For many people, financial freedom is a goal. Who doesn’t want to be able to afford whatever they want, when they want it? Financial freedom usually entails having enough savings, investments, and cash on hand to afford the lifestyle you choose for yourself and your family, as well as a growing nest egg that will allow you to retire or follow the career of your choice without being constrained by a yearly salary.
Unfortunately, far too many people do not succeed. They are beset by mounting debt, financial emergencies, wasteful spending, and other obstacles that prevent them from achieving their objectives.
Consider some of your most important life goals. You wish to live in a lovely house and to be able to support your family. You want to be able to travel the world and have amazing adventures. What’s keeping you from pursuing these goals?
Almost always, the answer is money. While you might be able to fulfil some of these goals over time, you’ll need to build financial freedom to achieve them all while staying in a strong financial position.
Some people confuse financial freedom with retirement, and while being able to retire whenever you want is desirable, financial freedom does not have to wait. Financial freedom could mean having the ability to pursue your passions and turn them into profit, depending on your circumstances.
It could mean leaving a 9-to-5 career to spend more time with your children or supporting your partner as they establish a business they love. Financial freedom entails being in touch with your core beliefs and having enough money in the bank to sustain those values without having to worry about costs. Essentially, it’s the key to unlocking an extraordinary life.
Financial Freedom and Financial Independence Are Not The Same
Many people use the terms “financial freedom” and “financial independence” interchangeably, but they don’t imply the same thing. Understanding the difference is crucial if you want to actually work toward financial freedom.
The core term “independence” is crucial to financial freedom. It is being able to meet your own financial demands without relying on others. When you’re financially independent, you have a consistent source of income, pay all of your obligations (including any debts, such as student loans or a mortgage), and have some money set aside. You could even begin investing. However, you are not yet financially free. It’s possible that you may not be able to afford your indulgences and hobbies.
Financial independence is a necessary first step toward financial freedom, but it is not the final destination. Financial freedom is a long-term strategy for achieving the life of your goals. It is doing what you want to do, when you want, where you want, with whom you want, as much as you want.
Let me give an example so it’s clear. Jane has a 9-to-5 job and lives alone. She pays her rent, buys her food, saves a little every month and takes care of herself all from her own pocket. She loves to travel but in order to do that, she has to save up for it for about 6 months. Hence, she travels once or twice a year. She is financially independent.
Then there’s Jenny. Jenny has multiple active streams of income. She has a lot in savings and even more in investments. Jenny lives on her own in a beautiful studio apartment where she pays her rent, buys her food and takes care of herself from her own pocket. She is financially independent.
Jenny absolutely loves to shop, new foods at restaurants and she loves to travel. These may seem like a lot of hobbies to finance but she handles them all just fine. Whenever she wants to do any of her hobbies, she can because she can afford to at any given time. That is financial freedom (when money is not the issue).
Financial Freedom Tips
Understand Where You’re At
You can’t achieve financial freedom unless you know where you’re starting from. It can be discouraging to consider how much debt you have, how much savings you lack, and how much money you require. However, this is an important step in the right direction.
Make a list of all your debts, including your mortgage, student loans, vehicle loans, credit cards, and any other liabilities you may have. Don’t forget to account for any money you’ve borrowed from friends or family throughout the years.
After that, take a look at all of the money you’ve set aside.
Make a list of all of your savings, including checking and savings accounts, investments, corporate retirement-matching programs, and retirement plans.
Also note down your monthly income from the salary you earn to how much you typically make from your side hustle and so on.
Keeping these numbers in mind will help you device a best fit plan towards your future of financial freedom.
2. Write Down Your Goals
Do you want to be debt-free forever? Are you itching to get away from the 9-to-5 grind? Is there a destination you’ve always wanted to visit? Are you saving for a wedding, children, or retirement?
If you truly want to achieve financial freedom, it is important that you set very specific goals towards it. With the numbers you have put together from tip 1, you can plan how to pay off your debts and grow your savings more effectively.
It’s possible that you won’t be able to do everything you want in a month. However, a year is a long time to make significant progress toward your objectives. Make sure your objective is related to a specific figure you wish to achieve. Whether you realize it or not, you’ll begin working toward those objectives without even recognizing it.
It’s a million times simpler to achieve financial freedom when you know exactly what you want to achieve.
3. Pay Yourself First
You’ve most likely heard the phrase “pay yourself first.” But, in case you haven’t heard, “paying yourself first” refers to placing a set amount of money into your savings account before paying any other obligations. And paying yourself first has aided numerous people in their quest for financial freedom.
You may ensure that you’re always putting money aside to invest in yourself by paying yourself first. When you do the reverse, you only get what’s left over, which is usually insufficient to help you achieve financial freedom.
4. Track Your Spending
Tracking your expenditures is a vital step toward financial freedom.
You can use an app like cowrywise, piggyvest, or kuda to track your spending and save money. Anything that shows you how much money you’re spending, which categories you’ve overspent in, how much money you have in all of your accounts, and how much debt you have.
These apps will help you set goals ad keep track of them. In piggyvest target savings, there is a condition where if you withdraw your savings prior to the due date or before the savings goal is met, you lose all the interest accrued on those savings. This is simply to keep you accountable and encourage you to leave your savings alone.
5. Pay Off Debt
After making their last debt payment, many people experience a sense of relief.
Some people will advise you that investing your money in stocks rather than paying off your debt is a better idea. Maybe that’s true if you’re an exceptional stock picker. However, if you’ve never invested in stocks before, you may find yourself in even more debt.
While paying someone else isn’t as exciting as having money in your bank account, it does get you closer to financial freedom.
Debt repayment can be done in two ways: snowball and avalanche. Paying off the smallest debt first is known as snowballing. When you pay off the loan with the highest interest rate first, it’s called an avalanche.
Paying off a large debt relieves you of a significant burden. When you pay off your debt, the amount of money in your bank account increases. It’s a great feeling to watch the number rise (even if you had to watch it fall at first), and it keeps you inspired to keep going.
6. Create Additional Sources of Income
If you’re serious about financial freedom, you’ll have to put in some sweat, blood, and tears. Your 9-to-5 job might not be enough. If that’s the case, you’ll have to work harder and hunt for work outside of your current position.
Some experts advise having seven different sources of income. If you have a 9-to-5 job, congrats! You’ve completed one of the seven steps; there are only six more to go!
Fortunately, all seven of your sources of income can come from the same place. If you’re an ecommerce expert, for example, you may earn money by opening seven distinct stores. Remember, you don’t have to start with seven streams; you can gradually increase your number.
7. Invest in Your Future
The final piece of financial advice is crucial. It’s critical to save money for rainy days, retirement, and (sorry to be grim here) in case you die, so that your family doesn’t drown in debts, taxes, and burial costs. Let’s get back to that pleasant place now.
Whether you have a 9-to-5 employment, ask your boss about creating a retirement plan, or double-check to see if you’re currently getting contributions. You never feel like you’re losing money because the deduction is taken away before it reaches your account. It’s also fun to check in on it from time to time to see how much money you’ve saved.
It is just as important to put some of your money into long term investments so your money can work for you and grow as it is to put some emergency funds aside in savings.
The emergency fund is solely for unanticipated events such as a tree falling on your property, a car accident that requires out-of-pocket payment, or a hospital visit.
You’ll be less likely to end up where you are today, hoping for financial freedom, if you put money aside for rainy days and retirement.
Financial freedom can assist you in gaining control over your finances and, more significantly, your life. It’s all about living within your means, being a little frugal, and ensuring that money is spent on necessities like food, shelter, and, yes, vacations (relaxation is important too, you know). You’ll get closer to achieving the financial freedom you deserve if you follow the financial freedom ideas in this article. So take a look at your money, create other sources of income, pay off that debt, and you’ll be debt-free in no time.
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