Achieving Financial Freedom | Tips and Information From Our Advisors
Financial freedom is a powerful goal. One that could mean something different for everyone. For one person, it's retiring early and traveling the world; for others it's simply living with out the stress of repaying debt or needing to check the balance in their bank account before making a purchase. Keep reading to find out what financial freedom can look like for different people and discover tips to implement in your life to help you achieve it.
What is Financial Freedom?
To simplify it, financial freedom means having enough income, savings or assets to afford the lifestyle you want, without being dependent on your next paycheck to hit. This could mean covering your living expenses through investments, owning a business that runs itself, or simply having enough savings to weather life's storms and pursue your dreams. Here are some common ways people describe it:
- Being debt-free: Having no credit card balances, outstanding loans, or mortgages hanging over your head.
- Paying bills comfortably: Covering all expenses each month with money left over.
- Having an emergency fund: Having enough savings to handle any unexpected costs that may come your way.
- Making choices based on values: Choosing work, travel, or hobbies without financial constraints.
Different Paths to Financial Freedom
The Minimalist Approach
Some people achieve financial freedom by living simply and below their means. This could look like cutting expenses, avoiding lifestyle inflation and focusing on their needs instead of their wants. For these people, financial freedom means peace of mind and the ability to live comfortably on a modest income.1
The Investor's Route
Others pursue financial independence by building wealth through investing their money. This could be through stocks, real estate, or businesses. One of the main benefits that draws people to this method is the power compounding interest offered though some avenues of investing.2 This is interest that is accrued and then added to the initial principle of the investment increasing the balance resulting in an increased amount of interest earned in the next period. The goal with this method is to generate enough passive income to cover lifestyle expenses to make working less essential.
FIRE Movement
FIRE stands for Financial Independence, Retire Early. This method involves saving aggressively and investing to retire decades before the traditional age. For people who go down this path, they are interesting in gaining more time doing things they are passionate about instead of spending their time working. This option give people time to pursue things like traveling and volunteering.
The security Seeker
For most people, financial freedom is less about luxury and more about security. This means being able to handle emergencies, support family or simply sleep better at night knowing they are financially stable.
Steps to Help Achieve Financial Freedom
While each persons journey to financial freedom is unique, here are some helpful steps you can take to guide you along yours:
- Set clear financial goals. Define what financial freedom means to you and set goals for yourself to help propel you forward in your journey. You'll want to set specific and measurable goals to help you stick to them (For example, you could say you want to pay off $2,000 in debt by the end of this year).
- Create and stick to a budget. You can do this by tracking your income and expenses. By doing this, you can identify areas to cut back on spending and in turn put that money into savings. 3
- Pay off high interest debt. Focus on paying off credit cards and other high-interest loans first. Avoid taking on new debt whenever possible.
- Build up an emergency fund. It is recommended to have three to six months worth of living expenses saved to the side. You'll want to keep these funds accessible for true emergencies.
- Invest for the future. The best thing you can do is to start investing early, even if it's a small amount. You can use tax-advantage accounts like 401(k)s or IRAs. You can also set up automated savings, making savings a habit you don't have to put much effort into.
Check out more information on saving - Monitor and protect you credit. It's good practice to regularly check your credit score. This way you can correct any errors you may be making and improve your credit score.
- Adjust as life changes. Be sure to revisit your goals and adjust your budget as your life evolves. and don't hesitate to celebrate milestones!
In conclusion, financial freedom is not a one-size-fits-all destination. It could mean to retire early, have the freedom and ability to travel, or to simply live without the stress of having enough money. By setting clear goals, budgeting, eliminating debt, saving and investing, you can pave your own path to financial independence, what ever that may look like for you!
1. https://www.moneyfit.org/financial-freedom-means/
2.. https://www.investopedia.com/terms/c/compoundinterest.asp
3. https://www.capitalone.com/learn-grow/money-management/financial-freedom/