Plenty of self-help books and finance gurus talk about the importance of “financial freedom.” The phrase has a nice ring to it, but what exactly does it mean? And how do you achieve it?
Financial freedom doesn’t necessarily mean that you’re free of all your financial obligations. But it means you feel a sense of ease in situations that might otherwise be stressful in terms of money. For example, financial freedom can manifest as an ability to switch career paths, vacation, or retire without fear of monetary hardship.
Chris Hogan (@ChrisHogan360), a financial expert and the best-selling author of “Everyday Millionaires,” explains, “Financial freedom means that you get to make life decisions without being overly stressed about the financial impact. You control your finances instead of being controlled by them.”
For many people – especially the 78 percent of Americans who are living paycheck-to-paycheck – financial freedom might seem out of reach. It’s true that not everyone will become a millionaire. But being a millionaire isn’t necessarily an indicator of freedom. After all, even high-earning individuals find themselves in precarious financial situations.
It’s vital to set your personal goals though. How much would you like to have saved up and by what age? Be realistic, and consider what kinds of things in life would really make you happy.
Once you have a goal in mind, a number of strategies can help bring you closer to that sense of financial ease. Just start to achieve your goals little by little.
Creating and following a monthly budget is one of the most important ways to begin your journey to financial freedom. It offers an organized approach to handling bills, groceries, and savings. “It is also a monthly routine that reinforces your goals and bolsters resolve against the temptation to splurge,” adds the financial advisor Matt Danielsson (find him on LinkedIn).
In the same order of ideas, Danielsson recommends that you prioritize paying off high-interest loans, including credit credits, rather than student loans and mortgages. The latter loans tend to have lower interest rates, making them less urgent to your financial well-being.
Once you have your outstanding debt under control, you’ll want to avoid taking on more debt whenever possible. Here’s how:
Let’s say that the end of the month rolls around. You’ve already managed to pay on your essentials and your debt obligations. Now’s the time to go on a spending spree, right? A wiser route is to take your extra income and start to build an emergency fund.
This fund will serve as a cushion when life throws you a financial curve ball. You can use this money to take care of emergency vehicle repairs or medical expenses, but never use it for non-emergencies.
Begin investing to reap the benefits of compound interest. Danielsson’s recommendation, which is, “Open an online brokerage account that makes it easy for you to learn how to invest, create a manageable portfolio, and make weekly or monthly contributions to it automatically.” should help you the right way to handle it.
A complete change in your lifestyle and the way you think about money is another way to achieve financial freedom.
Joshua Becker, best-selling author of “The More or Less,” has a perspective that could change your life: “Unfortunately, most people think more money is the answer. And while there may be some truth to this solution, most of us would readily admit that our most basic needs (food, shelter, and clothing) are financially covered.”
Becker is a minimalist, a person who aims to escape the cycle of excessive consumerism. A minimalist takes a path to happiness that involves acquiring fewer possessions. It’s a lifestyle that involves letting go of certain cultural expectations. For example, a minimalist will make purchases based on needs, rather than wants.
You don’t have to sell all of your personal possessions to benefit from a minimalist philosophy though. Simply being able to better distinguish between needs and wants can have life-changing benefits and help you reach financial freedom.
John has been a freelance writer for the past 3 years. He worked for 4 years as a Mortgage Consultant and a Financial Advisor. He also worked for 2 years as a Loan Manager for a medium sized company that handled bad credit loans, car loans and personal loans. We are excited to have John in our team!
John writes about Finance, Philosophy, Money Saving Tips and much more. He is a proud Member of Financial Advisers Australia (AFA) and has Cert IV in Financial Services.