1. Define freedom.
The first step in gaining financial freedom is to determine what that looks like for you. Is it to retire early, have enough to maintain your current lifestyle, or leave a legacy for your loved ones? How close are you to retirement? Financial independence means different things for different people; clearly defining a realistic picture of what you need to achieve is the best first step.
2. Pay yourself first.
When attempting to save money for a rainy day, it seems the money that gets saved is whatever is left over after unexpected expenses are paid, and sometimes that can be little to nothing. The easiest approach to financial independence comes from treating your savings as an expense you must pay, like a bill. To ensure your savings are working for you, consider a 401(k), IRA or Certificate Account where gains in interest can grow your investment more than sitting in a regular savings account.
3. Track your spending.
To reach the goal of financial freedom, it's essential to know how much of your money is paid out in expenses every month, and where it goes. If you are unsure of what that looks like, track your expenses for a few months, from biggest to least, including housing, food and vehicle expenses and use that number to estimate your yearly expense. However, experts say, it's not enough to know where your money is going, but what you have available as well.
Most people know what they make, but not necessarily how much they take home. Since they aren't aware of, or fail to take into account, their regular payroll deductions like income tax, health care or social security, they are left with an inflated view of what they have left to budget with.
4. Live below your means.
While this may mean brewing coffee at home or making a homemade lunch, finding small ways to trim your budget so that you spend less than you earn each month can add up quickly. With 39% of Americans stating their main reason for not saving more money is expenses2, reducing those expenses, while uncomfortable or inconvenient in the short-term can lead to a life of greater financial happiness and security down the line.
5. Create a debt payoff plan.
Whether you aim to pay off the debt, which carries the highest interest rate first or pay off one with the lowest balance, paying off debt can be a huge and very important motivator to success. Analyzing your current debt load and deciding a realistic time-frame for payoff gives you a light at the end of the tunnel, even if its years away. A solid household budget, full of easy-to-follow budgeting tips, can cement the plan to success.
With dedicated actions, financial independence is achievable for anyone looking to make their financial future a little brighter.