Majority of us want to become financially free, however, not many people make it.
The key is in the planning and the willingness to hold yourself accountable to that plan.
Here are 6 steps to help you along your journey of becoming financially free.
- Assess your financial position
If you want to achieve financial freedom, you need to have a talk with yourself first. Assess your current financial position, where you are at, and what sacrifices it takes to get where you want to be. Furthermore, define financial freedom for yourself, because following someone else’s definition is not going to fulfill you, even if you reach it. Does it mean not having to worry about money? Having zero debt? Or maybe it is making money doing something you love? It is up to you to decide.
- Save money no matter what your income is
Once you start making a certain amount of money, it is critical to identify the difference between a need and a want. Chances are that an individual with a higher income saves less money than a person with a lower income, due to the fancy lifestyle habits. However, keep in mind that saving money has little to do with your income. It has everything to do with lowering your expenses, and allocating more money into needs than wants. Start spending consciously, evaluate your purchases, and stop making impulse spendings. Being a conscious spender is about making money match-up with your values. If you take pride in being in shape, try not to eat out for a while, so you could afford a gym membership. Or elect to rent a cheap apartment, so you have more money to start your own business you have always wanted.
- Save to invest
One mistake when it comes to managing money is most people stuff their savings into a bank account. However, think of saving as a short-term goal, a process where you put money aside in a safe place and use it for a specific instance. Instead, once you save enough capital, use your money to buy assets that have probability of generating acceptable return over time. This is a long-term financial goal, which ultimately will get you closer to financial freedom. Let’s say you save and invest €100 each month for the next 10 years with a return rate of 7%. After the investment period, the amount of capital you would have would be €17,310, compared to €12,000 if you did not invest, and put your savings in a bank instead. That is making over €5,000 while doing nothing!
- Diversify your investments
The best way to protect your portfolio from any type of unpredictable market crashes is to diversify your investments across various asset classes. This strategy prevents a loss in any one of your assets from destroying your entire portfolio. In addition to the heavily featured stock market, consider investment options such as cryptocurrency, bonds, or real estate, which due to several reasons including it’s tangible appeal has become the most popular form of every day investing. Furthermore, platforms that use crowdfunding allow you to get started with real estate investing with small amounts of capital. And since properties are always in demand, real estate investments are considered as stable and secure, and have probability of producing regular cash flow immediately.
- Get out of debt
If you currently need a loan to finance your lifestyle, you need to rethink your perspective. It is impossible to make a case for one to be financially free while being in debt. In most cases there is no overnight solution to debt related problems, however, obligating yourself to eliminate your borrowings will set you in the right direction, even if it takes years. Keep in mind there is no such thing as „good debt“ when you are trying to achieve financial freedom. Before you borrow, be sure to always carefully consider how you are going to repay the money back.
- Commit and keep yourself disciplined
Conclusively, the primary reason for financial problems in life is lack of self-discipline. Most people have an inability to delay gratification, and therefore have a tendency to spend everything they earn, plus a little more. Achieving financial freedom is not something that happens overnight -you need a detailed plan, and a commitment stick to it. Once you plan your spendings every day in advance, you will find yourself being more precise, focused, while having better sense of self-control.