How to Achieve Financial Freedom
You may be wondering how to achieve financial freedom. After all, it would be nice to be free from any and all money troubles. But how do you get there?
I have what may be bad news for you: It’s going to take a lot of patience, sweat and hard work. But here’s the good news: With that patience, sweat and hard work, anyone can achieve financial freedom. Even you.
In this article, we’ll dive deeper into how you can get there. There are many steps it will take for you to be truly financially free. But in the end, the journey will most certainly be worth it.
What Is Financial Freedom
Before we discuss how to achieve financial freedom, we need to know precisely what it means. Of course, in its specifics, it means different things to different people.
Perhaps financial freedom for you looks like living in a small apartment in a city you love without having a day job. You spend your time volunteering for a cause you’re passionate about and have all the time you want to read your favorite books.
Or perhaps for you financial freedom involves living in a luxurious mansion, riding Jet Skis on vacation in Barbados and having a giant nest egg to leave to your children.
The specifics don’t really matter. They will look different for everyone. But what financial freedom truly means is living the lifestyle you want without having to worry or face anxiety about money.
In the negative sense, it is freedom from worry. In the positive sense, it is freedom to do whatever it is you want with your life. For a lengthier discussion on what financial freedom is, check out my colleague Corey Mann’s article on the topic.
The First Step in Achieving Financial Freedom
Stacks of bills. Endless spending. Large credit card debts. No savings accounts. Nothing put away for retirement. And student loans that feel like a mountain pressing down on you.
Stop. Now take a deep breath.
Fifty-nine percent of Americans worry about money constantly. And yes, there is a lot to worry about – 78% of Americans live paycheck to paycheck. U.S. household debt is at more than $14 trillion.
And added to that, the economy isn’t exactly doing well right now, thanks to the coronavirus. That’s enough to give anyone anxiety.
But here’s the deal: Even if your current financial situation is terrible, there is a way out, and you can achieve financial freedom. But first you must take a pause. And then you must look honestly at where you are right now.
Start From Where You Are
Learning how to achieve financial freedom starts from where you are, right now, in this moment. And I don’t mean which room of your house you’re reading this in. I mean your current money situation.
And that means being rigorously honest with yourself. Also, what it really means is coming to terms with what is perhaps the most important number in all of personal finance: your net worth.
Your net worth is what you have left after you add up all of your assets and subtract all of your debts. It is this number that reveals your true current financial position.
Computing this number by hand or in a spreadsheet can be tedious. So you may want the help of a tool like Mint or Personal Capital in determining your total net worth.
And fair warning: The number may be ugly today. The median net worth of U.S. households is about $97,300. But some people have a net worth around zero. And plenty of people even have a negative net worth.
Again, the important thing is to not freak out, but accept where you are so that you can start planning how to achieve financial freedom in your future. It is possible!
The Next Step: Living Within Your Means
Here’s a pro tip: You’ll never achieve financial freedom if you do not start living within your means. That means no longer spending more than you bring home in your paycheck. That means no more accumulating credit card debt to finance your lavish lifestyle.
Many Americans live well above their means. They are always chasing the next thing: the next hot car, fancy iPhone or $20-per-day partially skim frappe mocha lattes with whipped cream, or whatever it is you order. At some point you need to say, “Enough is enough.”
Stop worrying about keeping up with the Joneses. There’s no need, and there’s nobody worth impressing. Let the Joneses do all the spending. Let yourself live frugally. Then see who winds up happier, both financially and generally, in 10 or 20 years.
Sure, sacrificing current luxuries and current pleasures is hard. Nobody said it wasn’t. I warned you that this process is going to take you a lot of sweat and hard work, and I meant it. But trust me, in the end it is worth it.
So start living within your means today so you can start achieving financial freedom in the future. Your future self will look back and thank you for it in time.
Your Next Step: Setting Your Financial Goals
In starting to think about how to achieve financial independence, you’ve determined how to calculate your present net worth. Great! Now you know where you are.
Now it’s time to start thinking about where you’re going. In general, that means developing goals for both your life and your money. Where do you want to be in 10 or 20 years?
You need to take a hard look at what you want your life to be in order to determine what exactly you need your money to be in order to get there.
Whether your goals involve starting a business you’re passionate about, traveling the world, achieving financial independence and retiring early, or leaving legacy money to your children, you need to determine which things are most important to you.
Then, think about how much money it is going to take in order to get there. Will you need an income of $100,000 a year to support yourself? A million and a half in the bank to generate passive income and live worry-free?
These are the numbers you need to know in order to start figuring out your action plan to achieve financial freedom. This is how you will get there.
The Path to Achieving Financial Freedom
Once you have determined your goals, it’s time to set foot upon the path to achieving financial freedom. Everyone’s path looks a little bit different. But there are some essential steps that pretty much everyone must take to get where they want to be.
The steps to achieving financial freedom are roughly as follows:
- Setting up an emergency fund – It’s time to stop living paycheck to paycheck. You need to start putting your money in a high-yield savings account so that you can prepare for emergencies. Because financial emergencies will happen.
- Paying down your high-interest debt – You know that credit card addiction you have? Time to knock it off. Take either your highest interest credit card balance or your lowest remaining balance and pay it off. Then, rinse and repeat until you have no more credit card debt.
- Paying down your low-interest debt – Once you tackle the credit cards, you’ll need to approach what might seem like the scary debt: the low interest debt. That’s your student loans, your car payments and even your mortgage.
- Boosting your income – You can achieve this through negotiating a pay raise, finding a new job, acquiring a side hustle or starting to generate passive income sources.
- Saving for retirement – There are a number of different ways you can start to save for retirement. These include leveraging your 401(k), 403(b), IRA or Roth IRA. Put in as much as you can and accept the employer match. Free money!
- Investing your money – In the end, this will likely be the most crucial step, thanks to the magical powers of compound interest. Going from saving to investing is the real road to achieve financial freedom.
So there you have it: your rough path to achieving financial freedom. It will take you years. But two of the most important ingredients are patience and persistence. Again, it’s worth it. I promise.
Concluding Thoughts on How to Achieve Financial Freedom
Freedom, for some, is just another word for nothing left to lose. Thank you, Janis Joplin. But for you, achieving financial freedom means everything to gain. And now you know how to do it.
As you begin to start your financial freedom journey, you will be thrilled as you watch your net worth start to slowly creep up and then skyrocket.
Of course, if you’re looking to go more in-depth on the topics I’ve covered in this article, I highly encourage you to sign up for the Investment U e-letter, which is completely free and delivers our latest and greatest articles on achieving financial freedom right into your inbox. The signup box is below.
Now that you know exactly how to achieve financial freedom, it is time for you to go forth and seize your dreams, one paycheck at a time. You can do this. Good luck and good investing to you.
Read Next: 10 Financial Freedom Books to Improve Your Personal Finances
About Brian M. Reiser
Brian M. Reiser has a Bachelor of Science degree in Management with a concentration in finance from the School of Management at Binghamton University.
He also holds a B.A. in philosophy from Columbia University and an M.A. in philosophy from the University of South Florida.
His primary interests at Investment U include personal finance, debt, tech stocks and more.