What is financial freedom? Financial freedom is having the liberty to make choices in life without having the stress of affordability. It is about generating enough, saving enough, and investing enough money to live comfortably. With financial freedom, you will get the feeling of control over your finances.2
Everybody’s definition of financial freedom is different because it’s personal. One person might want to have the freedom to take a trip every year, and another person might want to have to freedom to retire early. 2
That being said, here are a couple of tips to start your own journey to financial freedom:
Set your goals
Make specific goals because the more specific your goals, the more likely you are going to achieve them. “Financial freedom” as a goal is too vague, so write down what the kind of lifestyle you want and how you can achieve that lifestyle1 For example, “I want to pay off your student loan debt by the age of 35”, or “I want to be earning $80,000 annually by 2023”.
Make a Budget
Making a monthly budget will not only allow you to pay your bills on time but also maximize your savings.1 A budget will allow you to be aware of your expenses and eliminate unnecessary expenses. For example, if you spent $200 a month on eating out, then you could cut that down to $100 a month.
Here are some budgeting methods6:
- Line-Item Budget. It’s your “typical” budget. Open up a spreadsheet and list out your expenses. The goal of the line-item budgets is to keep track of your expenses so you don’t overspend.
- 50/30/20 Budget. This method divides your earning into three categories: (1)Needs (2)Wants and (3)Savings. You then allocate 50% of your monthly income into needs, 30% into wants, and 20% into savings.
- Envelope Budget. Every month you will take out a set amount of cash and divide it into budget categories. For example, you can have a “drinks” category, “movies” category, or “restaurant” category. You are then only allowed to spend the money you’ve taken out. Once an envelope is empty, then you are either done spending in that category, or you will have to take cash from another envelope.
- Zero-Sum Budget. This means you will assign a job to each dollar you earn, leaving you with zero dollars left to spend. You will have your non–negotiable “jobs” such as rent, insurance, groceries, and student loan payments. With what is left over, you will have “jobs” such as retirement savings, emergency funds, dining out, Netflix, and Spotify. Try to be as specific as possible with the jobs so you aren’t tempted to carelessly spend.
Learn to Save
Enrolling in automatic savings, such as your employer’s retirement plan, is a good way to save. Usually, the money would be directly pulled from your paycheck and placed into a separate bank account.1 With the help of your budget and the elimination of unnecessary expenses, you can increase your savings. Once you have a healthy savings account, you’ll be able to be more flexible with your budget.2
Other ways to save are to cut down on groceries, cancel automatic subscriptions (such as Netflix and Hulu), buy generic brands, eat out less, and lowering your cell phone bill.5
Keep an Eye on Your Credit
Pay off the full balance of your student loans, mortgages, credit cards, and similar expenses every month.1 Make sure you make your payments on time and don’t allow your loans to go into default or delinquency. Also, having a healthy credit score will allow you to feel more secure about your finances.
With the help of a financial advisor, you can make the most of your long-term investments. The earlier you start investing the more money you will make over time. You can also open an online brokerage account to learn about investing and how to make your money grow.1
Investopedia defines investing as “the act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit”. Warren Buffett defines investing as “The process of laying out money now to receive more money in the future.”3
If you have the liberty to set aside some money, whether that be $1000 or $10, maybe look into investing it into a business, a project, real estate, or stocks.
Start a Side Hustle
There are plenty of ways to earn some extra money, and you can even do it from the comfort of your own home. The best thing about starting a side hustle is that it doesn’t necessarily require a highly specialized skill-set. With a side hustle, you’re basically earning money in your spare time.
Here are some examples of side hustles:
2.You can sell old clothes, dishes, appliances, and toys on eBay.
3.If you have a deep interest in a certain topic, such as food, fashion, or DIY, you can start blogging. You can then monetize your content with affiliate links and sponsored posts.
2Danielsson, Matt. “These 12 Habits Will Help You Reach Financial Freedom.” Investopedia, Investopedia, 29 Jan. 2020, www.investopedia.com/articles/personal-finance/112015/these-10-habits-will-help-you-reach-financial-freedom.asp.
2Hogan, Chris. “How Do I Achieve Financial Freedom?” Daveramsey.com, Dave Ramsey, 29 Oct. 2019, www.daveramsey.com/blog/what-is-financial-freedom.
3Langager, Chad. “A Beginner’s Guide to Stock Investing.” Investopedia, Investopedia, 29 Jan. 2020, www.investopedia.com/articles/basics/06/invest1000.asp.
4“Online Credit Cards, Loans & Payday Alternative for Subprime Credit 24/7.” LendUp, 17 May 2019, www.lendup.com/articles/7-credit-monitoring-apps-to-help-you-stay-on-top-of-your-credit-score.
5Ramsey Solutions. “How to Save Money: 20 Simple Tips.” Daveramsey.com, Dave Ramsey, 30 Mar. 2020, www.daveramsey.com/blog/the-secret-to-saving-money.
6SoFi. “5 Different Types of Budgeting Methods.” SoFi, SoFi, 24 Mar. 2020, www.sofi.com/learn/content/types-of-budgeting-methods/.