by Phylecia Jones
What exactly is financial freedom?
Financial freedom is a buzz term, or rather a buzz achievement, that many Americans refer to as a milestone in their financial life. With a simple search of the internet, you can instantly find over 250 articles all with varying definitions of financial freedom.
Some see it as quitting a job to travel the world or reaching early retirement to spend more time with family, while others see it as generating passive income through entrepreneurship or having a lot of money to buy whatever they want.
As you can see, it can be a bit difficult to define this coveted goal, but there’s a simple way to look at it. At its core, financial freedom is reaching a point in your finances where you have “enough” in order to have the option to live more and work less.
According to The Transamerica Center for Retirement Studies, most people believe they need $1 million in order to retire comfortably but with the average fortysomething only having $63,000 saved, that goal can feel unachievable.
So what will it take for you to reach financial freedom?
The principles of reaching financial freedom are quite simple. It relies on your ability to prioritize your spending and save a lot of money. In order to reach this milestone, you will have to make it an absolute goal and do the following:
Define what financial freedom would like for you
Since financial freedom looks different for everyone, it’s up to you to determine what your life would look life if money was not an obstacle. Travel? Spending time with family? Starting a business? Launch a passion project? This is the time for you to dream about the life you want to live.
Determine what is enough
Based on the life you want to live, do some research to find out how much money it would take to get there. Connect with people living your dream and find a well trusted CFP (Certified Financial Planner) to help you run the numbers.
Get, and stay, out of debt
Debt and financial freedom don’t mix. The path to financial freedom requires getting rid of debt and never getting into it again. Create a debt repayment plan where you can track and pay off debt as quickly as possible.
Master the art of managing a budget
This is one of the best ways to stay on top of your finances to see what is coming in and what is going out. Budgeting may seem like a chore, but once you put it on your calendar and stick to it, this will give you permission to live the life you want.
Cut your expenses
If you read any article on reaching financial freedom, it will always come back to cutting expenses. This is
the moment where you will have to decide what stays and what goes. It’s a hard task, but revisit the first
step. If you want the life of your dreams, you will have to be willing to make sacrifices and prioritize your
spending along the way.
Save more money
Unfortunately, there’s no way to put this lightly. You will need to save a lot of money in order to achieve financial freedom. Start maxing out your 401k, open an IRA, investigate other pre-tax saving options to get you on the right track.
Learn how to invest and grow your money
The key to having money to support your lifestyle during financial freedom is investing. Search for local investment clubs, classes, or workshops so that you can understand the many options available to building your wealth.
While the average American household has a median savings balance of $4,830, according to The Motley Fool, financial freedom can seem like a pipe dream for most, but it is absolutely achievable with a bit of work and focus. It doesn’t matter how much money you have; it really matters how much you value the money you have. Following the steps to reach a point where you have more options to live more and work less will require a dramatic shift in your mindset, your lifestyle, and how you view money. In short, achieving financial freedom will require you to be consistently vigilant to reach a milestone that many can only dream about.
by Phylecia Jones, Budgetologist & Solopreneur Money Management Expert www.keepupwithmrsjones.com
When it comes to your financial matters, how serious are you? It’s a tough question, but with consumer debt estimated to reach $4 billion dollars according to CNBC by the end of 2018 and Americans struggling with having savings for small emergencies, it brings the issue of financial priorities to the forefront. Creating financial goals is not an issue for the average person. The Motley Fool says paying down debt, saving more money, and avoiding further debt are the top 3 financial goals most people set.
But, at times, our goals do not match the realities of how we are actually managing our money. Facing the hard truths about how you see and interact with your finances is difficult, but for significant changes to happen you will have to start with YOU. If you are constantly missing your financial goals or never taking action, you may be falling into some common traps that can take you off course from achieving your money milestones:
Being comfortable. When the bills are paid, money is coming in, and life is running like a well-oiled machine, it can be hard to take action when everything is okay. This is the perfect time to look 5, 10 years down the road and create financial milestones for where you want to be versus where you are right now.
Trying to keep up. Keeping up is a one-way ticket to debt, stress and despair. Stop worrying about others and focus only on your financial goals.
Assuming the bread winner will always make bread. For many couples, assuming the other person will always make money can be financially dangerous. Losing a job, sickness, loss of income are things we never think of when it comes to being in a relationship, but a small change can cause major waves. Create an emergency savings plan to cover the unexpected.
Avoiding doing the work. Getting out of debt. Saving 9-12 months of emergency funds. Paying off student loans. All are very intimidating tasks but avoiding them is not an option. Take the time to gather the resources needed to set you up for success and create a plan to tackle one task at a time.
Having priorities that do not match your goals. You have the goals, but you keep putting them off because of the next shiny object. Impulsive shopping and overspending has ruined many financial plans. Take the time to track your spending over the last three months. This simple action will put you face-to-face with a financial reality check. Ultimately, making a small shift to take ownership of your financial matters is key to getting out of debt, saving more money, and avoiding dire situations.
Facing the hard truths about money management can be uncomfortable, but change does not occur in your comfort zone. With record high debt and 65% of Americans saving little to nothing, it is time to put a stake in the ground, change your perspective, and take your financial matters more seriously.