“Financial freedom” seems to be a hot-button term these days, and with US consumer debt at an all-time high, it’s no surprise that people are looking for a way out from under the chains of debt and financial insecurity. Each of us has faced some kind of debt at some point, and we all know how stressful it can be; not to mention the long-term financial implications it can have. So how does one really get financial freedom??
How Do You Get Financial Freedom?
Debt isn’t the only financial problem Americans face. Most Americans have only $0-$1,000 in their savings account, which is hardly enough to cover monthly expenses in the case of an emergency.
- So, where do we go from here?
- How do you get financial freedom?
- Is it actually attainable for the little guy?
The answer is yes, and we’re going to show you what you need to do to get there.
What Do We Mean By “Financial Freedom”?
Financial freedom looks different for everyone based on their own unique situations and aspirations. But, at the end of the day, it means one thing: allowing yourself to stop stressing about money.
Financial freedom and financial security are two different things, so it’s important not to get them confused.
Financial security is the first step toward financial freedom, but it doesn’t mean the same thing.
When you’re financially secure, you’ve got:
- a good debt to income ratio,
- an emergency fund with about three to six months’ worth of expenses, and
- long-term plans to maintain your stability.
Financial freedom, on the other hand, means you have all of those things and more.
You’re free from the daily grind of a 9-5, and instead, you’re generating plenty of passive income that not only pays the bills but leaves you some excess to invest or play with.
1) Where to Start
Financial success doesn’t just happen overnight, and if you’re knee-deep in debt and drowning in expenses, you’ve got a long road ahead. The first thing you need to do is get your finances in order, starting with an income/expense analysis.
Take the time to review your bank statements and figure out the following:
- How much money do you bring in each month? (After taxes)
- What are your core expenses, or the things you can’t live without? (Rent, mortgage, groceries, insurance, etc.)
- What things do you spend the most money on? Are they necessities?
- How much personal debt do you hold?
- How much of your debt is unsecured/bad debt? (Credit cards, car loans, etc.)
- What is your net income after everything is paid? (How much is left in your account at the end of the month?)
All of this is incredibly valuable information and will help you paint a more accurate picture of not only how much you make, but also how much goes towards expenses each month.
It’s important to be honest about your “core” expenses as well. We tend to lump unnecessary expenses into the core category when in reality, there are things we simply don’t need that could save us money each month. If you truly want to get financial freedom, this step is imperative.
2) Forming a Plan
The next thing to do is work on reducing your debt and improving your debt to income ratio.
Obviously, if you’ve got more debt than income, you’ve got a problem. You want your income to be such that you can pay your expenses and not be completely broke at the end of the month. Then, you can start investing that excess into a more secure future.
You can try a few methods for reducing your debt.
- You could start with the snowball method, which involves paying down small debts first, and working your way up to your larger debts.
- Or, you could do the opposite, starting with the big debts and working your way down.
Another popular option is to consolidate all of your debt into a single secure loan. That way, you’ll have everything combined into one monthly payment from one lender.
Take a look down the road when you’re formulating your plan.
- How much debt do you want to reduce in the next six months?
- The next year?
- Do you want to get rid of 15%, 25%, or 50%?
Set goals for yourself and be strict with yourself about not overspending when you should be paying on debts.
You don’t have to be 100% debt-free to officially get financial freedom, but it’s something many people strive for. Your mortgage is good debt, as you can build equity in a home or other property over time, making it a solid place to put some of your money. To have complete financial freedom though, you’re going to need to do more than just get out of debt. You’ll need to invest a fair amount. Your money has got to earn you more money.
4) Passive Income
If you truly want to be financially free, passive income is your best bet. This is income you get while being idle, whether it’s from rental properties, investments, or other avenues. The more you can generate while you’re idle, the freer you’ll be from the bonds of the traditional financial system and the grind of your 9-5.
How to Get Financial Freedom – You Can Do This!!
If you really want to get financial freedom, you’ve got to:
- Understand where you are currently
- Make a plan get financial freedom
- Free yourself from debt
- Create a passive income
See, it’s really not all that complicated. It just takes a little forethought and action…and you know, maybe a decade (or more) of effort. In reality though, financial freedom really is an amazing thing. You don’t have to retire and do nothing, but what you can do is go to a job that you love with a smile on your face – knowing that if you got fired or couldn’t work anymore, you’d be totally fine. The money you need would keep rolling and you could keep living life as usual.
Do you want to get financial freedom? Who wouldn’t?? What steps are you taking to get there?
AUTHOR LaTia Longuemire
My name is LaTia Longuemire. I enjoy writing, singing, and cooking in my spare time. My passion is helping others. At this stage in my lifetime, I'm primarily focused on my children. They are everything that keeps my world spinning.