Financial independence is about having enough income or wealth to cater to your needs without assistance.
For a lot of people, reaching financial independence is a major milestone that can be exciting. That’s considering the many opportunities that it opens up.
Note that financial freedom inevitably looks different for everyone. As a result, the steps to achieving it may also vary. But despite the different approaches, there are some common strategies such as having a budget.
Keep in mind that the path to financial independence is not a get-rich-quick strategy. Neither does financial freedom mean that you are “free” of the responsibility of handling money in the right way. Having control over your finances is a result of hard work and sacrifices.
A Guide to Achieving Financial Independence
Achieving your dream of financial independence is like a holy grail of financial goals. After all, the ability to not work for the money you live on is very enticing.
The path to financial independence, however, is not glamorous. You need to work hard and stay dedicated to making steady progress towards the ultimate goal.
Let’s take a look at some of the steps that you can set in place to achieve financial freedom.
1. Learn How to Budget
There’s no getting ahead if you don’t have a plan for your money. Failure to have a budget will have you wondering where your money went every month. That’s not financial independence but a recipe for disaster.
Living on a budget will have you telling your money where to go. So give every dollar an assignment before the month begins and only make adjustments when necessary.
Budgeting is necessary as it will help you get your finances on the right track, though it doesn’t end there. That’s because you will need to complete a unique budget every month, even after achieving financial freedom.
But the bottom line is that no matter how much money you have, you need to have a plan on how to spend it. Just like no one wins a championship game by accident, you won’t get to have financial freedom by accident as well.
Budgeting is the first step to achieving financial independence. So start budgeting with confidence, take control of your money, and be religious about it.
2. Track Your Spending
It’s important to understand the ways and reasons for your spending and do your best to keep the expenses low. We recommend using investment tracking apps that can automatically calculate your monthly budget and categories of spending.
There are countless options available when it comes to special software that can track your finances. From wealth tracking apps to multi-currency wealth trackers. Portfolio management is one of the features offered by investment trackers to make your work easier.
You can choose to use a wealth tracker app as they have a net worth calculator. This software allows you to link, sync, and monitor your multiple assets and liabilities. This wealth tracker has the ability to track your stock portfolio, property, and car valuations. It can also monitor multiple bank accounts, loans, credit cards, and so much more.
If you don’t want to install an investment tracker you can use your credit card history. Your bank will enable you to see the diagrams of your spending divided into various categories. This can include insurance, healthcare, utilities, and food.
3. Get Debt Out of Your Life
It’s time to kick out that car loan, the student loan, and credit card loans. This is important because you’ll never experience financial freedom for as long as you’re spending hundreds of dollars on debt payments every month.
Remember that your income is the most powerful wealth-building tool that you have. That’s why you won’t achieve financial freedom if what you have to work with are the leftover bits and pieces after paying credit card bills and loans.
Paying off your debts will enable you to lay a foundation in building lasting wealth. Make sure that you set aside some money for emergencies before you start tackling your debt. This will reduce the chances of unexpected expenses derailing your progress.
A lot of people start feeling like they got a raise when they start budgeting, which is good. So you throw all the extra cash at the smallest debt until it’s gone, and keep the snowball rolling. Paying off that can be difficult. However, there’s nothing like the feeling of keeping all the money you bring in every month.
4. Start Saving
You must set realistic but ambitious goals if you want to become financially independent as fast as possible. The best way to make sufficient savings is to ensure that you make it a healthy habit.
If you use cash for your daily spending, for instance, you can put into the money box the particular amount that equals the amount you spent on buying a particular item. If you buy a dress worth $20, ensure that you put the equivalent amount into the money box on the same day.
The other option is to set an automatic savings option if you use credit cards. This will enable you to deposit a particular amount to a separate account monthly.
5. Set Financial Goals
We all have financial goals that we dream of achieving. But a dream without a goal is just that, a dream! That’s why setting financial goals, just like getting out of debt is important. The strategy gives you something to work towards.
Here is how to set effective financial goals:
- Be specific
- Ensure your goals are measurable
- Set a deadline
- Put your goals in writing
Let’s take an example of you getting out of debt, which is a good goal to have. It is, however, not enough. How much debt do you want to pay off and when do you want to become debt-free? That’s a plan that will get you somewhere. The goal is specific, measurable, and with the deadline.
6. Live Below Your Means
This actually means that you live on less than you make, which goes along with having a budget. Thus, you must have the discipline and the willingness to say no to some stuff, if you want to reach financial freedom.
We are not saying that it’s bad to want to have nice things. We are saying that we don’t want your stuff to have you. You shouldn’t buy that car or that house with the money that you don’t even have just to impress people who don’t even care. These kinds of actions will have you getting caught up in a vicious cycle of debt and overspending.
Furthermore, living below your means will have a ripple effect on your financial capabilities. This means that you will have extra money to pay off your debts and to save for emergencies.
If you really want something and have the means to buy it, then go for it. If not, then save up for it. Don’t go swiping up your credit card for a bag just because you like it. Piling up debts is not exactly the way to financial freedom, is it?
Conclusion
Keep in mind that the steps discussed here will not solve all your money-related problems. But they will help you to develop habits that can get you on the path to financial freedom.
Simply making a plan with specific target amounts and a timeframe will reinforce your resolve to reach your financial goals. Once you start making real progress, the promise of a good retirement plan kicks in as a powerful motivator. Then you can be sure that financial freedom is in sight.
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