What Is Financial Freedom & How Do You Achieve It?

What is Financial Freedom and How Do You Achieve It

If you’re wondering about what financial freedom really is and how to achieve it, you’re not alone.

Financial freedom is a term often used nowadays. It is a word many reckon with in mind and not in reality.

Several definitions have been coined for this famous phrase.

Some say it’s all about being able to buy what you want, whenever you want; others say it is being free of debt and capable of meeting your financial obligations, yet still, others define it as simply being rich.

These definitions are not wrong; however, they give only a glimpse of the true meaning of financial freedom.

Many folks spend their time discussing the topic of financial freedom and daydreaming of the benefits and luxury that tags with it; however, the sad truth is the majority are totally clueless about this subject. 

Not having a clear idea of the definition of financial freedom is the beginning of failure in achieving it.

In this article, we’ll consider the definition of the term “financial freedom” and a step-by-step approach of how you can bring about it to your reality.

What is Financial Freedom?

Financial freedom means having sufficient savings, cash on hand, income-producing assets, and investment to be able to enjoy and afford the lifestyle of your choice without hindrance or debt.

It is a financial nest where you have the freedom to pursue the career of your choice without giving attention to monetary earning.

In summary, it means having a dependable cash flow to live the life you want without actively working and free from worries of sudden expenses.

Many think of financial freedom as an interesting theory that is not achievable in their lives.

They may be burdened with increasing debt or caught up in some unexpected events and financial emergencies that militate against their financial success.

On the contrary, financial freedom is achievable to anyone. It doesn’t matter if you’re neck-deep in debt or earning a meager sum as income.

There’s a way to pave through the struggle and attain financial success.

Why is Financial Freedom Important?

Financial freedom is undoubtedly essential because when you are financially free, you make life decisions without being worried about the impact on your finances.

You are simply ready to pay your bills and take care of sudden expenses without burdening and pilling up debts.

How Do You Achieve Financial Freedom?

To guide you on how to achieve financial success, below are 13 easy steps to financial freedom.

Step #1. Understand Where You’re at

To even begin the path towards financial freedom, you need to understand and acknowledge your starting point, i.e., your present financial situation.

Take a look at the debt you’re owing and the amount you have saved up

 To do this, you will need to list out all of your debts spanning from student loans, mortgage, car loans, credit cards, and money borrowed from friends and family.

Add the numbers up.

If they’re huge, do not panic, the point of this step is not to freak you out but to help you understand your current financial position by letting the numbers state the fact.

Next, compile a list of all your savings.

This should include money in your bank account, stocks, recurring monthly payments you receive, such as salary and cash in hand.

Add the numbers up.

Now you know exactly how much you’re owing and how much you own.

Step #2. Understand Where You’re Going

We all know that the goal is to be financially free. However, being financially free means having enough money to enjoy life without any financial worries.

Hence, there need to be put in place investments or business structures that will yield and produce consistent cash flow.

That will provide you the necessary financial security to enjoy the life of your choice.

You need to understand what that business structure would be as that would be your financial destination and what you would need in financial terms to get there.

Now, this would be your long-term goal.

Related: A Guide To Living With Intention, Focus & Purpose

Step #3. Look at Money Positively

Debts can be disheartening and demoralizing. However, don’t let that weigh you down.

Charge yourself up, be motivated, and focus on ways you can clear them up.

Most importantly, change your perception of money.

American writer and success coach Jen Sincero pointed out in her book: “You Are a Badass at Making Money” that the biggest obstacle that limits people who already are not making a lot of money from potentially making money is their outlook towards money.

They live and are accustomed to financial scarcity; hence they unconsciously think and feel that having plenty of money is bad. They feel a pang of guilt for wanting to have it.

This is a wrong outlook on money. Having this type of mindset wouldn’t help you progress financially. 

Money is simply a tool to help you get the need and desires of life, and that is what you should see it as—nothing but a tool.

Having a negative outlook about money will subconsciously and consciously thwart your chances of making it and keeping it.

Therefore even if you’re in debt, strive to maintain a positive view of money.

The very first step in the path to financial freedom starts from within the mind.

To help you create a healthy relationship with money, also read:

Step #4. Set Life Goals

Put into writing your financial goals, and break them into smaller bits of short-term goals along with a timeframe for achieving these short-term goals.

Financial goals are vague in general; thus, getting specific on your financial goals will help you to achieve them.

Short-term goals could include how much you want to have in your bank account at a particular age or the financial endeavor you want to embark on before a specific age.

Also, it would help if you counted down back to your current age and mark at regular intervals the financial goals you aim to achieve at such age.

Doing this will get you started working towards your goal without you consciously thinking about those goals.

Step #5. Track Your Spending

Tracking your spendings helps you spend cautiously, figure out what you spend your money on, and better prepare you to create a realistic budget.

An app like Mint is helpful in this regard—it tells you how much money you’re spending, where you’ve overspent, and how much is left.

Step #6. Make a Budget

To control your finances and guarantee your savings are on track, creating a budget and sticking to it is crucial.

This habit helps reinforce your financial goals and fight against the temptation to go off the railings on your spendings.

It is a financial blueprint plan of how you intend to spend your money.

Take note, creating a budget and tracking your spendings are two different things. It is pretty easy to confuse them both as the same thing.

Budgeting is you telling your money where to go, whereas tracking your spending is figuring out what your money has been spent on to analyze your finances and make necessary adjustments or changes.

Step #7. Pay Off Debts and Credit Cards in Full

Debts in any form are harmful to the creation of wealth. It is a hindrance to financial progress.

Strive to pay in full the balance of your credit card each month.

Another form of debt, such as student loans or mortgages, should also be paid on time to build a good credit rating.

If your debt is not connected with a government or financial institution, but rather someone you know directly, ensure to pay it off.

It is an excellent relief to be debt-free.

In paying off your debt, there are two methods to follow:

  • Debt avalanche method –  paying off your biggest debt with the highest interest first
  • Debt snowball method –  paying off the smallest debt first

Step #8. Create Automatic Savings

Pay yourself first. You likely must have heard of this expression.

It means putting a specific amount aside for your self-growth and investment in a savings account before paying anything else such as utility bills, maintenance fees, etc.

Doing this will bring you an inch closer to your financial goals.

To avoid the temptation of dipping into your paycheck savings, you should have an automatic contribution to your savings account the very day you receive your paycheck.

That way, even before your money comes to you, you’ve already paid yourself first.

The amount you should keep aside for your savings is debatable and depends on you.

Related: The 70/30 Rule In Personal Finance

Step #9. Aim to Spend Less

Spending less helps you save more and thus propels you towards your goal of financial freedom.

Even the rich who are already financially free still endeavor to spend less.

A typical example is the famous billionaire Warren Buffett; he still lives in the same home he purchased back in 1958 before becoming a billionaire.

He could easily buy a bigger or an expensive mansion. However, Buffett understands that getting a more expensive home when he already has a decent home means incurring unnecessary liability.

It would be best if you strived to limit or minimize things that take money away from you and increases things that bring money to you.

Also, another way to spend less is through negotiations.

A significant number of Americans are hesitant when it comes to negotiating for goods and services because they feel they would be considered cheap.

It would help if you subdued this cultural handicap, and you’d be amazed at the amount you’d save. 

Proper maintenance of your properties will also help you in your bid to spend less.

Take great care of everything from your shoes, lawnmowers down to your car. The cost of maintenance is a fraction of the cost of replacement.

Strive to spend less and live below your means.

Also Read:

Step #10. Create Additional Sources of Income

To be financially free, you dare not depend on one source of income.

Find a way to get money coming in from other means. Doing this increases the money coming in and likely will boost your savings.

Financial experts recommend having seven sources of income streams. You can earn extra income actively or passively.

A few examples of endeavors you can embark on for added active income are:

  • Work as a virtual assistant for business owners with jobs on Upwork.
  • Work as an Uber driver in your spare hours.
  • Help with household tasks on Task Rabbit.
  • Become a freelancer on Fiverr.
  • Work occasional jobs on Craigslist.

Ways to earn extra income passively that you can partake in are:

  • Sell profitable content like ebooks, audiobooks, podcasts.
  • Start a custom clothing business on Shopify.
  • Start a blog.
  • Become an affiliate marketer.
  • Invest in stock.

Step #11. Start investing

There is no way to achieve financial freedom without investing.

All the savings set aside are for the purpose of building your wealth through investment.

Take your time to study different investments and find what business endeavor works best for you.

Do not hesitate to contact a mentor who’s already down the field of investment you want to embark on. 

Investment, without a doubt, is a tool to progress in the path of financial freedom.

However, as much as it can propel you forward financially, it can also derail your financial progress if you go about it wrongly.

The right investment, patience, and hard work will result in your financial success and draw you closer to your goals to be financially free.

Step #12. Get a Financial Advisor 

Once you’ve grown your wealth to the point where you cannot easily convert your assets or liquid investment to cash, know you’ve come a long way on your goal to be financially free.

It would be wise to employ the service of a financial advisor to help you make more decisive, savvy business moves.

Step #13. Take Care of Your Health

Health is wealth.

If you will maintain your material properties to avoid spending on replacement, how much more on the care of your health.

Invest in your health by regularly visiting doctors and adhering to health advice about any problems given to you.

Your health should be your top priority.

Also, regular exercise and a healthier diet can prevent several health problems.

If possible, get health insurance.

Poor health can force you to early retirement and negatively impact your finances.

The Bottom Line on Financial Success

The path towards financial freedom is realistic and can be achieved by anyone as long you’re ready to put in the work required.

Having understood the clear definition of what financial freedom is, you should start working towards achieving it.

The tips and steps on how to achieve financial freedom outlined above will prove helpful in your financial endeavor.

You Might Also Enjoy: