Financial freedom is the power to do what you will with your life without being forever bound by a lack of money and overburdened by debt. This worthwhile goal can be achieved by anyone through careful planning and persistence. Just follow these simple steps:
- Pay yourself first
- Control your spending
- Eliminate debt
- Build a contingency fund
- Become an informed investor
Pay yourself first
Every month, keep some of your income for yourself and keep it separate as seed money for your financial future. It takes money to make money, so goes the old saying.
Take a percentage or a fixed amount from each monthly paycheck and add it to your seed money, at least ten percent, if possible. This is your investment money. Do not use it for anything else.
Control your spending
Make sure that your spending is less than your earnings. Remember that when you find yourself in a hole, the first thing to do is STOP DIGGING. You may have to create and follow a budget. Creating a budget is easy; following it may be hard. Start yours by tracking your current spending habits. Summarize your spending into general categories such as food, clothing, entertainment, etc. Then you can decide which categories you can cut, and by how much.
Eliminate your debt
Avoid borrowing, especially by credit card, as typically these debts carry the highest interest rates. Consider increasing the monthly payments you’re making starting with the card that charges the most. When that card is paid off, take the payment amount and apply it to the next card. Continue this process until all are paid off. Destroy and close all or most of your credit card accounts.
Build a contingency fund
Life is full of unexpected financial surprises; the car breaks down, the boiler fails, you lose your job, etc. To prevent these occasional events from derailing your financial plans, you need funds just for emergencies to avoid borrowing or dipping into your seed money. Set aside each month a percentage or a fixed amount of money and put it into your contingency fund.
Become an informed investor
Do your research, build an investment strategy, and be aware of three key words in researching where to invest your money. RETURN is the profit you’re likely to make on a given investment, usually expressed as a percentage. RISK is the possibility of losing money. The higher the risk, the higher the potential return. Remember the converse is also true. DIVERSIFICATION is the strategy of not having all your eggs in one basket to spread and minimize risk.
Take advice from a qualified financial planner as to the many and varied opportunities available in today’s global investment markets.
You can make your own financial freedom happen. Establish your strategy and stick to it. Implement all the foregoing steps in your life and your financial freedom will soon follow.