As per a survey by CareerBuilder, 78% of Americans are living paycheck to paycheck. To them, financial freedom is a distant dream as they scramble to manage their basic expenses.
In simple words, financial freedom is the ability to pay for your bills and have decent savings. It also includes having a growing nest to secure your future.
Do you think it is a concept that is only good in theory? Do you think it is impossible to achieve it given your current responsibilities? Well, the good news is that it is possible to gain control over your finances instead of the other way round. Of course, you will have to be determined, patient and even sacrifice from time to time. However, it is all going to be worth it.
Here is how you can get started on your path to financial independence.
Start living within your means
This is the first and foremost step if you want to get financially independent. We live in an era where social media dominates our lives and everyone seems to be living it up. Your friends may be flaunting their new expensive purchases or pictures from their enviable vacation. It is easy to get influenced and follow a similar lifestyle. However, the key is in understanding what is within your means and what is beyond. For instance, there is no point in buying a coveted bag and later worry about your student loan EMI.
Clear up your mess
You may have made some mistakes in the past. Instead of developing a negative outlook towards money, it is best to clean up your finances and move forward. If you are under credit card debt, make it your priority to clear it in full. You can’t accumulate wealth unless you are debt-free. If you have a number of debts, you may want to think of a strategy to get past them. You can either start with the lowest amount or choose the one with the highest interest rate. Your goal should be to become debt-free and stay that way for the rest of your life.
Pay yourself first
It is a phrase that is commonly used in personal finance. It means routing your money into savings immediately when you receive your paycheck. You can choose to do it automatically for more convenience. For instance, opt for 401(k) or IRA account. By doing this, you will have to make do with whatever is left. If you feel it isn’t enough to manage your monthly expenses, you may want to consider another part-time job. You can even start hustling on the side. If you have a special skill or hobby, you can start freelancing to make a few extra bucks. Make a portfolio of your work and register on an online website that provides freelancing opportunities.
Create a budget
We cannot stress enough on the importance of living on a budget. If you start sticking to it, you may realize you are left with some extra money. There are several apps like Mint and Pocketguard that you can use to this effect. Create different buckets of your expenses like food, bills, shopping, gas, etc. Allocate an amount to each of these buckets and make it your goal to stick to these amounts. Track your spending at the end of each month to stay within your budget.
The goal of financial freedom is not just to make your today better. Instead, you also create a security net for your future. Think about your retirement life when there will be lesser avenues of income. You may take the help of a financial advisor for building a diversified portfolio. However, you must gain control over your investments and educate yourself about different options in the market. It will also help to take stock of your investments every once in a while and make the required adjustments. When it comes to investment, it is better to start early and benefit from the power of compounding.
Financial freedom is not based on a short term strategy. Instead, it means understanding your finances and living a lifestyle within your means.