Financial freedom is one of those dreams many of us aspire to even if we’re not quite sure how to achieve it. The path is not always easy and we might each take a different route to finally get there eventually.
However, every journey begins with a few simple steps. There are entire shelves at your local bookstore stocked with “how-to” guides and advice from so-called experts who will tell you the best way to reach this monetary Shangri-La. But before you start reading endless chapters of dry finance-speak, you can start with these seven ideas that will put you on the right path to accomplishing your long-term goals for success.
1. Start Planning Now
You may be among the millions of people who are struggling to make ends meet and have decided to put off these lofty ambitions until you’re more financially stable. Congratulations, you’ve just identified the first hurdle towards success.
Many people make the mistake of putting off their aspirations to financial freedom because they don’t think they can afford to do it now. However, now is exactly the right time to put aside that kind of thinking and start making a plan.
Planning begins with establishing a budget for your monthly expenses. This will prevent you from overspending and allow you to put your money where it should be, back in your pocket. The budget should incorporate all of your necessary monthly expenses and allow you to allocate your spending according to the income you bring in. Some say that making minimum payments on your bills is a good place to start saving; it might pay down your balances slower, and you’ll still accrue a lot of interest, but it will also enable you to put a little bit of money aside every month for an emergency fund.
2. Pay Off Your Credit Cards
When you do an assessment of your financial situation, you may find that your credit cards are one of the biggest bills you have every month. Time to cut them up. You don’t want them anymore because you’re carrying major debt in the form of expenditures and high interest rates.
Our mail is filled with credit card promotions and enticing offers of low interest rates that go sky high after a year. The best way to avoid the burden is to pay with cash or a debit card from here on out. This will keep you from overspending because both instruments will only let you use the money you currently have available. You may also want to bank with a credit union, because credit unions sometimes offer better rates and fees on banking services than you might find at a traditional bank.
3. Consider Investment
It’s one thing to save a little money every month by putting it aside, it’s another to invest it. Find the right strategy for your current situation and make the decision to devote some of the money that you’re squirreling away into something that will actually let it grow. Employing smart investment plans will help you succeed quicker but you must understand that all investment comes with some form of risk. Talking to a financial adviser can help you mitigate those inherent risks and explain your options before you commit to a long-term plan.
4. Adjust Your Outlook
Life can be pretty tough sometimes and it can make even the most confident of us lose sight of our goals. Now is the time to promise yourself that things are about to change. Adjusting your attitude can be a very positive step towards finding financial freedom.
Making a plan isn’t just about your budgetary constraints — it’s about taking stock of yourself. Maybe you never really decided on a career but sort of fell into your current job. Maybe the job you have is the one you want but it’s not at the right company.
Look around you, what do you see? If you’re having trouble making ends meet, then maybe it’s time to reset. This sounds much easier than it actually is, but taking a more proactive approach to your own productivity will do wonders for your self-esteem and your financial freedom down the line.
5. Establish an Emergency Fund
Doing this will keep you from overspending on the unexpected things that might pop up out of nowhere. Car repairs, medical expenses, any other unforeseen emergencies can quickly eat away at your financial plan.
Putting aside a discretionary fund earmarked for these eventualities will help you manage your money more successfully. Be sure to clearly define what constitutes an emergency, because this money is not to be used for frivolous expenses — it is solely for dire necessity. Consider devoting somewhere between $500-$2000 to this fund.
6. Look to Your 401(k)
If your employer offers a 401(k), then use it to your advantage. Many companies will match the contributions you make up to a certain percentage. Make those payments to the fund to maximize the amount your employer gives you every month. This is free money, so take it. The more you contribute to your 401(k), the more it will grow. But be careful about taking anything out of it, because you could be charged penalties or taxes and that’s money you don’t want to sacrifice. It’s important to know the risks and the assessments that come with your 401(k), so if you’re not sure about them, simply ask.
7. Pay Down Your Debt
This is your most important step to financial freedom – eliminating your debt. You will never be fully free until that albatross is off your neck. This can be a more daunting task for some as they might have onerous student loans to pay off or high credit card bills.
Don’t worry, you can get this done. It might take some time, but you’ll get there if you are fully committed. Make an assessment of all your debt and the various interest rates and other penalties that are associated with them. Once you know what that looks like, you can start to figure out what to pay off first. It might start with you making minimum monthly payments, but do make them! You may want to devote higher payments to the smaller chunks of debt so they’re off your ledger quicker and you can then pay more on your other debts.
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