With inflation rising and the market still recovering from a global pandemic, keeping personal finances up to date is getting harder and harder for many families. Over 26 percent of the population polled at the end of last year believed their financial situation will worsen in 2022.
This means that more than a quarter of Americans fear losing their financial freedom. The term means different things – from not having to depend on anyone to having enough money to be able to stop working. Anyway, it goes through the idea of having a minimum cash flow to live a more peaceful life instead of spending the month chasing money to pay the bills.
Financial freedom guarantees you a life with less stress and more security; as you know, your expenses are covered, and you do not have to count pennies when the end of the month approaches. Let’s take a look at five practices to achieve it.
1. Think Long-Term
The most important step in accumulating wealth is to set your long-term financial goals. Why do you seek financial freedom after all? Just to live more peacefully, knowing that you have the income to pay the bills, or because you want to save to buy your house, maybe open your own business?
Put your financial goals on paper (or a spreadsheet) and carefully examine how much you need to get to some stability. Will you have to pay off a lot of debt you’ve already contracted, or just cut some expenses at home?
And most importantly: are you prepared for the unexpected, such as medical treatment or an accident involving your home or car? Being financially independent also means setting aside some money for those rainy days.
Some financial experts say a good emergency fund is somewhere around $10,000. Others argue that saving six months of your current salary is a good start. Choose the option you prefer and start planning today!
2. Monthly Budgeting
Once you have defined your financial goals, you must make a budget and stick to it. For starters, you will need to track your monthly spending to identify where your money is being drained.
There are free apps to track how much money you are spending each month and what you’re spending the most on. Some of them also allow you to set goals and be more responsible for staying within your monthly budget.
Budgeting is essential to understand your current financial situation and how much of your monthly income is going towards bills or debts. These are some of the benefits of organizing your finances:
- Sticking to a budget allows you to put some money aside for your long-term financial goals.
- You have more control over your money, knowing how much you can spend.
- Understanding how much you can afford helps you to be financially responsible with credit cards or loans.
- Setting a budget also allows you to identify unnecessary expenses that you didn’t even know you were having.
3. Spend Wisely
Speaking of unnecessary expenses, having financial freedom requires you to think wisely when buying stuff. Do you really need to trade in your car for a newer model or rent a bigger house? Buying less, and spending less on the things you buy, are the two best ways to save money.
There are several ways to spend wisely. In addition to cutting out superfluous things, you can try swapping some necessary expenses for more affordable ones. For example, unsubscribing from your printed newspaper or magazine to subscribe to their (cheaper) digital edition or switching cable TV to a streaming service.
If you still need to get rid of debt to achieve some stability, you can turn to credit-building credit cards, which are credit cards for people with bad credit. The system works like this: you send your card provider a refundable security deposit when you sign up, and then you can use your card up to this credit limit. Some companies offer lower fees, lower spending limits, and even rewards programs with cashback.
4. Create Passive Income
Simply put, passive income is that money you can earn without too much effort – let’s say, a source of income in addition to your monthly salary. It can be very helpful if done wisely.
Owning a property for rent is the most traditional example of passive income, but it’s not an option for everyone. On the other hand, you may have an empty room in your house that you can rent for starters. There are also faster, simpler ways to create alternative sources of income:
- Digital services like selling online courses or webinars based on your expertise.
- Affiliate marketing (promote products on social media to earn a commission).
- Create your own store on online sales platforms to sell products that you no longer need, or that you were able to buy at a cheaper price.
- Sell your skills, offering to create websites, digital arts or designs, and even write articles as a freelancer.
- Explore your skills by creating a YouTube channel, where engaging content can draw sponsors.
- If you don’t have a car at the moment, rent your parking space to a neighbor.
5. Stay Educated
Finally, educate and inform yourself on finances. Do not be afraid to ask for advice to better understand how you can handle debt, high-interest rates, and investments. In this way, it will be easier to achieve financial freedom.
Not everyone can have the opportunity to study economics in college. Still, you can already get good tips by subscribing to financial newsletters from trusted sources (for new free financial news every week), listening to financial podcasts, or checking out YouTube channels with economics tips.
Conquer Your Independence
You can spend a good part of your life chasing enough money to pay your monthly expenses. But that also means living under stress, not knowing if you’ll earn enough to pay all the bills. Or, worse, going into serious debt in the face of sudden and unexpected expenses.
That’s why it is so important to have enough savings, investments, and/or money to be able to lead a more peaceful and comfortable life with your family. Conquering your financial freedom will allow you to have that nest egg at hand so you can retire or change your life completely.