Financial freedom might seem like a fantasy or something only others can accomplish when you are in debt or living paycheque to paycheque, but it is achievable. Check out the following 9 steps toward financial freedom.
Financial freedom will mean something different to each person, but at its base, it is having enough income to afford the lifestyle you want today and in the future. It also means having security in the face of financial emergencies including illness, injury or loss of a job.
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8 Steps Towards Financial Freedom
1. Clearly Understand Your Life Goals
To create a realistic plan for financial freedom you must be aware of what it will cost. Figure out how much you will need and be specific. Make sure you consider not only your regular monthly costs but annual expenses such as gift purchases, trips and seasonal clothing as well.
2. Create a Budget
A budget is a financial picture that will act as a guide, allowing you to create financial routines and help you achieve the goals you have set. Begin by identifying your monthly expenses for the past 6 months. Once you know what you spend monthly categorize your needs, wants, and extras from those expenses. Base your budget on your income. Start with how much you have coming in and then plug your expenses into the budget beginning with the needs category. Review and adjust your budget monthly.
3. Track Your Progress
Make it real and be thorough. In the beginning, review the budget daily so you are aware of what you have to spend and what you need to pay. Eventually, back it off to weekly, and then monthly as you become more aware and accountable.
4. Save for Emergencies
In order to establish financial freedom, prioritize creating an emergency fund. Save $1000 as quickly as you can. Remember this money is not to be used for fun. It’s for when you have a financial crisis (your car breaks down; the hot water heater is leaking etc.) An emergency fund prevents you from taking money out of your budget for things you didn’t expect and keeps you on track. After you have paid down your debts, increase your emergency savings until you have 3-6 months’ worth of expenses covered in your savings.
5. Focus on Debt Reduction
Debt reduction provides faster financial freedom. There are a couple of strategies that work. Both are sound and recommended in the world of financial planning. You can do the math if you choose or think about what will be the most motivating to you and decide which one is best based on your situation and personal character:
- Snowball strategy – Make minimum payments on all debts monthly and apply any extra income to the smallest total debt. This strategy lets you pay off the smallest debts first giving you a sense of accomplishment and momentum.
- Avalanche strategy – Make minimum payments on all debts monthly and apply any extra income to the highest interest debts even if they are the largest overall debts. This strategy will save you money in the long run and likely have your debts paid off more quickly, but it might take longer before you feel like you are getting anywhere.
6. Pay Yourself First
We know it’s hard to save money when you feel like you don’t have enough, but it is important to plan for the future. Even if it is only $5-20 a month, begin putting money into a savings account. Set up an auto-withdrawal on payday and have money transferred to your personal savings account (and emergency savings account.) You are less likely to miss it if it’s gone before you are aware of it.
7. Work as a Team
If you are married, make sure this is a joint adventure – work together to create the budget and support each other as you move toward financial freedom. If you have children, you may want to include them in the goal-setting and budget planning parts that involve them. Learning healthy financial habits at a young age will give them a great start!
HOW TO BUILD GOOD FINANCIAL HABITS IN YOUR CHILDREN
8. Consider Adding Disability and Critical Illness Coverage to Your Policy
The unexpected loss of income due to illness or injury can quickly empty an emergency savings fund, put you out of work, and create a stressful financial situation for your family. By opting to add Disability and Critical Illness coverage to your policy, you can have the peace of mind knowing that in such situations, you and your family will be able to cope financially.
Call Today
To find out how high-quality life insurance is part of a solid plan for financial freedom, contact us to talk about 20/20 Mortgage Life Insurance. Call us at 1-844-974-2020 or fill in our online contact form to discuss your options and find out which 20/20 Mortgage Life Insurance products are right for your family.
