Financial freedom has a different meaning for different people. Even though there are many different definitions of this term, there’s a common meaning to it.
Financial freedom means you have enough investments, cash and savings to sustain yourself without borrowing or worrying about loans and debt.
It’s not about being rich; instead, it’s about being financially sound enough to take care of one’s day to day expenses and requirements.
Attaining financial freedom is a goal for many people. Even though it might seem like an arduous task to people currently bogged down with several loans and debt, it’s just a matter of time, financial planning and balancing that will help bring things back on track.
What are the steps required to achieve financial freedom?
Understand your position
It is crucial to understand your current financial position. There’s no way you can become financially free unless and until you are aware of your starting point. Make a list of your debts from various organizations and private sources(if any), which will help you understand the total amount of money you owe. Take a count of all your savings and income, which will help you understand your ability to pay off your debts and still have savings.
Set up goals
Since you have already figured out your current financial position, it is vital to understand your goals. The ideal financial position you would like to see yourself in, the amount of money you would like to have in your bank accounts, the lifestyle you would like to lead; are a few questions that need to be answered before moving further. Once these goals are set and written down, it will become easier for one to achieve them.
Look at your situation positively
Even if you have vast amounts of debt, it is essential to see your situation positively. There’s always a way out of debts, things are to be taken one at a time.
Make a budget
A budget will help allocate your funds effectively, keep track of expenses and save accordingly. Having a budget helps in warding off the temptation of spending off money on unnecessary things.
Get rid of your debts
Debt is the most significant impediment to financial independence. Credit card interest is the worst kind of debt, and it is important to clear out the credit card dues every month; this helps save oneself from the incessant interest charged on the same. Loans other than tax-saving loans like home and educational loans, it is preferable to stay debt-free. Pay up your loans as soon as you have a lump sum amount of money; that will help keep yourself less burdened and have a good credit score.
Invest
Start investing early in a structured and planned manner. It is important to start investing early since compounding will eventually be helping in increasing your monetary balance. It will be better to invest using a goal-based approach, which will help in meaningful financial growth and help in achieving financial freedom. Rather than going for short-term gains, it is advised to follow a steady growth approach by sticking to the goal since that will help in easily attaining financial freedom.
Prepare yourself for risks and uncertainties
The current environment is such that it can catch you off guard at any time. You must be ready to deal with such events. Even though you won’t have to worry about your income after you’ve achieved financial independence, having an emergency fund on hand is still necessary.
Contingency Fund
This fund is created to cover unexpected or urgent needs. Assuming you’ve already determined your monthly budget and set aside a particular amount for savings. A contingency reserve of three to six months’ worth of spending should be set aside. This assures that in the event of an emergency, you will not have to use your savings.
Medical Insurance
Healthcare expenses are increasing day by day. If you don’t have medical insurance, a medical emergency can act as a huge setback to your goal of being financially independent. To ensure that your money is not being wasted on medical expenses, it’s advisable to take medical insurance.
Keep yourself updated
It is essential to keep oneself educated and updated about the changes in tax laws to ensure that all gains are maximized and deductions reduced. It’s important to stay updated with the latest financial news and developments in the stock market, and portfolio optimized accordingly.
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Save more, spend less
It’s better to live below your means rather than spending everything upfront and regretting the same later. Spending less helps add up to your financial freedom and teaches you to lead a life with only the kinds of stuff you need and keeps the unnecessary utilities away from your life.
Get a financial advisor
Attaining your financial freedom is easier said than done, so it’s necessary to appoint a financial advisor who can help in strengthening your financial base and further help attain financial freedom.
Create sources of Income
It is important to have various passive income sources, which can help in achieving financial independence even if the active source is cut off. It is advisable not to depend on one source of income but rather have multiple sources of income such that it is easier to pool in cash as and when required.
Final Thoughts
Following the steps mentioned above will help you build a habit that will eventually help in being financially free. Financial Freedom may assist you in gaining control over your finances and, more significantly, your life. It’s all about living within your means, being a little thrifty, and ensuring that money is spent on things you genuinely require, such as food, housing, and, yes, vacations. So take a look at your money, create other sources of income, pay off that debt, and you’ll be debt-free in no time.
