There is almost no individual in the world who doesn’t look forward to attaining a level of financial freedom. We all want to have enough in our savings to see us through difficult times.
We all want to have profitable investments and cash to service the kind of lifestyle we want.
It is what drives us through our daily activities. But if there are a lot of people trying to attain financial freedom, why are very few of us actually accomplishing it? It’s usually because many do not know how to go about it properly.
We think it’s about making a lot of money when it is, in fact, a matter of having your money make more money for you. In this article, we’ll show you how you can successfully navigate your finances until you reach financial freedom.
1. Have A Life Plan
It is not enough to say you want to be rich or financially free. We all want to be financially free. We all want to reach that level where we control our finances and not the other way around.
But that’s not a plan. That’s wishful thinking, or merely hoping luck shines on us. Sure, some become rich through luck, but how many? And how sustainable can wealth attained through luck be? It explains why many jackpot winners go broke not long after winning.
You must have a plan. Your plan must be written out somewhere you can access regularly and appraise frequently. How much do you think you must have in your savings account at every point in time? Write it down. What kind of lifestyle are you reaching for? When do you think you should achieve these objectives? Write them all out.
Your objectives must not be too low hanging, but they must not be unrealistic either. The more specific you can make them, the higher the chances of reaching your goals. Establish milestones and note them as you reach each one.
2. Be Smart About Your Career Journey
Your income is arguably your most important tool for building wealth. Thus, the issue of choosing which career to be involved in is one with plenty of things at stake. A dead-end job helps no one, so there’s no point staying stuck there. It’ll only make you miserable. Find a career path you’ll not only enjoy but also one that will be active behind you in your journey towards financial freedom. It makes the journey enjoyable and with fewer hassles.
These are just some of the things you should look out for when choosing a career with financial freedom in mind:
- Your life goals. Where would you want to be in a decade? Begin with the end in your mind. How much sense does it make when you examine your job with your overall goals?
- What is the income-earning potential of the job like? This is not about earning your dream salary right from the start, but ensure opportunities are abundant for your income to grow, just as your value increases.
- How much can you grow? Are there growth opportunities available in the organization for you to quickly move up and achieve personal and professional growth?
- Is the work enjoyable? You should not be looking to spend a career working a job you absolutely hate. Look for something you have passion for. Something that frees you up to utilize your talents and skills.
What are the benefits involved? Do these benefits align with and back your aims of financial freedom? The options you have available for retirement plans, as well as health insurance, has the potential to affect your ability to grow wealth dramatically.
Take your choice of career seriously; it does have the potential to affect your long-term financial objectives significantly.
3. Have and Keep to A Budget
A monthly spending plan which would be reviewed from time to time is crucial on the journey to financial freedom. It is like setting certain boundaries to keep your spending from flowing overboard and out of hand.
A budget, when it is strictly adhered to, helps to enforce your objectives and strengthens your will to keep from falling into the snare of lavish and reckless spending.
Undisciplined spending is one of the barriers standing between you and financial freedom. A budget helps to keep you on a leash and out of the clutches of credit card excesses and high-interest loans.
It is difficult to get ahead without having a budgetary plan for your money. If this happens, you’ll likely find yourself having no idea where all your money goes at the end of each month! That is not financial independence—that is rather a bubbling recipe for financial disaster.
If you have a spouse, an agreement is important. On the issue of budget, you both must be on the same page if your goals will be established. If you don’t have a spouse, look for a viable accountability partner who can help keep tabs on you.
You can’t build wealth living, spending each dollar as they come. Budgeting is like naming every dollar before the month begins, to help you keep tabs on your spending for the month. If you continuously go over or beyond in certain areas, you can always tweak the figures in each particular category.
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4. Take Care of Your Debts While Balancing Your Dues
Loans with low-interest rates like mortgages and student loans are not hazardous to your financial freedom goals. Credit cards, on the other hand, are a different thing entirely. A credit card in the hands of an undisciplined spender is a disaster waiting to happen.
You can quickly accrue high-interest debts running into thousands of dollars if you’re not careful. This could result in a situation where you’ll find yourself trying to pay off debts for years, instead of attaining financial freedom.
You must be careful with these loans and make sure you don’t box yourself into a tight corner financially. You might find it difficult to remove yourself from such situations. Keep the loans limited to a few important ones and draw up detailed plans to service them without losing track of your financial goals adequately.
Remember, a life of financial freedom isn’t attainable if you always have a cloud of debt hanging over you.
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5. Savings is Key in The Short-Term
Every financial expert in the world has a standard recommendation for anyone trying to attain financial independence: pay yourself first.
Imagine you found yourself in a situation where you had to take money out of your investment when the A/C unit in your home became faulty and needed to be replaced with a new one? Or what about a situation where you lost your job and had to open a credit card to pay for groceries?
How do you ever hope to forge ahead in life if all you do is keep borrowing from your future?
Trust me that would be quite difficult.
Suppose your objective is to be financially free. In that case, you will require a sort of buffer to take care of the life events that often surface in our lives without warning, such as broken appliances, car repairs, as well as medical deductibles.
This is certainly an argument for you to work on your emergency fund to be able to cover at least three to six months of expenses the moment you are debt-free.
If you are employed, it’s essential to get yourself into your employer’s retirement program and try to milk every available benefit attached to it. Another beneficial idea is that you create a sort of automatic deposit from your employer into what will be your emergency fund for expenditures that may come without warning.
You could also decide to channel some of your income into an Individual Retirement Account handled by a verified brokerage.
A quick advice to save more….
If you aren’t taking on debt, you’ll also require a savings plan for huge expenditures that don’t quite qualify as emergencies. Take your annual summer vacation as a great example. It is rather simple!
Create a special item in your budget. Divide the overall amount by the number of months you need to save. You’re no longer in debt, and that means you’re allowed to enjoy your summer without a credit card bill tailing you home.
A fully-funded emergency account as well as a plan for huge expenditures in place, you now have the financial muscles required to delve into investments.
While the ideal percentage of your income to be saved is still a source of debate amongst financial experts, savings, though short-term oriented, remain a crucial part of the journey towards financial independence.
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6. Know Your Investment Options, Then Invest!
With a proper short-term savings plan now available and fully funded, you’re now set for a partnership with a credible investment advisor who can guide you through the process of investing on a long-term basis.
Here is the good news, the quicker you can begin to invest, the more time it leaves for your money to grow. That is how compound interest works, and that is its strength.
Here are some of the options available to you:
1) Retirement Savings
We already touched on retirement savings earlier. As we said, it is important to take full advantage of every benefit that comes with the retirement plans available to you at your place of work. Your financial advisor will help you with certain decisions like whether to choose a 403(b) or a 401(k), just how much should you put into your investment etc.
Remember if your employer is offering to match the contributions you make to your 401(k), do not reject free money. Take it.
Some employers provide access to a Roth 401(k), stocked with considerate mutual funds, that’s great if you have it. You could put in 15% there. If what you have is a more traditional 401(k), invest there.
Put the remnants of your 15% into a Roth IRA. Roth is a good idea because a Roth IRA or 401(k) investment grows without tax. You won’t have to pay taxes when you withdraw your money.
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2) College Savings
If you’re in a situation where you’re already channeling 15% of the money you earn into retirement, and you would like to begin to save for the kids’ college fund, start by investing in what is called an Education Savings Account (ESA).
Funds invested into an ESA can grow tax-free, just like Roth IRA. At the moment, you are allowed to save up to $2,000 every year per child in an ESA. Of course, income limits often apply. Your financial advisor can assist you in checking if they would affect you.
To save beyond an ESA, consider discussing with your financial pro about a “529 plan”. They also grow without tax! But know that certain 529 plans like fixed investment options and prepaid tuition plans are potentially harmful and should be avoided.
The best thing in saving towards your kids’ college education is that in ensuring they don’t become hooked by student debt; you’re placing them on the path towards financial freedom too!
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3) Real Estate Investments
Ideally, your home should be included in your plans towards financial freedom, not being a drawback from it. Thus, you must make careful choices on the kind of house to buy and your financing plan for it. Buying a home that can be considered a good investment, will only continue to increase in value, even as time passes.
Attack your mortgage payment with fierce vengeance. The point where you successfully pay off your mortgage is a significant milestone in your financial freedom journey. As you’re putting in 15% of your total income into your retirement plan, any extra income coming to you must be used to service your mortgage.
If your house hasn’t been paid for, you should not even think about becoming an owner of rental properties. Even after your mortgage payment is complete, rental properties are fields you should venture into only if you know you can spare cash to pay for properties and deal with the issues in the rental industry.
We recommend you read our guide about how to get started with real estate investing.
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4) Taxable Investments
After your house has been paid for, you can then contribute up to, or more than 15% of what you earn to investments. But if you want to delve into taxable investing, be sure to take full advantage of all the tax-free accounts available to you—especially in your workplace, like IRAs and 401(k).
You should sit with your financial advisor and have them choose significant growth stock mutual funds. It should have a long history of performing at an above-average level, at the very least.
Investing outside of tax-free retirement plans means you have to pay taxes on not just the money you invest, but also on qualified dividends and capital gains. That said, selecting mutual funds that come with a low turnover rate can assist in reducing the tax impact considerably.
Conclusion
Financial freedom isn’t just about being able to handle unexpected emergencies—like replacing home appliances—without much fuss. Financial freedom really sets in on you when you realize you can meet the needs of others.
When you assist a struggling family in financing their car repair without any damage to your finances, then it’s no longer just about you, it’s about the legacy you’re leaving. Financial independence is worth every effort you put into it, so don’t slack. You can do this!
