Becoming financially free is all about taking ownership of your finances. You have a dependable cash flow that allows you to live the life you want. You aren’t worrying about how you’ll pay your bills or sudden expenses. And you aren’t burdened with a pile of debt.
Despite what you may have heard, money is necessary for long-term happiness and survival (if you live in a society where money is used and you don’t grow your own food).
This is obviously true because you need money to buy food, and without consistent access to food you will suffer greatly and die early.
To become completely and permanently free financially, your total non-employment income (which might come from investments, side hustles, a mix of both, or any other sources) exceeds your living expenses. You no longer have to work for a regular paycheck in order to maintain your lifestyle.
How To Be Financially Free
Whatever your financial freedom goals are, the steps presented here can help you achieve them.
1. Start With A Plan: You must have a plan
Write down how much you should have in your bank account, what the lifestyle entails, and at what age this should be achieved. The more specific your goals, the higher the likelihood of achieving them.
Becoming financially free isn’t a single goal, but a series of sub-goals.
This is because your financial life has several facets. In order to reach your overall goal of financial freedom, you’ll have to establish goals in the various areas of your financial aspects of life.
You should also state means of building extra means of income streams that will enable live above your expenses.
2. Stop Exchanging Time For Money
Bryan is a high school kid. He wants a bit of extra cash to buy a Nintendo Switch, go to the cinema (yes, really), and a few other things. At the weekend, he works in a local grocery store where he’s paid $10 an hour to stack shelves. If he works ten hours over the weekend, he walks away with $100. If he only works two hours, he gets a paltry $20.
Bryan’s situation is the most obvious example of trading time for money. He is literally selling an hour of his day for $10. If he sells more time, he gets paid more. If he doesn’t work, he gets absolutely nothing.
Bryan is obviously trading his time for money.
The Problems With Trading Time for Money
it should be pretty clear by now, there are some pretty big problems with trading time for money.
First, you’re relying on someone else’s good graces for your financial security. If Bryan’s boss doesn’t need him this weekend he won’t get paid.
How much limits are placed on your time, depends on your exact situation but there will always be some if you’re trading time for money.
Bryan gets $10 an hour stacking shelves, but he can’t do anything else with that hour or sell it on to anyone else.
You’re trapped in a constant cycle: you need money to live, so you sell some time to get it, but then that time is gone. If instead, you have a product like an eBook, you can sell it again and again and still get paid as much the hundredth time as the first amount.
3. Invest In Yourself
In hindsight, it’s obvious there have been better times to invest than others. But since no one knows what the future holds, you can’t know when that will be in the future.
Plan to invest no matter what the market is doing. but historically there has been no better way to grow your money than through investing.
The magic of compound interest will help it increase exponentially over time, but you need a lot of time to achieve meaningful growth.
Related: How To Boost Your Finance
Investing in yourself can also do with improving your talents, skills or even expanding your business to earn more money.
4. Live Beneath Your Means
Learning to live beneath your means is one of the central costs of learning how to become financially independent. And if you have not mastered this technique in the past, doing so will range anywhere from uncomfortable to downright painful.
If you’re currently struggling with your finances, there’ll be no easy way over this hurdle. You’ll probably have to cut out every expense in your budget that is not absolutely necessary, it even do what you can to reduce those that are.
It could include passing the annual family vacation, driving your car for years after paying off your car loan, living in your current home even though most of your neighbors traded up, and buying your clothing in thrift stores while everyone else you know shopping at the mall.
That’s just a shortlist of the sacrifices you’ll have to make. But in making them, you’ll be clearing money in your budget to build savings, get out of debt, and invest for the future.
5. Learn To Manage Money
Having a sound money management plan can be the light at the end of the tunnel for people trying to get their financial life in order.
If you are like me and have several bank accounts, credit cards, an IRA, and the like, oftentimes getting a grip and fully understanding your personal finance state might seem daunting and an uphill struggle.
But if you don’t take the proper steps to get organized and actually learn ways for better managing your finances, you’ll feel like you are swimming against the current.
Managing your money—like anything—takes time to understand and to improve on. And to master, it also takes commitment and a solid understanding of your financial situation. These are the first steps in effective money management.
Steps To Help You Manage Your Money The Right Way
- Create a budget
- Understand your expenses
- Understand your income
- Consolidate your debt
- Slash or remove unnecessary expenses
- Create an emergency fund
- Save 10 to 15 percent for retirement
- Use a tool or personal finance app
6. Save And Invest
Saving is a key principle. People who make a habit of saving regularly, even saving small amounts, are well on their way to success. It’s important to open a bank or credit union account so it will be simple and easy for you to save regularly.
Then, use your savings to plan for life events and to be ready for unplanned or emergency needs.
An easy way to save is to pay yourself first.
That means each pay period before you are tempted to spend money, commit to putting some in a savings account. See if you can arrange with your bank to automatically transfer a certain amount from your paycheck or your checking account to savings every month.
Actions You Can Take To Save
- Start saving, form a savings habit, and pay yourself first!
- Open and keep an account at a bank or credit union that meets your needs.
- Track your savings and investments, and monitor what you own
- Plan for short-term and long-term goals
- Build up emergency savings for unexpected events
- Consult with a qualified professional on investments and other key financial matters
- Save for retirement, children’s education, and other major items
7. Avoid Debts Unless it Is Use To Purchase Asset
No one tries to get into debt. It’s just one of those things that happen without your notice, or may even feel as if it’s out of your control.
There are many circumstances in which it’s appropriate to borrow money, so it’s worth keeping a few rules of thumb in mind when taking on debt.
There are distinctions to be made between “good debt” and “bad debt,” but the greatest impact of all may be whether you manage whatever you borrow effectively.
Using debts to acquire assets is good in the sense that it generates more income for which may be used to repay the loan and this is what the rich do with loans.