Everything You Need to Know about Achieving Financial Freedom
Everyone wants to live a luxurious lifestyle. Some of us daydream about owning beachfront real estate and jet-setting around the world on epic adventures. Others fantasize about being able to afford all the newest tech gadgets and owning the hottest car.
Luxury like this seems unachievable. But what if I told you that building the life you dream about is possible?
All you have to do is achieve financial freedom.
What Is Financial Freedom?
In simple terms, when you achieve financial freedom, you can live the life you want, without worrying about money.
In order to determine what financial freedom means to you, you need to figure out what your ideal life should look like. Take a moment and ask yourself some questions about what you want out of life:
- What vacations do you want to take?
- Do you have any dreams that could be accomplished if you had more money?
- Do you like your job?
- What big milestones do you want to accomplish?
The more questions you ask, the better picture you’ll get. Maybe you want to retire by 35 and spend your days traveling to exotic beaches. Or maybe you want to leave corporate America and use your skills in the nonprofit sector.
Whatever your goal, you’ll want to have a clear why that will help motivate you when financial freedom feels out of reach.
What does it mean to have financial freedom?
The best part of financial freedom is that it can mean anything you want it to mean.
Essentially, it’s a way of life that allows you to be free of debt and to chase after the goals you want. And it’s customizable to anyone.
You could quit your job and become a digital nomad. Or you could start the small business you’ve always dreamed of. Or you could change nothing in your life but have the peace of mind that comes from being financially secure.
The Pros and Cons of Financial Freedom
Here are the pros and cons of financial freedom.
- You’ll be able to live an extraordinary life that’s exactly geared to your dreams.
- You’ll be able to treat yourself guilt-free. If you want something, and it’s within the budget, you can buy it knowing you have the money in the bank.
- It doesn’t always come easy. You might need to work extra-hard and forgo spending money on treats now to build a future of financial freedom.
How to Use Your Dreams to Influence Your Goals
Everyone has dreams of what they want to do with their life. And it’s not unreasonable to chase those dreams, even if they feel outside the realm of what’s currently possible. But you won’t achieve your dreams without turning them into goals first.
Financial freedom isn’t possible without a roadmap, and using your dream lifestyle as that roadmap is the best possible way to go. You’ll be able to mark milestones on your roadmap like paying off credit card debt, buying your first home, and saving for retirement.
Set up your financial goals
Setting up your financial goals is the first step to achieving financial independence. You’ve spent some time thinking about what you want your ideal life to look like, but now it’s time to give yourself actionable steps to figure out how to achieve those dreams.
The conversations you need to have with yourself might be challenging.
You’ll need to confront any debt that you have and make a plan to pay it off. You’ll want to pay off some of that debt — like credit card debt or unsecured debt — quickly.
You might consider paying off the “good” kinds of debt — like houses, cars, and student loans — off more slowly.
Or you might want to pay it all off as soon as possible and live on a tight budget for a few years.
Once you’ve created a roadmap for becoming debt-free, you’ll want to create measured goals to keep that drive alive. Create some short-term and long-term savings goals. The short-term goals will keep you motivated and give you milestones along the way; the long-term goals will help you achieve financial freedom.
Strategies You Can Use to Pursue Financial Freedom
Once you’ve created your goals, it’s important to set up a framework to make it possible. You’ll want to ensure you’re using everything in your financial toolbox to set yourself up for success.
Strategies for setting up a budget
One of the best tools in your financial toolbox is a budget. Budgets are an excellent resource for tracking your spending and knowing where your money is going.
Just as there’s a variety of different approaches to financial freedom, there are many approaches to budgeting. Here are three of the most common ones:
1. Zero-based budgeting
With zero-based budgeting, every dollar has an assigned role, and at the end of the month, your money is accounted for down to the dollar. It’s a great system for people who are new to budgeting because it tracks everything. You’ll know exactly what your money is doing throughout the entire month. It allows you to save and spend with purpose.
2. 50-30-20 rule
If you’re like me, and the strictness of the zero-based budget stresses you out, you might try the 50-30-20 rule. With this strategy, 50% of your money goes toward needs, 30% of your budget goes toward wants, and 20% of your money goes toward savings goals.
Approaching your money based on percentages gives you more flexibility in spending, without sacrificing your savings goals. I like this approach because it lets me choose what to spend my money on each month. All my basic bills are being met, and I’m still able to save.
3. Values-based budgeting
Values-based budgeting is using your values to guide your spending. You track your expenses for a couple months and determine what you actually spend money on.
With each line item, you ask, “Does this bring value to my life?’ if it does, you add it to your budget. If it doesn’t, you remove it from your budget and add that extra money into savings.
It’s a great way to check-in with yourself to ensure you’re spending money on things you care about.
No matter what budgeting strategy you choose, having a budget is a key factor in ensuring you have financial freedom. It’s also a great tool to springboard you to financial independence, which is a byproduct of financial freedom.
- What Is A Budget & Why Is Budgeting Important?
- The 6 Best Budgeting Apps for 2021
- Top Budgeting Systems You Can’t Live Without
Strategies to pay off debt
Another hugely important part of achieving financial freedom is creating a goal to pay off all your debt, whether you have student loan debt, credit cards, or car loans.
Living debt-free gives you the freedom to make choices with less concern for money because you have lower monthly expenses. There are several popular ways to pay off your loans.
1. Debt snowball method
The debt snowball method involves paying off the smallest piece of debt first.
Say you have a $600 credit card balance with 20% APR, a $2,000 credit card balance with 30% APR, and a $15,000 student loan with 8% APR.
You’ll pay the minimums on all your cards each month, but you’ll pay extra on the $600 card because it has the smallest balance.
When that card is paid off, you’ll take the money you were paying toward that debt and add it to the $2,000 card until that card is paid off. And then you’ll pay off your student loan in the same way.
The benefit to this process is that you pay your first debt off quickly and use the momentum to push you toward a debt-free life.
2. Debt avalanche method
Using the same numbers as above, this method focuses on interest rates. You would pay off the 30% APR card first, then the 20% APR card, and then finally attack your student loans.
While this method doesn’t give you instant gratification, it will save you money in the long run because it focuses on the debt that is costing you the most.
3. Debt consolidation
If you’ve found yourself overwhelmed with debt, know you’re not alone. It’s not shameful to seek debt consolidation. It’s a great option if you feel like you’re drowning in debt or need to repair your credit score.
With a debt consolidation program, you’ll work with a financial institution to turn multiple payments into one monthly payment. It can be a great option if your consolidation loan has a smaller interest rate than your current debt.
Some debt consolidation companies will work to settle your debt for you, so you pay less than you owe.
It doesn’t matter which option works for you because personal finance is personal. The important point is that you’re able to pay off your credit cards and other debt in a manner that allows you to pursue true financial freedom.
Strategies to increase your income
Building a financial powerhouse of a life starts both with paying off debt and increasing your income. There are a myriad of ways to do this.
Freelancing is a great way to boost your income. If you have a skill like writing or coding, you can use platforms like Upwork to find gigs and grow your income beyond your W-2 job.
2. Work more overtime
If you work at a job that allows overtime, picking up a few shifts a week can add a couple hundred dollars to your paycheck every month. You can put that money toward either your short- or long-term financial goals.
3. Gig work
Gig work is another way to earn money. You can use apps like Uber, Lyft, Instacart, or Amazon Flex to make a few extra dollars.
4. Passive income
Search for ways to earn passive income. Maybe you’re a great photographer and start selling your photographs online. Or maybe you start a blog and monetize it. There are plenty of ways to create multiple streams of income.
Roadblocks to Achieving Financial Freedom
Here’s a word of caution when you’re pursuing financial freedom: Don’t work so hard that you burn out. That will set your progress back further, and no one wants to go backward on a journey. It’s OK to work hard, but don’t lose the goal in the work.
Also, know that your friends might not understand what you’re doing. It can be hard to say, “No, I don’t want to do that because I’m saving money.” It’s hard to live counter-culturally. But it’s ultimately worth the price you pay.
The Bottom Line
Building wealth is the best thing you can do for your financial future. Don’t let anyone hold you back from increasing your net worth and living the life you’ve always dreamed of.