For most people, financial freedom usually means having enough cash, savings, financial investments, and cash available to afford the type of lifestyle we wish to provide for ourselves and our families. It means growing savings that enable us to retire or pursue the career we want without being driven by earning a set salary each year. Financial freedom means our money is working for us rather than the other way around.
financially free, you must free yourself from consumer debt, build a savings fund that can support you, and create a source of passive income through investing or operating a business that can pay for your living expenses.
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There are several obstacles that prevent us from reaching our most important financial objectives, including increasing debt and monetary emergencies. Each of us faces such challenges, but the following habits can help you achieve financial wellness.
Jot down how much money (assets and income) you need to pay for the lifestyle you want. Include the year when you want to achieve your goals and whether or for how long you will need to pay for those goals. The more specific your objectives, the more likely you are to make them a reality. Then, count backward to your present age and establish financial mileposts at regular intervals. These might include certain dollar amounts saved or assets acquired.
Independent income means you have a business, government benefits, or other sources of regular payments that do not require you to work (exchange your time for money). If you qualify, social security benefits arrive every month. If you have built a business to the point that you can pull back from day-to-day management, you can receive payments regardless of how much time you put in. If you own a rental property, you receive a rent payment once a month, although property management often requires property maintenance and runs the risk of renting to a tenant who misses one or more payments.
If you have enough independent income to pay for your living expenses and your wants, you are financially free.
This can a tricky landscape to navigate. You will hear many people advocating getting into real estate to build wealth. For many, this is a great avenue. There are also plenty of horror stories of people getting stuck with bad tenants and losing money on their portfolio of homes. It is important to evaluate the risk of what assets you hold. For some that could be a mixture of real estate, stocks, and business ownership. The key to a good asset is that it is sustainable and returning cash.
Creating a monthly budget is essential to financial freedom. You must map out all of your income and fixed expenditures and stick to a plan that ensures bills are paid while working towards making funds available for savings and future investments. Revisiting your budget each month helps you to stay focused and reduce the temptation for spending beyond your means. Credit cards and high-interest loans are the greatest barriers to building your own wealth.
Map out what is costing you the most in interest each month. You may find your student loans have a much smaller interest rate than a consumer credit card. If that's the case it makes more sense to pay the minimum on the student loan each month and pay more towards your higher interest rate consumer credit card. Always pay the minimum required each month to avoid missed payment fees.
If your student loan rate is 5% and the credit card rate is 20%, you are paying $15 more each for every $100 you carry on your credit card versus the student loan. This can add up fast if you have thousands of dollars on credit cards.
After you have paid your taxes, you must pay yourself. If your employer has a retirement plan that has matching, do what you have to do to take advantage of the matching. Most banks have a feature that allows you to set up an auto-transfer to another account at a given interval. Send money to your savings account each month, this removes the temptation when you see funds available in your checking account.
Your credit report drives the interest rate you can get for various loans. With that in mind be conscious of large purchases. For example, if you are trying to buy a house, it is a horrible idea to buy a car in the same time frame. The car purchase will drop your credit score and could increase your mortgage interest rate. Which effectively reduces the amount of the loan you qualify for.
The American culture is not huge on negotiating. Don't be afraid to ask what discounts are available. Many places offer student, military, and retiree discounts. Smaller companies normally have more freedom to bargain with you. It never hurts to try!