Attaining Financial Freedom - Part 1

In this post, I am starting a series on financial freedom. I am going to show you how you can go from living paycheck-to-paycheck to becoming financially free.

While financial freedom may mean different things, it generally means having enough savings, financial investments, and accessible cash to afford the lifestyle desired. It could also mean the ability to pursue goals that are not limited by having a fixed salary each year. In my humble opinion, if you must pick up extra shifts or start an additional job to live comfortably, you are not financially free.  On the other hand, if you can easily afford the lifestyle that you desire without having to work extra time or be in debt, you are financially free.  Financial freedom gives you a sense of freedom and control over your life. You are not getting harassed by creditors. You don’t live above your means. You have multiple streams of income. I have highlighted some important steps that will help you as you begin the journey of becoming financially free.

•       Eliminate all bad debt: One of the first things you do to attain financial freedom is pay off your debt, especially bad debt. I know the concept of good vs bad debt is debatable. I explained the concepts in this blog post. Having debt negatively impacts your financial freedom as a portion of your earnings goes towards servicing the debt. Failure to pay the necessary principal and interest could have serious implications like stress, loss of assets, bad credit and many other things. There are several proven strategies for paying off debt faster. These are discussed in this blog post on debt management. 

•       Set goals: To be financially free, you need to set goals. You must have a plan for making and spending money. Setting financial goals is basically creating a roadmap or list of what you plan to achieve in your finances. Do you want to get out of debt? Do you want to start a new job? Do you need to save or invest for a specific purpose? These are some of the important questions that can guide you in setting financial goals. There must be a written plan, backed by actions. For more information on goal setting, see the blog post on setting financial goals.

•       Budget: You need to keep track of your expenditure. Curb unnecessary spending. Determine what you are spending most of your money on. Scrutinize the different categories of your spending and find out if there are ways to reduce your spending. An important rule is to never spend more than you earn. Even better, spend less than you earn. For more information, see the blog post on budgeting.

•       Save: Set aside a certain percentage of your income as savings. This percentage is debatable, and it majorly depends on your financial situation. Do not forget the power of compounding; a little savings every now and then becomes big savings over time. It is recommended to have three to six months of expenses in savings, as an emergency fund, so you have money to live on if you lose your income temporarily.

•       Invest: Just like savings, a portion of your income should go towards investment. If your employer offers a retirement investment, sign up for it! Many employers offer company matching. Make sure you contribute enough to get 100% of the company matching. That is free money that most people, unfortunately, leave on the table.  Invest in stocks, bonds, CDs, and other investment products. However, be cautious and choose wisely before you invest in any product. You may diversify your investment by investing in multiple products.

•       Choose your career and jobs wisely: While money does not guarantee happiness, it can solve a lot of problems. Therefore, if you have an opportunity to get a job that will increase your income, use it. It could mean learning a new skill set, switching to a new career, or developing yourself to move higher in your field. If you are in the process of determining a career path, consider your potential income. Do extensive research and find out the median salary for that career path. It is only wise to choose a career that will afford you the opportunity to earn good pay. Remember, interest/passion and other factors should also be considered in picking a career.

•       Choose your employer wisely: If you have the option of choosing between multiple employers, factor in things like job security, opportunity for growth and benefits and/or perks offered. As an example, if an employer offers 100% employer-paid health insurance package, that is a huge break on the cost of insurance for you. You can set the money you would otherwise be paying for insurance premiums aside as savings or investment.

•       Start a business: Unless you are the CEO of a big tech company, you cannot become wealthy working for someone else. To generate more income and be financially independent, start a company, a side gig or a freelance job. If possible, have multiple streams of income.

•       Give: Many people think hoarding is the best way to retain money. This is not quite true. There are many benefits of giving, ranging from personal satisfaction to religious benefits and tax credits.  

While this is not an exhaustive list for attaining financial freedom, the steps above have been tested and proven. In the remaining parts of the series, we will discuss each of the points above in more detail.