5 Steps Towards Financial Freedom

If you are like most people, you dream of a financially free future. This means that your expenses, for the rest of your life, will be covered by money you saved up or are earning passively. Although this sounds like a dream, the path to a financially free future is possible. Hard work and planning is required, but once you’ve laid out the chips, you will be on your way to early retirement. We’ve added our thoughts to the steps below, which are pulled from the book “How Money Works” published by Penguin Random House. This book uses easy to understand writing paired with wonderful illustrations to explain how money works. In order to become financially independent, consider following the five steps below.

Assess Situation

Take the total sum of everything you own, from the value of your property and stocks, to retirement funds. Subtract this from your liabilities, such as loans, and credit card debts. This number gives you an idea of your net worth. Unlike income or wealth, your net worth reflects your final numbers after liabilities are considered.

Set Financial Goals

Review your past statements and consider how much money you typically spend each month. Take into account possible emergencies. This average will help you know how much money  you need each month to live your standard of living. This amount will also help you understand how much money you need to earn (through investment or passive income).

Save Your Money

Do what your grandma always told you for years and start saving a percentage of your income! Although this takes great discipline, saving money will allow you to invest more into assets that have increasing value as time goes one, such as art, jewelry, and property. Every penny counts here. Consider what you can cut out, such as paying for one entertainment service instead of many (i.e. Netflix, Hulu, etc.), or cooking dinners at home and enjoying leftovers instead of eating out each meal.

Manage Debt

Your credit card and loans should be prioritized. The longer you hold onto debt, the more money you are going to spend in interest. Start by making a list of all you that you owe, from credit card debt, to car loans, and student loans. Increase your payments each month, and prioritize this action month after month. Do your best to avoid accruing more debt with any new and unnecessary purchases requiring any loans or credit card usage.

Use Investment Payouts

You may be tempted to spend the money investments pay you. Instead, use these payouts to invest even more, or to pay off more of your debt. This is where the bulk of your freedom may stem from. With investments, you can make money from compounding interest. You also will want to make sure you have a healthy and balanced portfolio.

 

During your working years, consider building a business that may generate you passive income. For example, consider building a blog covering a popular topic and earn money through paid advertisement or writing a book. Other ideas can be found at in this article written by Deacon Hayes in “25 Best Passive Income Ideas to Make Money in 2019”. The goal is to retire early! With continuous effort and discipline, you can enjoy a comfortable life without the need for work.