How to Start Your Journey to Financial Freedom
Financial independence is a goal for many people. The idea of never having to worry about money is a fantasy that may seem unattainable – but is it? With discipline, commitment, and a really good plan, anyone can become financially independent. It is not just an option for the wealthy. Here are a few steps to take to get you started on your journey to financial freedom.
1. The more Income You have, The Better Your Cash Flow
Having more cash flow is an obvious need to become financially independent. The more money you have coming in, the more money you have available for other important steps necessary to help you reach your financial goals. While changing jobs is certainly an option to change your income, there are plenty of options for increasing your income that do not require job hunting. You may be able to increase your income at your current job by asking for a raise, through performance incentives and bonuses, picking up overtime work, or by moving forward in your career. Whether you strive for a promotion or a lateral move for higher pay, do what you can to boost your income so you will have more money to work with.
2. Control Your Spending
What are your spending habits? Spend a few weeks tracking your purchases. Keep a list of every transaction, then categorize your expenses. You may categorize them by needs and wants, or more specific like groceries, gas, and clothes. Choose categories that make sense for your lifestyle and use those expenses to build a budget you can stick to. If your income is not enough to accommodate your expenses and the other steps you need to take to reach a financial independence, then consider reducing your expenses or work harder to increase your income.
3. Eliminate Debt
Debt is a significant factor in your financial health. As long as you are making debt payments, financial independence will be difficult, if not impossible to achieve. To be financially independent, you need to be able to stretch your income for a long time. Stretching money is challenging when debt payments and interest are draining your account. Aggressively seek to eliminate debt by always paying more than the minimum payment due, making extra payments as often as possible, and never paying less than the minimum payment plus interest accrued to avoid a rising balance. Get out of debt and stay out – whether it means making more, pursuing debt relief options, or spending less.
4. Make Smart Investments
Long-term financial planning through life insurance, retirement accounts, and savings are just as important as today’s cash flow. These investments are key to achieving financial independence because money for the future will carry you forward when you no longer have a regular income. If invested wisely, these long-term options will be more than just a safety net when your income changes. Smart investments will determine when you can give up your regular income and most importantly when you will achieve financial independence.
5. Be Mindful of Your Social Circles
There is an old saying that goes something along the lines of “you are the company you keep.” If your social circle is made up of individuals who live in the moment embracing impulse buys and avoiding future financial plans, you are likely to follow suit. This does not mean that you need to end friendships or abandon your social life to become financially independent, but you should pay extra attention to your expenses when associating with individuals that do not share your same financial goals. Be mindful of the money spent dining out or on group travel and try to keep costs down. Opt for free alternatives that allow you to socialize without having to spend, like hosting a potluck dinner party and game night in your home or taking advantage of a free city-sponsored event near you. Remember that every dollar spent today is one less dollar you will have for tomorrow. Prioritize your expenses and make sure every dollar you spend has a worthwhile return.
6. Diversify Your Income Sources
If you unexpectedly lost your job tomorrow, how would losing your income affect your cash flow? By diversifying your income sources, you will have a safety net to maintain balance in your finances. Job loss and other changes in cash flow often lead to financial strain and opens the door to debt. Set yourself up for success by adding a side hustle like renting out a room in your home to vacationers or driving a few hours per week for a grocery delivery service or rideshare provider. If you have the time to commit to picking up a part-time job, do it. Any sacrifice you make now to build up and diversify your income will always be worth the reward later.
7. Live Below Your Means
This is not just a practice you should follow for a few months. Commit to living below your means permanently. If you always live a frugal lifestyle, you will have more money to save for the future. This means living in a three-bedroom home that meets your needs and has a reasonable mortgage instead of the four-bedroom home that results in unused space and has a mortgage you sometimes struggle to afford. It means driving an older car that gets you where you need to go instead of leasing the brand new SUV with all the bells and whistles. If you live below your means, you will have more cash flow available to focus on paying down debts, building up your savings, and planning for your future. Living below your means is good practice for smart management of your finances when you reach financial independence.
You can become financially independent and eliminate money stress. You can eliminate the worry about how you will make ends meet by making a few small changes today that will put you on the road to financial independence. Prioritize saving and do what you can to have consistent cash flow that is constantly improving.