When people talk about Financial Freedom, you may hear different or multiple definitions. Having enough savings, investment, and cash on hand to afford the lifestyle you want would be some of the common definitions.
These are vague answers and we found mostly are completely clueless about it. if we don’t have a clear idea about what our goal is, how can we ever reach there? In this blog, we discuss financial freedom and a step-by-step approach to how we can achieve it.
Financial freedom definition
Financial freedom is defined as having enough income to pay your living expenses for the rest of your life without having to be employed or dependent on others. It means having the financial stability to do what you want in life without having to worry about money.
This can be achieved only when you are prepared for it. All you need is a little financial planning.
Here are the 3 things you need to do to achieve financial freedom:
1. Become debt-free
The biggest roadblock to financial freedom is debt. And the worst kind is credit card debt with interest charged something between 30 to 40 percent. Refrain from using credit cards and take a debt repayment strategy to pay the existing debts. Do this even before you start investing.
Also, though, indeed, all loans are not bad loans – like home and educational loans, which provide certain tax benefits, being debt-free is even a better option than having a good loan. Whenever you get a good amount of money in lumpsum, for example, a bonus, pay it towards the loan as much as you can afford. You can sketch a financial plan around it.
2. Start investing early with a goal-based approach
You have heard this before and you will listen to this again. Start investments as early as possible, even in small amounts, and let the power of compounding show its magic.
Again, a goal-based approach helps you determine how much money should go toward each investment while you are creating your monthly budget. This can save you unnecessary financial stress and tons of money. Let’s illustrate this with an example.
3. Prepare for life’s uncertainties
One thing that can derail your aim of financial freedom is unseen expenses. So being ready for it is the key. There are two things to do
- Build a contingency fund: This fund is created to meet urgent or unforeseen expenses. Suppose, you have already set your budget for a month and kept a certain amount as savings. At least three to six months’ expenses should be put away as a contingency fund. This ensures you don’t need to dip into your investments in case of an emergency.
- Get medical insurance: Rising healthcare costs and no health insurance means one medical emergency can set your goal to become financially free back by years. So to ensure your investments are not wasted in paying medical bills, get health insurance
Achieving financial freedom isn’t easy to do. It will take time, maybe years, to achieve your goals and live your dream. You’ll need to be patient with yourself and work out your plan.
And, promise yourself you won’t quit until you’re “either at the top of the mountain or dead on the side from trying.” Many people have walked this path before you; it can be done. So, go for it, start today.