How You Can Achieve Financial Freedom in Five Easy Steps
You wake up one day in the dark and realize your home's electricity has been turned off. With only five years until retirement, you worry that your retirement fund will not finance your current lifestyle. Each paycheck lasts a few days, but you and your spouse struggle to buy everything your family needs. You see others in financial need but cannot afford to help them.
If these scenarios sound familiar, you may feel hopeless and helpless. You want to save money and live debt-free but do not know how to start. Talking to someone about financial issues feels embarrassing and awkward. Where do you turn for help? Enact the following five steps and move from financial bondage to financial freedom.
First, face reality instead of pretending your financial situation provides sufficiently for your needs. Most people struggle financially so you need not feel shame. However, you cannot reach out for a financially free future until you face the truth of your current financial situation. Freedom follows knowledge. Educate yourself and find financial freedom.
Begin a truthful financial analysis by listing assets and debts. Use a computer program or pen and paper to record accurate income for the month and exact expense amounts. Divide your expenses into major spending categories, such as housing, food, vehicle, and entertainment. If you are uncertain how much you spend, record every penny spent during one week and then multiply that amount by four to figure total monthly expense. With an accurate picture of your finances, you can make goals and begin to plan for financial freedom.
After you face reality, you discover your financial output exceeds your financial input. The next step to financial freedom increases your income. Ask for a raise at work or participate in training to qualify for higher paying positions in the company. You may already work two jobs to make ends meet. Decide if you qualify for a better paying job or take college classes to improve employment opportunities. If possible, take on a part-time job. Tutor, freelance, or seek employment in retail. Taking retail jobs can be embarrassing for college graduates, but the rewards of financial freedom make aesthetic sacrifices worthwhile.
Sell unused items to increase income. Look around your home and garage for extra household or furniture items. Find an antiques or jewelry appraiser for older pieces. After you receive payment for these items, remember your goal of financial freedom. Rather than spending this money foolishly on disposable items such as meals or clutter, save this money or use it to pay debt.
Simplistic in theory but difficult to implement, the third tip requires tough choices and steady discipline. If you cannot increase income, cut expenses. Your financial inventory plays a role in your spending decisions. Begin by examining each spending category. Consider downsizing your home by moving into a more affordable neighborhood. Line by line, examine each utility bill; and cut unnecessary or excessive services. Ask yourself if you really need 200 television channels, unlimited cell phone and landline service, or a housekeeper. Check bills for unauthorized charges. Every year, compare prices for home, auto, and medical insurance.
In addition to large changes, make small changes in your daily routines. Decide which purchases you can live without, such as designer coffee and jeans. Lower transportation costs by walking, riding your bicycle, or carpooling to work. Pack lunches and limit take-out meals. Save on replacement costs by maintaining your home, vehicles, clothing, and major appliances you currently own. Barter car repair, home maintenance, and childcare services with friends instead of hiring professionals. Seek counseling to deal with chronic spending habits. With your financial freedom in mind, you quickly evaluate purchases based on your goal and avoid unnecessary spending opportunities.
Enlist your family's help in saving money. Share your goal of financial freedom and ask for advice regarding which expenses to cut. Train each family member to conserve electricity and water. Agree to a weekly game night instead of attending the movie theater. Work as a team to implement saving strategies, and grow closer emotionally as a family while maintaining a steady pace toward financial freedom.
Fourth, save an emergency fund. When faced with unpaid bills, a savings account seems unattainable. An emergency fund, however, provides a buffer for true financial emergencies. This fund pays for unexpected necessities like replacing broken appliances or traveling to a funeral. Additionally, emergency funds provide income in the event of employment layoff or medical leave. Individuals face the temptation to use this fund for debt repayment or to pay bills, but plan for the future by saving at least 6 to twelve months in an accessible emergency fund.
Finally, pay off debt. Record each debtor, outstanding balance, and interest rate to determine exactly how much debt you owe. Include your home mortgage, car loans, credit cards, and other consumer debts. Paying the minimum due on all loans will keep you in debt indefinitely as interest charges mount. Aim to pay off each loan by employing the snowball effect. Continue to pay the minimum due on each loan every month. Allocate extra money every month to repay the smallest loan until that loan's balance reaches zero. Now apply that entire repayment amount toward the new smallest loan, and continue until all debts earn a zero balance. With no debt, you successfully race down the path toward financial freedom.
Staying out of debt accompanies debt repayment. Agree with your partner, if applicable, to remain debt-free by avoiding purchases for which you cannot pay cash and maintaining an emergency fund. Self-discipline and perseverance to stay debt-free reward you with financial freedom.
Our economy currently suffers from lack of discipline and overspending. Personal debt traps individuals and keeps them in bondage to their possessions. Break free from society's spending trend, and take control of your money. With a few adjustments to your spending plan, you can secure your future and achieve financial freedom in five easy steps.