Do you ever feel stuck in a rut, working the same job every day for what seems like pennies?
You’re not alone.
Millions of people are struggling to make ends meet, but you don’t have to be one of them. Financial freedom is possible, but you’ll need to achieve it step by step.
The good news is that everyone can follow these steps. Although each person starts out at a different point, everyone can make progress toward becoming financially free.
With a little effort and discipline, you can create a brighter financial future for yourself and your loved ones. So what are you waiting for? Let’s get started.
Steps To Achieve Financial Freedom
What Is Financial Freedom?
Financial freedom means having control over your finances, so you do not have to worry about money anymore. As you are able to cover your monthly expenses, you’ll no longer stress over how to pay your bills or if you can afford to retire. It also means you have enough money saved to live comfortably without having to work.
Put another way, it’s the peace of mind that comes with knowing that you’re in control of your financial future and can do whatever you want with your money.
You might also hear financial freedom called financial independence or the FIRE (Financial Independence Retire Early) movement.
Now that you know what financial freedom means, here are the steps to getting there.
#1. Evaluate Your Goals
Figuring out what you want for your financial situation will give you the focus and drive you need to reach financial freedom.
Everyone should manage their personal finance goals, not just aspiring millionaires. All the money you earn from striving toward financial freedom will one day go towards living a much more prosperous life.
So sit down and write down your goals. Then create a plan to reach them. Be sure to re-evaluate your goals every few years as plans and life can change.
#2. Track Your Spending
Consider your annual income, living expenses, and your current financial cushion in your emergency savings. Examine how much net money you can save and how many “want” purchases (as opposed to “need”) you make each month. Evaluate how much income you have that doesn’t go towards paying off debt and how much you spend across various categories.
To get further down the road to financial freedom, you must track your monthly earnings and expenditure. Do you spend frivolously? Are you building tangible wealth?
When you total up how much of your income you choose to spend and how much you save, the biggest surprise may be that you have much less money in savings than you realized.
Suppose you want to have enough money in your bank account to achieve financial freedom. In that case, you’ll need to keep tabs on how much of your money is going out the door monthly in monthly expenses.
#3. Make a Budget
A budget is a crucial tool that will help you achieve financial freedom in the long run. Many wealthy people have built sustainable, financially independent lives by putting away enough money each month into savings.
Building a budget isn’t complicated either. The hard part is finding the right budgeting method for you. You could use a zero-based budgeting system or the 50/30/20 rule depending on your goals, needs, and income.
There are multiple benefits to designing a budget that works right for you. Not only will you be smarter with your spending, you will also be able to dig yourself out of debt and save more money in the long run.
In your budget, you should set aside money each month for an emergency fund. Life throws us surprises sometimes. Being ready for them will help you stay steady in achieving financial freedom.
#4. Live Below Your Means
Living below your means can be challenging. But if you want financial freedom, evaluating your spending and cutting out unnecessary expenses is essential.
The main reason for this is lifestyle creep. As we earn more, we naturally spend more money. We also tend to ignore small price increases that, over time, have a significant impact on our finances.
According to Lori Bodenhamer, a financial advisor at AbundoWealth, “Being mindful of your spending helps bring awareness to your values and what matters to you most. But at the extreme, it’s possible to make saving money too much of a priority and lose sight of what makes a good life. The goal is to find that balance.”
Take the effort to review your spending and find areas where you can cut back and still enjoy living for today.
#5. Pay off Credit Card Debt
Debt is one of the biggest roadblocks to financial freedom. Believe it or not, becoming debt-free does not simply mean getting more money.
The “debt snowball method” is one popular method where you lay out all your cards and loans ranging from the smallest to the biggest debt.
Pay off the smallest debt first to build momentum so that you can put more money into the larger debts. Not only do you get the satisfaction of paying off a debt, but you also have more money to pay off your larger outstanding debts.
The “debt avalanche method” also effectively helps you to pay off debt. First, pay off your highest interest rate debts and work down the list to your lowest interest rate debts.
By applying more money to the debt with the highest interest, you can ensure that your money is paying off the debt, not the interest buildup on the debt.
Student loan debt typically has a low-interest rate. However, you should still ensure you meet at least the minimum monthly payment.
The road to financial freedom can be challenging, especially if you have tens of thousands of dollars in debt. However, paying off your credit cards and loans is crucial to reaching financial independence.
#6. Pay Yourself First
You’re probably familiar with the idea of paying yourself first, but to many people, it may seem counterintuitive. After all, why would you pay yourself when there are still outstanding bills to pay? Well, because it forces you to save money to protect you from unplanned expenses. Suppose you don’t put any money aside and your HVAC (heating, ventilation, and air conditioning) unit breaks. You are going into debt without any savings to purchase a new one.
Now suppose you put something aside from every paycheck. When a surprise bill comes up, you have the cash to pay for it and don’t go farther away from your goals.
Saving first also goes a long way towards building your nest egg so you can be financially free. It essentially guarantees that you always have money in savings for your future goals.
Finally, don’t get caught up on the amount you can save. The important thing is that you are making saving money a habit, according to Nick Covyeau, Certified Financial Planner and Founder of Swell Financial.
“Even if it’s just a little in the beginning, what’s happening when you make this shift, is all behavioral finance related. You’re conditioning yourself to begin saving and prioritizing your finances. It’s why 401k plans upon starting a new job enroll you automatically rather than having you choose to. If they left it up to you to enroll, most people would never get around to it. Then over time, you gradually give yourself a “raise” and pay yourself more.”
#7. Start Investing
Many people who achieve financial freedom start by building wealth through investing at a young age. There’s a lot of negativity directed toward the stock market, but there are many ways to build enough wealth to live a rich life when you retire.
Compound interest is the key to building wealth. Don’t stock pick. Set up an online account and put money into a balanced fund. Your money is likely to double over ten years.
It’s the accepted wisdom of those who’ve earned their wealth over the years. High yield bonds and index funds compounded over decades can help you build enough wealth to be financially free.
#8. Take Care of Your Assets
Your assets are critical to maintaining your wealth and preparing for your future. Your home, for example, should stay well maintained and in good condition. Not only will this save you loads of money in repairs and maintenance, but you’ll be able to build up your retirement savings and protect yourself from unexpected bills.
Your health is another often forgotten asset you should maintain. Poor diet and lifestyle choices can signal expensive medical bills years or even decades down the line. These are manageable habits you can start implementing today to live life to the fullest and save money in the long run.
Jay Rishel, CFP®️ of Overman Capital Management, puts it this way. “I highly encourage individuals seeking financial freedom to focus time and energy on improving their nutrition, exercise, sleep, and stress reduction activities. Healthcare is one of our most significant expenses in retirement, if not the most. A healthier lifestyle can lead to fewer healthcare costs in the future, and you’re also likely to feel mentally and physically better as you age.”
#9. Automate Your Savings
Automating your savings can help you fill significant gaps between how much you make and how much you spend. Put money in your savings account regularly, particularly your emergency fund, which you can use for sudden major expenses.
Ensure you’re utilizing matching contributions in your employer’s retirement plan to prepare for your future. If you struggle with overspending, setting up your emergency and retirement planning funds to come straight out of your paycheck is best.
That way, you’re not tempted to take out unnecessary spending. The amount you can and should put into your emergency fund varies. It’s essential to pay off your debts and monthly expenses. If you refer to your monthly spending chart, you’ll probably be able to find one area where you can cut back.
#10. Start a Side Hustle
Side gigs are a great way to supplement your income regardless of living paycheck to paycheck. If you enjoy social media, consider starting a blog, podcast, or YouTube channel.
You can deliver food, dog sit, rent home space, tutor online, or participate in various research studies. The resources available to you to make money are astounding. Moreover, you can access countless resources to help you find and keep a good side gig.
Most jobs have flexible hours, decent pay, and the possibility of turning your side gig into a full-time business. Why spend precious years working a 9-5 when you could potentially have a flexible, fully paid side hustle that turns into a larger income?
On its own, a side hustle can majorly impact your finances. If you are getting by financially, adding the income from a side hustle can help you eliminate debt more quickly or boost your savings.
And if you are struggling to get by, having a side income can be the difference between staying stuck in your current life and experiencing a better one.
#11. Calculate Your Net Worth
Knowing your net worth is an excellent measure of your progress during this long journey. As an added benefit, it is easy to calculate.
Total up the things you own, your assets, and subtract your liabilities, the money you owe others. The ending number is your net worth, and the higher it is, the better.
Calculate this number today, and then update it at least annually to make sure you are moving forward. However, a lousy year for the stock market can be misleading, making it appear like you aren’t making any progress.
But the reality is that you are making great strides. So be sure to keep this in mind the next time you calculate your net worth.
#12. Test Out Your Plan
Any plan can look great on paper. You only notice its flaws when you take action on that plan.
Give it a try. See if you can take a sabbatical from work. Doing this will help you to see if you enjoy not working. It may give you better insight into what you want to do.
Another benefit is that you will feel what it is like to have little to no income and how that impacts your spending. When you return to work, you can apply these lessons to your plan and make the necessary adjustments.
Financial freedom can feel so far away, especially if you’re bogged down with a lot of debt and don’t feel like you’re earning enough to be stable. However, financial freedom comes one step at a time.
Start evaluating your future life. Do you want to clear all of your debts? Build your own business? Retire comfortably? Whatever your goal, financial freedom is achievable with discipline and hard work.
Evaluate your spending, pay yourself first, and put away money each month into savings and your emergency fund.
Invest your money wisely, relying on the principle of compound interest to prepare for your future so that you can retire with enough money.
Take care of your assets and your health to save money on future bills and maintenance expenses, which can impair your journey to financial freedom.
Set up a side gig to help you cover regular expenses and potentially earn additional income for savings.
Lastly, test out your plan to make sure the life you envision is a life you will enjoy living.
This article originally appeared on Wealth of Geeks.
Jon is the founder of MoneySmartGuides which helps people dig out of debt and start building wealth so they can achieve their dreams. He has over 15 years experience in the financial services industry and 20 years investing in the stock market. He has both his undergraduate and graduate degrees in Finance, and is FINRA Series 65 licensed and has a Certificate in Financial Planning.