From Debt to Prosperity – Practical Steps to Achieve Financial Freedom
The meaning of financial freedom varies for people, and often it means having enough savings and investments that would allow for the lifestyle one wants to live, with some comfort for the unexpected and retirement, as well. Financial freedom also implies the freedom from having to work on passion projects.
Saving money means hauling away debt, and setting up a budget and savings accounts for everyday expenses and emergencies.
Prioritize Your Debt
Getting out of the rat race is tough. Saving enough to cover life’s inevitable financial emergencies and accumulate a comfortable nest egg for your golden years might seem unattainable when you’re still chipping away at substantial debt balances, let alone everyday expenses.
List your debts in order and pay at least the minimum on each. Make a list of all your debts, with the amount outstanding, the interest rate, and the minimum monthly payment requested noted next to each debt. If you have any of your statements in paper form, gather those and put them all in one place.
Next, use your budget to allocate any discretionary income to the debt repayment plans, ideally in an avalanche strategy (starting with the payment of debts with the highest interest rates).
Create a Debt Repayment Plan
One secret to financial freedom is getting rid of debt. Debt can feel like a trap, but laying out a payment plan can keep it under control, and bring financial freedom within reach.
The first thing you need to do is make an inventory of all your debts, including balances, interest rates, minimum payments required, and billing due dates in one location. In this step you can also collect all your physical statements, too.
After you’ve got your debts listed, your next challenge is selecting a payoff system. You could use a layout based on interest rates and liquidity (Avalanche Method) or one that builds psychological momentum by sending small dollars to multiple debts to generate big wins (Snowball Approach). Either approach could be effective, so be sure your plan will keep you motivated!
Start Investing
It is the freedom to focus on what you truly value in life instead of merely focusing on providing for your basic needs. Such a path could involve living in a house you love, travelling around the world, pursuing a passion, or being at home and doing nothing – all without worrying about how to earn money for survival. In order to reach this point of independence, it requires you to first create an emergency fund or nest egg, and set money aside over time.
To build wealth and improve chances of achieving FIRE, one can start saving and investing early.
Emergency funds, too, help with financial freedom – they keep you afloat during major car repairs or a surprise medical bill. They also help limit the stress of overextending yourself, which can snowball into more and more debt and a fragile safety net.
Diversify Your Income Streams
Being financially free means you will have the time to spend on the priorities, whatever they may be – be it family, a passion, or travelling. One of the best overall strategies for achieving this is diversifying your income streams and your assets.
Creating other sources of income allows you to grow your wealth intentionally and on your terms, channelling existing competencies and interests into a scalable business model.
Investing in real estate, business partnerships and stocks are also ways to generate passive income and add some useful passive income streams. These should be started as early as possible to maximise the effect of compound interest and mitigate the risk of financial dependence on your employer.
Take Action
It’s all too easy to reconcile yourself to the financial situation you are in, but to achieve financial freedom you need to alter your attitude. Connect emotionally to your goal before devising your plan and taking action.
The first step towards keeping spending in check is to track it, and there are plenty of apps that can track expenses and help with setting savings goals.
After completing step five, become debt-free, then begin working down your balance with either the debt snowball or debt avalanche strategy or simply pay off the ones with the highest interest rates first; and finally, after completing step four, become an investor and begin to diversify income streams so that you can rapidly begin building wealth – using these steps can put you on the path to financial freedom more quickly than you ever thought possible!
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