Financial Plan To Financial Freedom
Finance Plan To Financial Freedom
Financial freedom is something everyone wants to reach but in reality, people are not taking the necessary steps to get there. This may be for many reasons. One reason may be that you want to do so, but you don’t know what type of strategy or steps to follow.
Well, today, is your lucky day because I am going to give you different steps to take to be on your way towards financial freedom.
My definition of financial freedom is when you are able to live life without constantly worrying about what bills you have to pay and debt you have to pay down. It’s when you feel comfortable enough to follow your passion, instead of thinking about the income you are bringing in. By having financial freedom, you will live a healthier life due to minimal stress. Stress is one of the leading gateways to many illnesses.
Whatever financial milestone you are working for, this Financial freedom checklist will help you start improving your financial life. As you knock each one off of the list, you’ll get closer and closer to being free!!!
Your Financial Freedom Guide
Fully Build an Emergency Fund
An emergency fund is something I believe everyone should have. However, according to a report by Bankrate.com, 26% of Americans have no emergency fund.
According to this same report, only 40% of families have enough in savings to cover three months of expenses, with an even lower percentage having the recommended six months worth of savings.
Although there are case by case situations on why people may not have an extensive emergency fund, these statistics need to improve in order to improve our economy. An emergency fund can help you if you want to make a career change, if your hours are cut back, lose your job, or if you have an unexpected expense such as brakes for your car, and so on.
Having an emergency fund can help you get through tough parts in life, and is important in reaching financial freedom.
Read more at How to Build a Successful Emergency Fund – Emergency Fund 101
Stop Trying to Impress Others.
This is a big one that many people overlook when trying to become financially free. DO WHAT YOU CAN AFFORD TO DO. Many times, we get caught up in who has the best material things (cars, clothes, shoes, jewelry, ect..) but this only causes financial stress because many times loans are what’s purchasing these materials.
For an example, if you are making $50,000 a year and you decide to buy a $35,000 Mercedes, at a 4% interest rate on a 60 month loan(5 years), you will pay $646 a month to pay off the car.
If you were to buy a $20,000 car at a 4% interest rate on a 60 month loan(5 years), you will pay $368 a month to pay off the car.
By buying the $20,000 car, you will save $278 a month and $3,336 a year. If you invest your extra $3,336 into a low cost index fund for 10 years and make a 7% return year over year plus compound interest you will have made $55,880.
This example above is how people become financially free. By making simple smart financial decisions, you will have had $55,880 more than what you would have had if you went with the Mercedes option.
Create A Realistic Budget
The average individual carries a lot of financial stress which creates a sense of panic. Most people have credit card debt, student loans, car loans, and other forms of debt. However, not many people have a budget.
You should most definitely be spending less than you earn, and a realistic budget can help you achieve financial freedom.
For more tips, tricks, and ideas, read more at How to Build a Successful Emergency Fund – Emergency Fund 101
Pay Off Your Debt
If you want to reach financial freedom, then you’ll most likely want to figure out how to eliminate any debt that is preventing you from reaching your financial goals. For the average person, this probably means any high interest debt, any debt that’s causing you stress, and so on.
By paying off debt this allows you to:
- Put extra money towards an emergency fund
- Invest in stocks, bonds, money markets ect..
- Stress less
- Not settle for a career you don’t want
- Be a slave to a check
Have Regular Money Meetings With Significant Other or Family
A family who has regular money talks and budget meetings is more likely to be financially successful and happier than a family that doesn’t.
Regular money meetings can lead to everyone sharing a common goal and making sure everyone is on the same page creates effectiveness when implementing a financial plan.
Have a Great Credit Score
Although this sounds easier than it really is, work towards improving your credit score month by month. A good credit score means paying lower interest rates on your loans which in return means more money in your pocket that can go towards investments or another venture.
Diversify Your Income Streams.
Do you rely on one source of income?
You can do this by finding side jobs/hustles where you can add on to your current income. I know many people are asking, “why should I diversify my income if I am working a stable job making stable/good money”? The answer to this is simple. Supplemental income can help funding for retirement which can allow you to catch up on retirement, retire early, or fund a specific goals that you may have. Things on the top of my head is:
- Purchasing a house
- Paying off student loans and other debt
- Purchasing a car
- Saving for a vacation
And the list goes on and on.
Make More Money to Reach Financial Freedom
I believe that creating extra income and cash flow can change your life in a positive way.
In fact, because of strategic planning and extra income here and there, I was able to pay off $20,000+ in student loans from Grad school within 1 year and a half.
Save for retirement regularly.
According to http://makingsenseofcents.com 56% of Americans have less than an average of $10,000 in retirement savings and 33% have no retirement savings at all.
People commonly put it off as a non important thing because they may have a priority NOW that they believe is more important. This could be crucial to your future.
Do you know how long it will take you to retire?
With just a 1% savings rate, it would take you slightly over 98 working years until you reach retirement.
A 5% savings rate means that it would take you 66 working years to retire.
A 20% savings rate means that it would take you 37 working years to retire.
A 50% savings rate means that it would take you 17 working years to retire.
A 75% savings rate means that it would take you 7 working years to retire.
If you want to retire early, start saving for your retirement as young as possible as compound interest will work in your favor!