Financial freedom gives you the opportunity to live life on your own terms. You can move through life confidently focused on what you value without having to stress about money 24/7. And that’s a beautiful feeling.
But how do you get there? You’ll need a plan.
If you’re here, then you probably are trying to form one. You’re on the right track – in this article, I will tell you the key to financial freedom. You will know everything you need to start your journey to financial freedom and design your own life.
Why is financial freedom important?
Financial freedom is important if you want to live your life on your own terms. Imagine never having a boss who’s in control of your PTO. Financial freedom is a worthy goal to work towards. It gives you the ability to have choices around how you want to spend your time without having to work a job for 40 to 60 hours a week. Imagine how much time you would have to spend doing the things you love.
And because you love them, not just because it pays you. Maybe it’s spending more time with your family attending their extracurricular activities like soccer games and volleyball games or starting a business that you are passionate about. Financial freedom is all about having choices.
What is the fastest way to achieve financial freedom?
The fastest way to achieve financial freedom is to increase your income. The more money have you to contribute to your investments, the more your money can work for you and multiply.
One way to increase your income is by asking for a promotion. If you see a higher-paying position at another company, switching jobs is a great idea. Studies show that people make more money by switching jobs frequently than by staying with the same company over time. They are able to negotiate higher salaries with each new job. It’s an option that may be even easier than a raise.
Another way to increase your income is to start a side hustle. The great thing about side hustles is that there are so many options today that are flexible – You can make money whenever you choose in your spare time.
When you start bringing in extra cash, use it to accelerate your wealth-building process. The more money you have to invest the quicker you will reach financial freedom.
The key to reach financial freedom
Here are the keys to reaching financial freedom: it’s a series of tips that will help you to live life on your own terms where you choose how to spend your time.
1) Create your ideal lifestyle
A lot of people use their current lifestyle to calculate their financial independence numbers but I think it’s important to really take a look at what your ideal life looks like and its cost. Your current spending may not match your ideal lifestyle. Thinking about how you want to spend your money when you’ve reached financial freedom will give you a better depiction of how you should be saving your money currently to live that future lifestyle.
For example what type of house do you want to live in and what kind of car do you want to drive? How many vacations do you want to take a year? You may not be living in that house now, you may not own that car or you may not be taking as many vacations as you’d like It’s important to think about the lifestyle that you have now and what it will cost you to prepare for the lifestyle you want in the future.
2) Define your goals
This ties into number one, you take your ideal lifestyle but now let’s put numbers to them. How much money will you need to pay in rent for the home you want every year or what will your mortgage payment be on your ideal home? What do you estimate the monthly payment to be on the car you want to drive? How much money do you plan to spend on average for each of those vacations in the frequency you want to take them? By putting a number to your ideal lifestyle you’re able to break these money goals down into bite-size pieces.
Take your vision for your lifestyle and put a number on it: what will you spend annually? It doesn’t have to be exact, prices fluctuate daily. But the goal is to give you a concrete cost to work towards that’s rooted in reality. You can always adjust as you go. Break these down into monthly investment goals and set aside money to fund your financial freedom goal each month.
3)Prioritize paying off high-interest debt
It’s really important to prioritize paying off your high-interest debt because it’s the number one killer of building wealth. You are charged interest on your credit cards when you carry a monthly balance in which the money is coming out of your pocket. We want the exact opposite to be happening for your finances.
The sooner you can tackle paying off your debt the quicker your wealth-building process is going to be. The reason why we want to get rid of high-interest debt is that it eats at any gains that you may be made in the market. For example, if you’re getting an estimated 8% annual return from your stocks and/or ETFs portfolio but your high-interest debt on your credit card is 20.99% your credit card interest payments completely wipe out any gains that you’re making in the stock market because the interest rate is much higher.
You can invest and pay off debt at the same time but it is important to focus on getting rid of the debt as fast as possible.
4) Create and maintain budget
I know that people glaze their eyes over when they hear the word budget but here’s the thing: you have to know how you’re spending your money in order to tell it where it’s going. When you are n tune with your numbers you can ensure that you are meeting your goals within your set time frame but if you don’t know how you’re spending your money you’ll never get there.
Most millionaires spend more time than the average person managing their money each month and that’s for a reason: they know how to hold onto their money and how to grow it. Creating a budget and tracking your spending is part of this process. It doesn’t have to be super complicated!
I use a zero-based budget to track my spending. But you can use whatever method you like. Another great alternative is 50/30/20 budget. The best budget for you is the one you’ll stick to.
5) Value-based spending
Value-based spending is spending your money in alignment with your values. This means being intentional with your spending and using your money in the ways you find most important. When you make decisions about how to spend your money what is most important to you?
Is having a well decored home important? Do you love plants? Do you prefer homecooked meals or like to eat out frequently? Do you like to travel?
Taking the time to get to know yourself and your values is important here. Personally, I love convenience. I value my time and I’m willing to pay extra to have vegetables pre-cut or my dinner delivered.
When you spend according to your values, you’re intentional about your purchases. This is how you begin to eliminate any overspending.
If you find that you don’t value convenience and you frequently spend $3.75 on a bag of almonds from the vending machine, you’re probably not happy about your purchases.
When you review your spending, this is a signal that you aren’t spending in alignment with your values. When you recognize this it’s easy to get back on track.
Or maybe you value experiences over possessions. If you know this, you can plan to spend time doing things with your loved ones, creating the memories you’ll all enjoy instead of buying new clothes or shoes. The experiences will bring you greater satisfaction.
When you spend in alignment with your values, you are more satisfied with your lifestyle and making room to build financial freedom for the long run.
6) Investing
Investing is where the bulk of your heavy lifting will be on your path to financial freedom. It’s the most fun part of the financial freedom journey because you get to see the money you contribute multiply over time. Many people think that they can save their way to becoming wealthy but that’s not actually the case. You must invest your money to grow over time.
The best place to start investing in your employer-sponsored 401k, or your retirement investment account provided to you by your job. Other investment account options include traditional/Roth IRA and brokerage accounts.
There are many different approaches to investing. You can buy and hold index funds, purchase individual stocks to your portfolio, or invest in real estate to name a few. Whatever way you choose, just make sure you invest monthly and/or regularly.
7) Create multiple streams of income
Creating multiple sources of income is very important, especially if your income is modest. Having income come from multiple sources outside of your job is what helps build your wealth strategically:: it’s what accelerates your wealth-building process.
And the faster you build your wealth the sooner you can reach financial independence.
What does this look like practically?
This could look like getting a side hustle.
Some people get side hustles and use the money exclusively to pay down their debt. Then once they do, funnel all the extra money that went to debt payments to fund their monthly investment contributions.
Not every source of income needs to produce a ton of money, it could be something as simple as the cash you receive from cashback apps. That is considered a source of income.
Other examples of income streams include dividend investments, rental property income, online businesses, and investment interest income such as peer-to-peer lending or real estate crowdfunding.
8) Adjust as you go
As much as we would love for everything to go as planned in life, the one thing we can count on is change. When major life changes happen such as getting married, families growing, or job or career changes you will want to calculate how those changes are going to affect your investment goals.
For example, let’s say you take a new job where your salary increases by $20,000. This extra income will allow you to increase your monthly investment contributions and grow your wealth quicker. Or let’s say you have your 2nd child some portion of your budget will now go towards preparing for your child’s arrival like diapers and daycare. If your salary has not changed this will pull from one category of your budget into your new baby fund.
The goal is to update your numbers to accurately reflect your life at any given time. As we know life continues to change. This will allow you to create and stick to the financial goals you create for yourself. You will use this as your measuring stick as you track your journey to financial freedom
9) Visualize your success
Visualizing your success in reaching financial freedom can be a very powerful tool to help you live the life you dream of. Because although financial freedom can be an energizing and exciting journey there will be times when it will get hard and you will feel challenged or become discouraged.
Visualizing your success is a major component of the process that will help you achieve your goals of financial freedom. Seeing your future as if it were real and believing it can happen for you helps you focus on your goals with greater focus and clarity.
Once you see your lifestyle in vivid detail your brain will actively work hard for you to make your imagination your reality.
Your brain will find ways to fill in the gaps between the life you are living now and the life you desire for your future. It will highlight new job opportunities or income streams to you that will help you achieve your goals. Don’t skip this step! It’s well worth it.
10. Enjoy the journey
This last step is an important part of your journey. Celebrate your small wins along the way! Every milestone is one worth celebrating Your first invested $100,000 is the hardest. Buy a cake, pop some champagne and celebrate! Then again for a quarter-million-dollar portfolio. Make sure you enjoy it all. Don’t get so wrapped up and trying to achieve this goal that you forget to live in the process. Life is worth living and money can’t solve all your problems. It surely helps but it won’t solve everything.
The Proven Key to Financial Freedom: A Guide to Make Your Dreams of Wealth a Reality
Cassandra is a personal finance blogger who helps millennial and gen-z women level up their money game for financial freedom.
