One of the most powerful concepts in existence.
So powerful, in fact, that a fledgling United States of America went to war with the most powerful empire on the planet (at the time) over it.
Simply uttering the word evokes images of independence, scrappiness, and defiance.
One form of freedom that isn’t discussed as much (but is talked about a little more with each passing day) is financial freedom.
Since money makes the world go round, many would argue that financial freedom is the ultimate form of freedom.
Chances are, you’ve thought about financial freedom once or twice. How nice it would be to never worry about money again…
Today, we’ll lay out the steps you need to take in order to be financially free.
But first, let’s define financial freedom.
What Exactly IS Financial Freedom?
If you ask five different people what they think financial freedom means, you’ll get five different answers. They’ll range anywhere from “not depending on your parents” to “being able to buy and do whatever I want”.
The first case is more of a basic standard for the modern adult; you aren’t financially free if you live on your own but never know if you’ll be able to make rent.
As for the other extreme, not many people will ever get there because that form of “financial freedom” requires a lot of money.
Probably tens of millions, with multiple millions coming in every year. That will get you almost anything you could want.
So since neither extremes work, let’s meet in the middle with the following definition:
Financial freedom is when money no longer becomes a worry.
In other words, someone who is financially free never has to worry about having enough money to make any upcoming payments. They have enough cash/assets to pay for any bill or emergency that comes their way.
No more crushing debt and no more paycheck-to-paycheck living.
Looking to put money worries out of your mind? Here are the steps you need to take in order to achieve financial freedom.
1. Define What Will Make You Financially Free
Most financial freedom advice has you start out with a budget, and they aren’t wrong on the budget part.
But before you even draw up your budget, you need to define a long-term monetary goal that aligns with your desired lifestyle.
Once you have your goal, you can make a plan to get there.
2. As With Any Grand Undertaking, A Plan
By plan, I mean budget.
Budgeting is hammered over and over in most personal finance circles.
That’s because budgeting brings about stupendous results when you make a realistic budget you can stick to.
It’s your first step away from being financially “blind” and towards building your wealth.
Budgeting has a few components to it, so let’s break each one down.
Where’s all your money going?
That’s a very important question to know the answer to if you at all desire financial freedom.
Yes, it’s a lot of work to track down every single dollar you spend in a month; however, this time investment will be worth it down the road when you never have to stress about money again.
You need an exact picture of each and every dollar: fixed expenses (such as rent/mortgage), out of pocket spending (like the sub sandwich you had for lunch yesterday), and even irregular expenses like car repairs.
Budgeting isn’t just about spending. That money you spend needs to come from somewhere.
To budget properly, you need to have a firm grasp on your income level. Income from jobs, businesses, and other assets should all be taken into account.
Once you have both income and expenses figured out, you can see exactly how much money you’re spending and what it’s going towards.
You can also see what you need to do to get back in the green (or increase your post-expense income if you’re already making more than you spend). That way you can finally quit the “paycheck-to-paycheck” lifestyle and start building up your wealth.
Now that your budget is set, it’s time to trim the fat.
3. Clean House
At this stage in the game, things can get tough.
Didn’t it feel good when you made your budget and saw all the ways you could save money and start building your bank account?
Well it’s time to put those plans into action.
Before you do anything, make sure you have a month or so of emergency expenses saved up. You aren’t ready to build a huge emergency fund, but you need SOMETHING at this stage.
Ok, do you have a small emergency fund now?
Time to get rid of that debt.
When you’re in debt, someone else holds claim to your paycheck. You can’t just drop the debt like you can with other expenses, so it’s time to roll back your sleeves and get to work paying it off.
In order to pay off your debt, you’ll have to follow your budget and cut your expenses.
This may require some serious reprioritization. It’ll be tough, but if financial freedom was easy to obtain, there wouldn’t be so many people living paycheck to paycheck!
4. Find Ways To Increase Your Income
With your expenses slashed and your debt gone, you jump for joy at the sight of your bank account slowly growing every month.
But you can only cut your expenses so far before your standard of living plummets. What’s the point of growing your wealth if you’re miserable the whole time?
Plus, you’re still not that close to financial freedom. A large enough emergency could set you back to 0.
If your expenses can’t go down, then there’s only one solution:
Increase your income!
There are a few ways to go about this.
Job-Related Ways To Increase Your Income
Within your current career, you have a couple of options when it comes to increasing your income.
Ask For A Raise
The most obvious way to increase your job pay is to ask for a raise.
If you’ve been putting in long hours of hard work at your job, it might be time for your boss to recognize that in the form of some extra money on your next (and subsequent) check.
The worst that can happen is hearing a “no”, while the best that can happen is you making a few hundred more every month! That money can add up.
You might want to change jobs for a few reasons:
- Inadequate pay
- Bad management
- Unfulfilling work
Each one of those could actually be impacting your finances.
A job that doesn’t pay you enough is self-explanatory.
Bad management might mean you aren’t being recognized for your contributions to the company, leaving raises, promotions, and bonuses on the table.
Unfulfilling work and stress both make you perform sub-optimally at work, which of course will not help you advance and increase your income.
Try Your Hand At Freelancing
Has anyone ever told you that you’re a great writer or programmer?
Both of those skills are in demand, but you don’t need to be employed at a 9-5 to monetize them.
Instead, try some freelancing work on the side!
Freelancing is great because there are essentially 0 start-up costs and you can start getting clients immediately if you already have a skill!
On top of that, you have more control of your income. Want to stuff a few thousand extra in the bank? Just pick up more clients!
Don’t have any monetizable skills? Spend an hour a day teaching yourself a new skill and within a month or two, you’ll be proficient enough to land paying clients!
Finding clients is easier than ever with a multitude of freelancing sites like Upwork and Freelancer. They don’t pay massive amounts, but they help you build up some freelance experience while still giving you a slight income boost.
If you find you enjoy your freelance work (and the other aspects of freelance life), you could one day turn it into your full-time career.
Start A Business
Similar to freelancing, you could start a side business. Said venture could be funded with the extra cash you freed up from cutting costs and eliminating debt.
Again, all it takes is an hour or two a day.
If you do it right, your side business can generate you near-automatic cash flow for you with very minimal work!
And if you do it right, your end result could be similar to freelancing; you could turn your business into your full-time gig.
5. Strategize Your Savings
With all the new money you have, you’re well on your way to financial freedom. Still, it’s crucial that you plan for emergencies and other unexpected events.
Some of that newfound cash should be stored away in an emergency savings account in case of an unexpected event, like a car accident, a storm, or a hospital bill.
This savings fund should be fairly large. A bare minimum of 6 months of living expenses will ensure that you can weather any emergency that comes your way and get back on track when it’s all over.
It sounds like a lot, but if you total your car or have an unexpected hospital stay, rest assured that you have tens of thousands of emergency dollars at your disposal.
You’ll also need a way to save up for large purchases in order to minimize any new debt.
Being able to make large expenditures without anticipating a large bill in the mail is liberating, to say the least.
Debt isn’t all that bad if you have a little bit of good debt (like for a house or business), but any sort of fun activities like buying new cars or going on vacations should be paid for in cash so you aren’t indebting yourself to anyone.
6. Assets That Appreciate
Now that your spending is down, your income is up, and you have a healthy bank account, you’re going to be feeling much more secure.
But don’t let your money sit in the bank making a paltry amount of interest!
You’ll want to conduct some research to discover the best appreciable assets to invest your earnings in.
All this means is you want to invest your money in things that will appreciate in value or pay you back in other ways such as cash flow.
For example, you might invest in real estate. The value of said real estate has the potential to increase, which then directly increases your net worth.
Also, if you invest in a rental property, you can make relatively passive income via rent from tenants.
Other appreciable assets include securitized assets like stocks. Stocks can increase in value over time. Some stocks will also pay you dividends based on how many shares you own.
Another great investment that will appreciate is investing in ETFs. ETFs are baskets of stocks that have been bundled together. We really like looking at ETFs that follow the S&P500 such as IVV or SPY.
7. And Finally… It Never Stops
Financial freedom may be a destination, but as with anything worth pursuing, a little bit of vigilance goes a long way.
Of course, once you no longer worry about money, life becomes more fun. You can pursue hobbies, interests, and fun activities without money on your mind all the time.
Still, you can’t get completely lazy.
You still need to budget.
You still need to make sure your emergency fund is properly stocked.
You’ll want to identify ways to invest your money for the best returns.
By following the steps laid out here, you can free yourself from financial worry and never again struggle to get by!