Achieving financial freedom is a dream for many people. This usually means having enough investments, savings, and cash to afford the lifestyle you want for yourself and your family, as well as a growing nest egg that will allow you to retire without earning a certain amount every year.
What is financial freedom?
Financial freedom is when you can cover all your monthly expenses with your passive income. When you reach this point in your life, working becomes one of the many options available to you. It is no longer an obligation that you have to fulfill.
The reason is that you no longer need the money that a salary provides since you already have enough income of your own to be able to live the lifestyle you want. So if you don’t want to, you don’t have to work.
Two key concepts can be drawn from the definition.
Passive income: It is income that you generate without having to trade your time for money. In other words, you do not need to be in a specific place working several hours a day to get a salary. Some examples of passive income are stock dividends or property rentals.
Lifestyle: It will be determined by how you want to live once you achieve financial freedom. Greater luxury and comfort will translate into higher monthly expenses and consequently, you will need to have more passive income.
Why pursue financial freedom?
The truth is that there is no specific reason to pursue financial freedom, rather there are many different reasons that will be different depending on who you decide to ask. Since we are all different we have different preferences and priorities.
But despite this, I think that all of them can be summed up in one main reason, being able to do what you want with your life without having to worry about money. What financial freedom allows you to get is time. What you choose to do with it is up to you.
Keep reading because we explain the 12 best habits to achieve financial freedom that will help you achieve this independence without reducing your quality of life.
1. Set Life Goals
What is financial freedom for you? A general desire for financial freedom is too vague a goal, so be specific. Note down the amount you should have in your bank account, the lifestyle you should have, and the age at which you should achieve it. The more exact your goals, the more likely you are to achieve them.
Then, calculate your current age and set milestones at regular intervals. Write it all down carefully and place the goal sheet at the beginning of your financial binder.
2. Prepare yourself mentally
The road to financial freedom is not going to be easy at all. You’ll need to put in a lot of effort to either find strategies to improve your income or control how much money you spend each month.
That’s why you must have a good mental attitude before starting. Think about why you want to achieve financial freedom and decide whether it’s worth the effort.
It is good that you start thinking something positive about money which will help you to improve your life. There is nothing wrong with wanting to have more money so that you can enjoy life without worries.
3. Set a budget for monthly expenses
Setting a budget for your regular costs is necessary to balance your daily money, regardless of whether you are single or have a large family.
By current expenditure, we mean basic consumption expenditure: electricity, rent, food, transport, clothing, leisure, and health.
Whatever your primary source of income is right now (salary, pension, etc.), it needs to meet all of these expenses while also leaving up some money so you can save.
4. Control what you spend
If you want to achieve financial freedom, you must have a solid understanding of statistics. By this, I mean that you should know very well what is your income and especially what are your expenses. So take some time to control where you are spending your money.
Create an Excel spreadsheet on your computer and record all the details of your spending, including the amount, the category of the expense (for example, food, entertainment, water, energy, transportation), the date the money was spent, etc.
Having a good handle on your money will help you know how much you are spending, in which categories you are spending too much, where you can save, and many other things.
5. Live below your means
Whatever your salary level, if you spend more than you make, you will eventually find yourself bankrupt, penniless, and in debt.
Learning to live well on less money is necessary for mastering a thrifty way of life, and it’s simpler than you might think. In fact, many affluent people developed the habit of living below their means before becoming wealthy.
Adopting a minimalist lifestyle doesn’t have to be a challenge. It simply means learning to differentiate between what you need and what you want, and then making small adjustments that add up to big gains in your financial health.
6. Invest in yourself
To be successful in achieving financial freedom, you must never stop striving to better yourself. In other words, you should always strive to be the best version of yourself.
You’ll need to increase your knowledge in a wide range of topics, particularly in the financial and investment sectors. Among many other things, you will need to learn how money works, how to make more, and how to save more.
Don’t forget that the concept of investing in yourself has to be applied to your body as well, so don’t stress, relax, sleep well, eat healthily, and exercise often.
Follow this advice and maintain a constant state of learning and personal development if you want to accelerate the process of reaching financial freedom.
If you want ideas to help you improve, read this book on how to invest in yourself.
7. Evaluate your financial situation
Before defining your financial goals you should know where you are. Understanding what your starting point is will be very useful to understand your current financial situation.
With this knowledge, you will be able to identify the financial risks you are exposed to and the areas of your finances that need attention. You will be able to decide what should be your financial goals.
Once you are aware of your financial situation, you will be able to answer several questions, including:
• How much money have you saved?
• What type of income do you have?
• How much debt do you have?
You’ll need to do some straightforward calculations to determine your financial situation. You must determine your net worth, which is the sum of all your assets (such as a home or car) minus all your liabilities (debts).
You should also know how much money you earn and how much you spend. You may find that you are spending money on worthless items along the way.
After its completion, you should review the data and assess the state of your finances. It should be easy now to decide about your priorities.
8. Spend less
Even though it would seem like one of the most apparent pieces of advice for financial freedom, many people don’t understand how their purchasing habits affect their ability to meet their needs. For this reason, it is important to emphasize this.
You should now be able to pinpoint exactly where your money is going if you used the preceding tips to keep an eye on your spending. So spend some time reviewing and analyzing your numbers and identifying the categories where you have the biggest savings opportunities.
Housing, transportation, and food are costs on which most people spend a significant portion of their income. Among other choices, consider moving to a less expensive area, starting a bike or public transportation program, or switching supermarkets.
Review all your expenses and take steps to cut expenses! Above all, keep in mind that you shouldn’t stretch yourself too much by spending money you don’t have because doing so will put you in debt.
Once you understand that you really don’t need a lot of money to survive and be satisfied, you’ll start to cut back on your spending. You’ll also find that you’re able to save a lot more, which will provide you with more money to accelerate your path to financial freedom.
9. Earn more
While increasing your income has a higher potential to improve your finances and move you closer to financial freedom, it is not as simple a process as decreasing your spending.
This means that if you try to cut costs to save more money, eventually you won’t be able to and you will stagnate.
Although the opportunity to increase your income is theoretically limitless, there is always room for growth. Naturally, accomplishing this is far more challenging than reducing your expenses. Before you start to notice any noticeable effects, you will need to make a significant time and effort commitment.
From Monday to Friday, it is advised to look for sources of income beyond your work. This will allow you to not only earn more money but also diversify your income and increase your financial security.
Remember that you don’t have to start developing multiple sources of income at once; You can always start by developing one and then move on to the next.
Starting a side business is one of my favorite strategies for getting extra cash so you can save more and achieve financial freedom more quickly.
Here is a list of work from home opportunities that you can use to increase your income actively and passively.
10. Pay yourself first
You may have heard of the idea before and know what it means to pay yourself first. However, here’s the definition of one of the most important financial freedom advice out there, in case you’re unaware of it.
Before you may use your salary for any kind of obligation or payment, like an electricity or clothes bill, paying yourself first involves putting a set amount or percentage of money into a savings or investing account.
Using this approach requires knowing your numbers exactly. By doing so, you can create a budget and determine how much you can afford to pay yourself. Money is automatically transferred to a savings account at the beginning of every month.
Using this approach, the saving will be your first concern. While if you follow the conventional method of saving whatever money is left in the bank at the end of the month, you can end up splurging on useless items and ultimately make no progress toward financial freedom.
11. Pay off your debts
Debt is something that will seriously hinder your progress toward financial freedom. And I’m not talking about mortgages, I’m talking about loans like credit card debt or personal loans with exorbitant interest rates that will hurt your wealth level.
Therefore, one of your top financial objectives should without a doubt be paying off your debt. After saving enough to accumulate an emergency fund that covers three to six months of living expenses, this is probably the next most important task.
When you can settle all of your debts, you will see a decrease in the amount of money spent on interest. As a result, your financial burden will reduce, making it easier for you to save money and achieve financial freedom sooner.
12. Invest Your Money
Investing money is an important component of achieving financial freedom as it is essential for building your wealth and generating passive income, which gives you the means to live the life you desire without having to work.
Saving is fine, but to reach financial freedom you have to invest. Saving is not enough. Because of inflation, the money you manage to save today will lose purchasing power tomorrow.
In other words, compared to now, you can buy considerably fewer products for $100 than you can in ten years.
This is why you need to put your money to work through investments that make it grow. Furthermore, thanks to your investments, you will be able to make money while you sleep.
Here is a list of the best types of investments to get you started.
Conclusion
Follow these tips to achieve the financial freedom you deserve. Review your finances, generate some additional sources of income or pay off your debt, among others, and you’ll be financially free before you know it.
You will find it simpler and easier to put these suggestions for achieving financial freedom into practice as you continue to work on them until you get to the point where they are an integral part of your daily routine.
This path to financial freedom demands a lot of dedication and hard work, but it is undoubtedly worth it.
