15 Steps to Achieve Financial Freedom

 15 Steps to Achieve Financial Freedom



This guide identifies everything you need to finally master your money.




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What is financial freedom?



Ask a room of people to determine financial freedom, and you'll probably get dozens of answers.


"We all have different relationships with our money," notes Shelley Ann Ewika, Director of Central Advice for TIAA Finance.


For some, financial freedom means being able to pay the bills with the remaining money each month or having a fully funded emergency account. Others may want to retire early and travel extensively.


No matter how you determine financial freedom, the next 15 steps will help you achieve your vision for the future.



1. Set your financial goals.



Financial freedom will be difficult to achieve if you do not first determine what it means for you personally. Liz Ewing, chief financial officer at Marcus by Goldman Sachs, says: "Start by setting goals and thinking about what these goals require financially."


Goals can include short-term plans, such as going on vacation or buying a new car, as well as long-term goals such as retirement. It may also be useful for people to analyze their beliefs about money and examine their relationship with it. Rather than assuming that wealth is something that can only be achieved by high earners, he realized that even middle-class families can move from living salary to salary to a financially comfortable lifestyle as long as they spend less than they earn.


"Writing your goals can help improve your chances of achieving them by allowing you to visualize what lies ahead financially and set deadlines for achieving milestones," Ewing says.



2. Learn about your current financial situation.



Regardless of whether you have just come out of college or are preparing to retire, it is necessary to understand your financial place now.


"Collect a net worth statement," says John Pelletier, director of the Center for Financial Literacy at Champlain College in Burlington, Vermont. "Understand what you owe and interest rates associated with (debt)."


In addition to adding debt, calculate expected income and identify gaps in your financial images, such as lack of insurance or emergency savings. Consultation with a professional may be useful in this process, especially if you have complex financial resources or are approaching retirement.



3. Open the correct accounts



There is not a single account suitable for all your money. Cash for retirement should be placed in a 401 (k) or tax-preferred IRA account, while college savings are usually better retained in the 529 plan. Those with high-deductible health insurance plans can open health-saving accounts to pay for medical expenses.


Meanwhile, you'll want to separate your emergency fund from your other savings to avoid unnecessarily indulging in it. A high-yield savings account is usually offered by online organizations such as Marcus by Goldman Sachs and Discover Bank, and this money can guarantee some interest. However, the most important consideration for the contingency fund is that it is liquid and insulated from market losses.



4. Prepare the deposit table.



Once your accounts are set up, create a system to ensure they are fully funded. Many employers will direct paychecks to multiple accounts, so you can convert part of your income to audit, regular savings, and emergency funds. You can also contribute directly to 401 (k) through salary deduction.


For other savings objectives, you may be able to set up automatic and regular transfers from your bank account to other financial accounts. Funding experts often recommend providing 10% of your income for emergencies or other targets and another 10% for retirement.


"Automating your savings ensures you pay yourself first and can help you stay on track to achieve your savings goals," Ewing says.



5. Track your spending.



If you currently live from salary to salary, allocating money to emergency savings and retirement can seem daunting. To find out exactly how much you can save, you first need to understand how much you spend.


"You have to start writing things," says Kelly LaVine, vice president of advanced markets, a solution for Allianz Life Insurance.


Take a month to track where your money goes, from big bills to couple spending on coffee in the morning. Using a free app such as Mint or Marcus Insights can facilitate the collection and classification of spending data. These apps can also help you identify hidden expenses.


"(You) have to get into this and you know it's really hard," Lavin says. Tracking expenses require care and will require a significant shift in behavior for some people. But being able to see where your money goes over time is a crucial step, according to Lavigne.



6. Write down a budget or spending plan.



Known as the budget, the spending plan sets out how you expect to use your money each month. While creating this document, consider whether the items you list will bring you closer to your financial goals.


"Inventory what you need and don't," says Renora Nelson, wealth manager at Merit Financial Advisors in Alvarita, Georgia.


In the past, people were limited to using a pencil and paper or maybe a spreadsheet, but now many options make the budget easier. The same apps you use to track expenses can also be used to create proposed budgets based on expenditure. Using the app can turn what may be a long process into something fast and easy.


"It takes less than 30 minutes, and it can change your life," says Erika.



7. Trim your budget.



Between budget creation and expenditure tracking, it should quickly become clear if you have enough money to maintain the current spending level. If not, you will need to reduce expenses, and the obvious place to start is unused or duplicate services.


During the pandemic, many people signed up for multiple subscriptions, and now is the time to assess whether they are still needed. Lavin says people have to ask themselves, "Do I really need four streaming services?"


Reducing expenses does not necessarily mean reducing morning latte or gym membership. Instead, people should think beyond small expenses and consider major lifestyle changes to bring about a significant change in their financial situation.


Selling your home or buying a cheap used car might seem like a big sacrifice. However, it may be useful to help achieve your ultimate goal of lifelong financial independence.



8. Prepare for "surprise" expenses.



It is wrong to think about the budget only in terms of monthly expenditures. Throughout the year, each household will face irregular bills, ranging from projected insurance premiums to unexpected vehicle repairs.


Nelson says planning these expenses is not impossible. They look forward and mark their calendar when irregular expenditures are likely. This way, for example, when a child graduates from high school, money is allocated to cover final year purchases.


Even unforeseen expenses such as car repair and broken devices can be expected because all mechanical elements have a limited lifespan. By allocating a small amount each month, families can prepare for these "surprises." Using direct transfers to a separate account is an effective way to achieve this.


"I would strongly suggest that people automate savings," says Nelson.



9. Establishment of a debt repayment plan.



For most people, financial freedom means debt cancellation. While it can be difficult to own a home without a mortgage, getting rid of credit card debts or even car loans can be achieved even more.


"If you have a huge debt burden, I think it's important for you to win myself (to stay motivated)," says Pelletier. Usually, the best way to achieve this is to focus all your extra money on one debt while making the minimum payments on the rest.


From a mathematical point of view, it may make sense to start with debts that charge the highest interest rate. However, debt repayment with the smallest balance can build momentum first. When you pay this debt, don't let the money you're paying for it be absorbed by your budget. Instead, take this payment amount and apply it to the next debt in your payback plan.



10. Build an appropriate contingency fund.



It may be tempting to exhaust savings to repay debt more quickly, but this approach can backfire. Without an emergency fund, you risk entering into high-interest credit card debt in the event of unexpected expenses. Instead of prioritizing debt over savings, or vice versa, direct a portion of your available funds to each priority every month.


While the traditional wisdom is to save enough money for expenses for three to six months, Eweka advises people to start smaller if that amount is overwhelming. "Don't think about the six months," she says. "(Your first goal) is to replace one salary."


After saving enough to replace one salary, gradually add to the emergency fund so that it can pay several months' worth of expenses if you find yourself unable to work for any reason. Once this savings account is fully funded, funds can be transferred to other needs such as retirement and college savings.



11. Watch your balance.



"Your credit score will play an important role in your journey towards financial freedom," Ewing says.


A person's credit score can determine whether they have access to loans and the interest rate they receive. In some states, employers can review the applicant's credit record when making employment decisions, and insurers in certain areas may use credit to determine insurance premiums. Debt reduction and timely billing are two ways to boost the deteriorating credit score.


Federal law allows consumers to order a free copy of their credit report once a year using the website AnnualCreditReport.com. During the pandemic, credit reporting companies Equifax, Experian, and TransUnion began offering free weekly reports voluntarily as well. Credit scores can be accessed for free through a variety of credit card exporters and financial sites such as Credit Sesame and Credit Karma.



12. Assess your career options.



Do not overlook the importance of your job when it comes to how to achieve financial freedom. While income is clearly important, there is more to the job than the money you bring home every week.


Erika says people should talk to employers about the different benefits that may be offered. Some of these workers can help in ways they may not expect.


Employers can match contributions to retirement funds, provide access to a variety of insurance products and even connect workers with financial advice and money management tools. Equally important, the right function may provide options such as flexible scheduling and telework that can support overall wellness and personal goals. This in turn can ease tension and may facilitate commitment to financial plans.



13. Invest for the future.



Many people assume they need a big income to achieve financial freedom, but that's not necessarily true. Some high-income families may bear the significant debt, ensuring they will never be wealthy. At the same time, the income of other wealthy families may be modest. Instead of accumulating wealth through their income or inheritance, many people become wealthy because they save and invest money constantly throughout their lives.


"We have to grasp our 401 (k) contributions," says Nelson. "This will be our pension when we retire."


While 401 (k) is ideal for retirement savings, other accounts, such as 529 health savings plans and accounts, may be better for other expenses such as college and medical bills. However, the variety of investment options available can be confusing. A financial adviser can help you identify appropriate investments, or online consulting firms can streamline the process for those without access to a consultant.



14. Prepare your legacy.



This step is less about creating your financial freedom than about guaranteeing the freedom of your heirs. After a lifetime of managing funds properly, you don't want your money to end up in the pockets of relatives you didn't intend or worse, Uncle Sam.


Create a will, update beneficiaries of financial accounts, and if your assets are large, talk to a certified public defender or accountant to discuss strategies to reduce real estate taxes. Moreover, regardless of your income, you will want to maintain adequate life insurance to support your loved ones in case you die unexpectedly.


You must constantly update your financial and real estate plans as well. Over the years, your life will change and tax laws will change. Your financial plans need to change with them.



15. Find a trusted financial adviser.



Some people feel comfortable managing their money and investments, but this last step will be important to others.


"We all need to see specialists for certain things," Lavin says. Once you have the basics, such as budget, a financial professional can help meet the most complex needs such as retirement planning.


Meeting with a financial planner or tax adviser once a year can be useful for assessing your current situation and drawing strategies for the future. These individuals are not emotionally invested in your financial decisions, and a trusted professional can provide objective advice and advice that you may ignore if you try to do so alone.





Aymane Rtimi

Softiti AI

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