You know that feeling- you are enjoying a holiday and suddenly you realized that its time to go home and resume your work. Still you didn’t finish what you planned for. It feels heartbroken. Its not finished yet. You come home and discover that your car is broken down. All sudden you are looking for few hundred dollars to fix it. Wait, you received bills for your electricity, rents, insurance etc. You are overwhelmed now.
Now you are thinking how I am going to sort these. You don’t have an emergency fund. Your last resort is to get into personal debt and get out of this.
What if you could resolve all financial issues without much hiccup. You can pay your bills without worrying much. You could plan your second holiday and enjoy your life a little more. Exactly the way you think.
You can easily pull out $1,000 in case of emergency. It doesn’t matter if someone rear-ended your car or you just wish to buy a nice pair of shoes for yourself. You have the money.
Financial Freedom means you can enjoy your life at your own terms. Financial Freedom also doesn’t mean you can achieve anything unreasonable beyond your abilities. Rather, you can fulfil your dream and desires in a controlled planned way. For me financial freedom is to afford holidays, pay for my child’s education, buy a nice car and a nice house without being overly stressed. Most importantly, financial independence means working at my own terms. As I love to take control of my finance and plan proactively. I think achieving financial freedom is becoming effortless for me.
You can’t expect to achieve financial independence just next day or month. It takes days of planning and consistent planned actions.
It’s hard to save money and get ahead financially when you’re just trying to make both ends meet. You might have a financial plan in place, but it’s challenging. To be financially stable, you must spend your money wisely. And it is not something impossible.
What does Financial Freedom Mean to Millennials?
To achieve financial independence is a goal for millennials. Usually, it means a life where you have enough savings, sizeable investments, and cash on hand. It lets you follow the lifestyle you cherished for yourself and your family. It might also include a financial plan that will allow you to pursue your dream without griding every day at 9-5. Or you might have a retirement plan that will let you spend the rest of your life smoothly.
In other words, if your passive income exceeds your active income. You can surely say that you achieved financial freedom.
People must work strategically to lead such a life. Most of the time, we are burdened with debts, financial emergencies, and other issues that hold us back from reaching our goals.
How to Achieve Financial Freedom?
I know financial freedom can’t be achieved overnight. But everything is possible when you are determined enough. First, you’ll have to plan and then work according to it.
Here are eight steps that are going to help you on your way to achieving financial independence.
1. Set Your Financial Goals
Setting specific goals makes them easier to achieve. For example, if your goal is to have a certain amount of bank balance, write down how much you want in your bank account, and at what age you want that to be accomplished.
Then, establish financial mileposts at regular intervals. It helps you tracking your progress and keep you motivated.
How to Set Financial Goals
Figure out what matters the most to you. For help, ask yourself where you want to see yourself in next 5 or 10 years.
- Then the next thing is to sort the goals according to time. Which one is within reach and can be achieved right away, which one will take a bit of time, and which one must be part of a long-term strategy?
- Applying the SMART- goal strategy will help you make sure your goals are Specific, Measurable, Achievable, Relevant, and Timely.
- Look at your budget. If you don’t have one, make a budget and get the grip of your financials. Make a list of both your incomes and expenses. It will let you know how much you exactly income and what steps are necessary to take.
Monitor your progress. Set some benchmarks and make sure you are hitting those timely. If not, take some time to re-evaluate what went wrong.
2. Say Yes to ‘Budget’
To enter a financially secured life, making a budget and spending according to that is the most important step. There are people who tend to not avoid budgeting. But making a budget to get a firm grip of your financial situation is the easiest thing to me. Almost 55% Americans maintain a budget on a regular basis (within less than 5 years). Why don’t you try it out?
For making a budget, first, you’ll have to track your spending. Then, make a list of your fixed payments that you’ll have to pay right away. Also, you’ll have to find out your total monthly income. It’s not that hard. Though it might feel overwhelming, you can take help from apps such as PocketGuard, Mint, YNAB etc.
When you are done creating the budget, start working according to it. Don’t give up if you suddenly overspend. Stick to it. At first, it’ll take time to get adjusted to the budget, but you’ll succeed with time.
3. Break up your affairs with Debt and Credit Card
If you are currently in debt, get out of that as soon as possible. Lessen the usage of credit card gradually. The more you use this card, the more you build up the castle of debt. And that becomes your biggest burden. That’s why, I think it’s better to get rid of it for a better and debt-free future.
When you don’t have a credit card with you to pay, you might end up not buying the unnecessary things you picked up at the store. And you won’t be increasing your debt.
But there are people against this concept. For those who think credit card is a helping hand in emergencies, can keep it. If they do, it’s better to pay them off as soon as you become financially stable. Because paying the debt on time is a factor in building a good credit rating. So, don’t forget to pay them off full balance every month.
4. Create your own Super-Power habit
- Savings Automation: The authors of both the best-selling books “The Automatic Millionaire” and “I Will Teach You to Be Rich,” David Bach and Ramit Sethi love the approach of automation.
People who are not that interested in saving or have a habit of spending the money the moment they receive it; automated savings can be the best solution for them. The purpose of automatic savings is to help to stay on track in case of saving. So, whenever your salary is transferred to your bank account, a fixed amount gets transferred to your savings account. For this you don’t need to go thorough any kind of hassle.
According to the American Payroll Association’s ‘Getting Paid in America’ survey, 93.87% Americans receive their salary through direct deposit. If your company or employer offers direct deposit, it’s the best opportunity for you to automate your savings.
By this simple habit alone you’ll save money every month from your paycheck and won’t have to think about it again.
- Emergency Fund – Your Friend in Need: According to statistics, almost two-thirds of Americans don’t have an emergency fund. If you spend your whole salary, certainly you have nothing left with you to put in your emergency fund. So, the moment you receive your salary, save at least 5% of it.
According to the data of U.S. BUREAU OF LABOR STATISTICS, an average household spends approximately $3,500 per month. So, an average household should have a $42,000 emergency fund for a one-year emergency fund. To build an emergency fund-
- Calculate your Expenses (include the daily necessities and fixed payments)
- Measure your total Income
- Add a Buffer to protect yourself from any uncertainties
Building an emergency fund is your first step towards financial cautiousness. Go ahead and start building it right away!
5. Create a love affair with Investing
Investing your money is the effortless way to let your wealth grow. When you are living according to your budget and saving up, it’s the right time for you to start investing.
- Robo-advisor:
Without any prior investment experience, robo-advisors let you invest your money in a hassle-free way. To know about your goal and risk tolerance, robo-advisors ask a few questions and then invest your money. They invest in diversified stocks with low cost. They also offer automated investment plans to help you grow as an investor.
Robo-advisors charge an annual average fee of 0.25%. So, if your investment is $10,000, you’ll have to pay $25 a year.
- Index Funds:
An index fund is one kind of mutual fund. Its holdings track a particular market index and uses as benchmarks. A stock market is measured by stock market index. It helps the investors to compare current price levels with past prices for calculating market performance. Market indexes are followed by investors to gauge market movements.
By this type of investment, you can build a diversified portfolio and earn solid returns.
6. Spend Only on Your Necessities
If you are someone who doesn’t have financial plan or an emergency fund, rather has piled up debts here and there, you are obviously living above your means. It’s not a problem until you face a financial crisis.
‘Living below your means’ doesn’t necessarily mean you have to cut out all the expenses out of your life. It means spending in such a manner where you spend money accordingly and save it.
You are being encouraged to utilize your money in a disciplined or planned way. And this habit of spending less allows you to save, invest and grow your money. Follow your budget and keep track of you every penny you spend. It helps you understand where you need to focus more to spend less.
Understanding the difference between your necessity and want helps you reduce your expenses. Next time before buying something think if that’s a necessity or a want.
7. Kick ‘bad Debt’ Out of Your Life
According to the book- Rich dad Poor dad, the author says bad debt a.ka. personal loans eats your wealth.
I know that bearing the burden of debt makes your life miserable. Because the monthly payments take away a significant part of your paycheck. It leaves you with such an insufficient amount of money that it becomes hard to make ends meet.
If you are currently in debt, try to get out of it as soon as possible. Increasing your current income by starting a side hustle or taking a part-time job can help you pay-off your debt faster. You might try to cut-off some of your expenses for a certain time being to get out of the debt sooner. Be it student loan, mortgage loan or credit card debt, don’t let any kind of debts ruin your financial life.
Negotiation and debt consolidation can also help you a lot. You might be able to lower your interest rate by negotiating with the bank. Also, you can choose debt consolidation as an option if that works for you. Find out what helps you the most and get yourself out of this endless cycle of debt.
8. Prepare Yourself for Life’s Uncertainties
Before you get hit again by pandemic blue, you should create an emergency fund for yourself for at least next 12 months.
A financial safety net refers to a portfolio of measures taken for reducing financial risks. It may include savings accounts, insurance policy, emergency fund etc. It is usually built for protecting you and your family from financial uncertainties. And to secure your long-term financial goals from unexpected events like an illness or other accidents.
As we all know, anything like a pandemic may come up again. Like that, financial emergencies are bound to happen. But you can be relieved by taking precautionary measures. That’s why it’s important to develop a financial safety net. While building your safety net, you’ll need to think about how to save, invest, and protect yourself and your family from financial risks at the same time.
- Insurance Coverage:
Insurances are there to make our financial life secure. Life, auto, health and LTD are the most important ones in case of purchasing insurances. For protecting your income, insurance coverage is the most important thing.
Long-term disability (LTD) insurance is one of them. It’s the most cost-effective one compared to social security or short-term disability insurance.
It gives you the benefit to get up to 60% of your monthly income when you are unable to work. For this, you’ll have to spend from 1 – 4% of your annual income.
On the other hand, life insurance is important to help your family after your death. You’ll have to
Keep in mind your monthly expenses while estimating the amount of insurance coverage.
Because the 2018 Insurance Barometer Study of LIMRA shows that, 1 out of 3 families won’t be able to meet their daily necessities in the first month of the jobholder’s death.
- Retirement Plan:
Making a robust savings plan for your retirement is one of the best financial decisions. Saving for retirement early helps you to make decisions about your future. You can decide on how you would like to live your life after you retire.
Also, saving from now on will help you in case of the future emergencies like running out of money after retirement.
Most people aren’t saving enough before their retirement. They tend to depend on their 401(k) and other savings accounts.
According to the survey of Federal Reserve, 63% of Americans don’t think that their savings are on track for the retirement. And most Americans are willing to retire by the age of 67.
So, it’s necessary to save enough for their retirement plans. Without starting from now, they won’t be able to have the adequate amount of money to lead their life.
In case, you have a 401(k) and a matching fund (your employer will match your contribution up to a certain amount) at work, it’ll help you the most.
Final Thoughts
Financial freedom varies person to person. I think every person should think about this topic. Without having a proper plan of achieving financial freedom, you can’t achieve anything.
Maybe you want to go for a career which doesn’t promise big money initially. Or you want to work for international volunteer project. Or you want to go for a world tour. By achieving financial freedom, you can achieve anything without worrying about your bills.
Being financial independent allows you to live a stress-free life even in the midst of a pandemic. Because all your finances are well taken care of. It isn’t that hard to have a safe and secure financial life. All you need to do is planning and execution.
The basics of financial freedom include having an emergency fund, investments, and proper insurance coverage. These are the building blocks of your financially secured life. So, what are you waiting for? Hop on! Take the steps that are needed and get your life back on track.
