make sure you have $1,000 saved for emergencies. You don’t want an unexpected expense to derail your progress. Many people feel like they received a raise when they start budgeting, which is great news for you. Use any extra cash to pay off your smallest debt first until it’s gone, then keep the momentum going.
Although paying off debt can be challenging, there’s nothing quite like the feeling of retaining the money you earn each month.
3. Set Financial Goals
Everyone dreams of achieving financial freedom, and it’s a wonderful aspiration! However, a dream without a goal is merely a wish. This is why setting financial goals—such as paying off debt or saving for retirement—is crucial on your path to financial independence. Goals provide you with something to strive for. But how do you know if you have a meaningful goal to pursue? Here’s how to set goals that truly work:
1. Be specific.
2. Make your goals measurable.
3. Set a deadline.
4. Ensure these are your own goals.
5. Write down your goals.
For instance, if your aim is to get out of debt, that's a great goal! However, it's important to be more specific. How much debt do you want to pay off? Is it $20,000? Excellent! Now, when do you want to be debt-free? How does 12 months sound? Perfect! Now you have a clear, measurable goal that is personal to you and has a firm deadline: "I want to pay off $20,000 worth of debt in 12 months." All that’s left to do is write it down and keep it visible as you work towards achieving it.
4. Be Smart About Your Career Choice
Your income is your most valuable tool for building wealth. Therefore, choosing the right career is crucial. Don’t remain stuck in a dead-end job, especially if it’s making you unhappy. Instead, seek a position that you enjoy and that aligns with your financial security goals so you can enjoy the journey.
5. Save Money for Emergencies
If your goal is financial freedom, it's essential to have a fully funded emergency fund. This fund serves as a buffer against unexpected life events, such as car repairs, broken appliances, or medical deductibles, which can happen to anyone.
Ideally, you should aim to increase your emergency fund to cover 3 to 6 months' worth of expenses once you are out of debt. Having cash on hand to address unforeseen events provides peace of mind and is a crucial part of your overall financial plan. Once your emergency savings account is fully funded, you'll likely experience more flexibility in your budget.
This means you can enjoy shopping splurges or specialty lattes without feeling guilty!
6. Plan for Big Purchases
Since you’re avoiding debt, it’s important to establish a savings plan for major purchases that aren’t emergencies. Take summer vacation, for instance. It’s straightforward!
Create a separate line item in your monthly budget, and divide the total cost of your vacation by the number of months you have to save. By doing this, you’re free from living in debt, allowing you to enjoy your vacation without the worry of a credit card bill looming over you afterward.
7. Invest for Your Retirement Future
Now that you have a plan for short-term savings, you’re ready to partner with a financial advisor who can help you make the most of your long-term investment options. The sooner you start investing, the more time your money has to grow, thanks to the power of compound growth.
Here’s how to get started:
Begin by taking advantage of tax-advantaged retirement accounts available through your employer, such as a 401(k) or 403(b). According to the National Study of Millionaires, 8 out of 10 millionaires invested in their company’s 401(k) plan, which significantly contributed to their financial success.
How much should you invest?
Aim to invest 15% of your income toward retirement. If your employer offers a match on contributions to your 401(k), make sure to take it! Don’t say no to free money. If you have access to a Roth 401(k) at work with good mutual fund options, that’s excellent! You can invest your entire 15% there. However, if you have a traditional 401(k), contribute up to the employer match, then invest the remaining amount of your 15% in a Roth IRA. If you still have part of your 15% left after maximizing your Roth IRA, contribute that back to your 401(k). Why is a Roth account a good choice? When you invest in a Roth 401(k) or Roth IRA, your contributions grow tax-free. This means you won’t have to pay taxes when you withdraw money in retirement. That’s a significant benefit you don’t want to miss out on.
8. Look for Ways to Save Money
If you haven’t taken a close look at your monthly spending, it’s time to evaluate your habits. It’s easy to lose track of expenses amidst the hustle and bustle of life. For instance, you might have a gym membership that you signed up for at the beginning of the year but haven’t used in months. Or perhaps you’re subscribed to multiple streaming services, even though you only watch a few hours of television each week.
Here are a few effective ways to save money right now:
Choose generic brands over name brands.
Plan your meals and bring leftovers to work.
Brew your own coffee at home.
Pause or cancel any unnecessary subscriptions and memberships.
Find ways to reduce energy costs.
Use cashback apps and coupons. Interestingly, even though they have achieved financial freedom, more than 93% of millionaires still use coupons to save on purchases.
It turns out that saving money is a habit that’s hard to break!
9. Live Below Your Means
In other words, you need to live on less than you earn. This principle goes hand in hand with having a budget. To achieve financial freedom, you must practice self-discipline and be willing to say no to some things you can't afford right now, so you can save more in the long run. It's important to note that wanting nice things isn't bad. However, we don't want your possessions to control you.
When you buy a car or a house with money you don't have just to impress people you don't like, you can easily find yourself trapped in a vicious cycle of debt and overspending. That’s not a path to financial freedom; in fact, it’s quite the opposite.
10. Pay Off Your Mortgage Early
There’s a reason why the average millionaire pays off their house in about 10 years. Imagine how different your life would be without a mortgage payment.
When you truly own your home—rather than the bank or your mortgage lender—you experience a sense of freedom that is hard to describe. This is financial freedom.
Making an extra house payment every quarter can help you pay off your mortgage years ahead of schedule and save you tens of thousands of dollars in interest payments. You can use our mortgage payoff calculator to determine how to shorten your mortgage term effectively. Contact us today for a link to this tool.
11. Make Your Health a Priority
We all know that a healthy diet and regular exercise are beneficial for our health. However, what if we told you that maintaining a healthy lifestyle can also be advantageous for your finances?
There is no denying that America is currently facing a health crisis. Poor health can severely impact your financial stability, especially if you do not take steps to address it.
More health problems lead to increased doctor visits and medical bills, which in turn result in higher insurance premiums. The annual cost of treating certain diseases linked to poor diets is approximately $300 per person,
totaling around $50 billion nationwide. Furthermore, about 1 in 10 adults in the U.S. carries some form of medical debt, which means 23 million Americans collectively owe nearly $200 billion.
By prioritizing your physical, mental, and spiritual health, you are also enhancing your financial well-being. In fact, research suggests that if U.S. adults adopted a healthy diet, the resulting reductions in heart disease, cancer,
Type 2 diabetes, and Alzheimer’s disease could generate cost savings of $88.2 billion.
12. Get the Right Insurance in Place
You might be asking yourself, “What does insurance have to do with financial freedom?”
A lot, actually! When you look at sports teams that win championships, they don’t just focus on offense—they have a strong defense too. That’s what insurance is: It’s the defensive strategy that protects your finances.
Without the right insurance in place, one bad accident or one lawsuit could put everything you worked so hard for at risk. While budgeting, saving and investing will help you reach financial freedom, insurance helps you stay there.
Here are eight types of insurance you simply shouldn’t go without:
- Term life insurance
- Auto insurance
- Homeowners/renters insurance
- Health insurance
- Long-term disability insurance
- Long-term care insurance
- Identity theft protection
- Umbrella policy
13. Work With a Financial Advisor
Taking charge of your finances and investments can feel overwhelming, and if you're experiencing this, you're not alone. You've worked hard to build a solid financial foundation, so don’t leave your future to chance.
It's essential to seek the guidance of a financial advisor who can help you navigate your investment options and withstand the market's fluctuations. A financial advisor can assist you in the following ways:
Developing a tailored investment strategy.
Regularly rebalancing your portfolio to minimize risk.
Creating a realistic plan for achieving financial independence.
Exploring investment options beyond retirement accounts.
Establishing a personalized withdrawal plan that suits your needs.
14. Be Generous With Others
Financial freedom is about more than just being able to handle unexpected emergencies—like a car repair—without stress. The real fulfillment comes when you can help others!
Imagine being able to assist a struggling family by covering their car repair costs! It’s not just about your own financial situation anymore; it’s about leaving a lasting legacy. The best part is that you don’t have to wait until you achieve financial freedom to be generous. It’s beneficial to start your budget with a line item for giving, even if you’re focused on paying off debt or building your emergency fund. At that stage, your contributions might include tithes to a local church or donations to charity. However, once you achieve financial freedom, that’s when you can truly unleash your generosity!
Want to learn more about creating a plan so YOU can achieve Financial Freedom?
Contact us today for a FREE consultation:
Clarion Advisors, Inc.
Marshall Goins
(530) 889-0200
www.clarionadvisors.com
Service@clarionadvisors.com