Do you dream of the day when you finally achieve financial freedom and can live life on your own terms? It may seem a bit far-fetched, especially if you’ve had a few missteps in the past, your credit is in shambles, or you’re struggling to stay afloat.
But the good news is, despite the situation you’re in now, it’s totally possible to achieve financial freedom and live the life you deserve. Ready to get started on your journey? Here are nine simple steps that will get you there:
Step 1: What does financial freedom mean to you?
Instead of going all-in with this newfound journey towards financial freedom, you must first take a step back to ponder what financial freedom means to you. Maybe you want enough funds to travel the world and take in some of the world’s most breathtaking sights. Or perhaps you dream of quitting your job and starting a business so you can live out your purpose and have more time to spend with your friends and loved ones. And for others, financial freedom simply means having a fully-funded retirement, being debt-free, extra cash to spend on the things they love most.
Ultimately, it’s up to you to decide what financial freedom would look like in your life so you can set financial goals to help you reach the finish line. Most importantly, understand that there are no right or wrong answers to this question. It’s your life and your responsibility to sort things out so you can live it out in all the ways you dream of.
Step 2: Assess your financial situation.
Depending on where you are in your financial journey, there may be some areas that need to be addressed right away. Consequently, an assessment of your finances is a must before you can start setting financial goals, creating plans, and getting to work.
Start by calculating your net worth, or your assets minus liabilities. If your net worth is severely negative (due to excessive debts beyond your mortgage), you may need to direct most of your attention towards paying the balances down. Doing so will free up cash to achieve other appealing financial goals on your list.
Step 3: Change your money mindset.
What’s the big deal about your money mindset, and does it really matter when you’re working towards achieving financial freedom? Absolutely as your thoughts about money ultimately become your reality. If you always complain about being broke or having bad credit, the negative energy will cause you to become a victim of your circumstances.
And you’ll give up on the search for solutions before you even start looking for them.
Also, understand that your past money troubles are behind you. There’s nothing that can be done to change your actions. Still, you can focus on the opportunity to move on so you can build a financially free life of abundance.
So, if you’re stuck in a rut, take some time to jot down all the negative thoughts you have about money. Next, write down potential solutions to every problem and start reframing your beliefs about money. It may take some time for your money mindset to shift, but once it does, you’ll notice the differences in how you think, feel, and how your finances respond. You’ll begin to make more informed money decisions and analyze how your current actions will impact your financial future.
Step 4: Set financial goals.
Now for the fun part: financial goal-setting. This is arguably the most essential step to achieving financial freedom because financial goals lay the framework for what’s to come. You’ll create a list of the most important financial goals and draft up a plan with deadlines.
But maybe you’ve struggled to achieve financial goals in the past? While it’s not uncommon, you don’t want history to keep repeating itself, so it’s pertinent that you get to the bottom of why you’ve struggled for so long. Maybe your failures were attributed to your money mindset, or you felt hopeless? Whatever the issue was, you have to promise yourself that you’ll do whatever it takes to have a different outcome this time around.
Once you’re ready to get started, whip out a notebook, and write a list of your financial goals. Be sure to include a healthy mix of the things you need to address, based on your financial assessment in step two, and the items that are on your “financial bucket list.” Narrow down your list to the top goal from each category, and break it down with action steps and deadlines. If you don’t have any disposable income to allocate towards the goal, y free up cash in your budget or beef up your earnings. This will be discussed in the next two steps.
What about all the other financial goals? You’ll get to them at some point, but you can avoid getting overwhelmed by focusing on one need and want at a time. That way, you’ll handle business while having a little fun, and you’ll stay motivated to keep making progress.
Step 5: Create a budget or spending plan.
No matter how great your financial goals sound, it’s impossible to bring them to fruition without a budget or spending plan. Why so? Well, your budget is your roadmap to achieving financial goals because it controls your spending. But if you continue to let your money steer the ship, chances are you won’t have the funds you need to meet your financial objectives, and you’ll stay right where you’re at financially.
Another benefit of creating a budget is that it helps you stay out of debt by keeping your spending in check. A budget is also significant because it enables you to build an emergency fund, which is discussed in step five.
Don’t know where to start with creating a budget? Check out this handy guide to learn how to create a budget that’s guaranteed to work.
Step 6: Boost your income.
You can slice and dice your budget to meet goals until you attain financial freedom. However, this approach can be dreadful and painful, to say the least. So instead of subjecting yourself to this form of deprivation, consider exploring ways to boost your income.
Look for side hustles and part-time jobs. You can also take advantage of any overtime offered by your employer. And if you have creative gifts and talents, put them to use to earn extra cash. But the trick is to take all the extra money you receive and apply it to your financial goals to make all your effort worthwhile.
Step 7: Build your emergency fund.
Do you really need an emergency fund? Unless you want to resort to a loan or credit card every time a financial emergency arises, it’s a must you put money aside for a rainy day. Otherwise, your debt load will continue to rise, and you’ll face ridiculous amounts of stress when life happens, and you have no reserves to fall back on.
But how do you go about building an emergency fund? You have two options: spend less on frivolous expenses or earn more.
Step 8: Devise a debt-management strategy.
Why pay a creditor or lender loads in interest when you don’t have to? That’s why it’s so essential to devise a debt-management strategy. While you probably won’t wipe out all your debt overnight, some progress is better than nothing. And you won’t spend a lifetime paying back those pesky student loan balances or credit cards.
The first step is to figure out how much cash you have each month to allocate towards your debt-payoff fund. Next, you’ll list all your debts, so you know exactly where you stand. Be sure to include the creditor’s name, outstanding balance, minimum payment, due date, and status of the account. (If any of your accounts are delinquent, get caught up before aggressively paying down any other debts).
Continue to make your monthly minimum payment on all your outstanding debts, but step it up a notch by selecting a debt-payoff strategy that works best for you and execute. There are two primary methods to choose from when paying down credit cards:
- Debt avalanche: attack the credit card or debt that’s costing you the most in interest first with proceeds from the debt-payoff fund
- Debt snowball: attacks the credit card with the lowest balance with proceeds from the debt-payoff fund
Some also use these strategies for installment debts or loans. But if you’d prefer to prioritize debts in some other fashion, that’s entirely up to you. What’s most important is that you stick to the plan so you can free up funds for other expenses that are more meaningful to you. And if possible, use any financial windfalls or unexpected influxes of cash to speed up the debt payoff process.
Step 9: Start repairing your credit.
Credit is another significant component of the financial freedom equation. It impacts financing terms your receive from lenders and creditors. Also, it can trigger higher auto insurance premiums, deposits from landlords and service providers, and prevent you from landing your dream job. So, it’s only right that you spend some time repairing your credit.
But where do you start? It’s best to understand how the contents of your credit report are used to compute your FICO score. And once you take a look at your credit report, you’ll know which areas are problematic and where to begin on your credit repair journey.
Quick note: the first step to repairing your credit is identifying errors or out-of-date information and filing disputes with Experian, Equifax, and TransUnion.
Considering a credit repair company to do the work for you? If they’re reputable, this may be the best course of action if you would prefer to let a professional take care of your report. But keep in mind that there’s nothing a credit repair company can do for you that you can’t do yourself, notes the Federal Trade Commission.
So, what’s most important is that you become credit literate and get to the root of the problem. Whether it’s overspending or lack of oversight, you won’t set yourself up for a perpetual cycle of failure.
Step 10: Invest in yourself.
If you haven’t started saving for retirement just yet, now’s the perfect time so you can allow the power of compounding interest to work in your favor.
Or maybe you’ve been holding off on purchasing life insurance? Reach out to a reputable insurance provider to see how they can help so your family won’t be left to pick up the financial pieces when you pass away.
Feeling stuck in an unfulfilling career that pays peanuts? Perhaps it’s time to start investing in yourself, so you can stop struggling to get by and start thriving in your finances and everyday life.
The Bottom Line
The journey to financial freedom may take some time, but your efforts will be well worth it. Best of all, you’ll finally be able to live the life you’ve always dreamed of.