According to the professionals at Investopedia, financial freedom—having enough savings, investments, and cash on hand to afford the lifestyle you want for yourself and your family— is an important goal for many people. It also means growing a nest egg that will allow you to retire or pursue any career you want—without being driven by the need to earn a certain amount each year.
Unfortunately, too many people fall far short of financial freedom. Even without occasional financial emergencies, escalating debt due to overspending is a constant burden that keeps them from reaching their goals. When a major crisis—such as a hurricane, an earthquake, or a pandemic—completely disrupts all plans, additional holes in safety nets are revealed.
Trouble happens to nearly everyone, but these habits can put you on the right path.
KEY TAKEAWAYS
Set life goals—big and small, financial and lifestyle—and create a blueprint for achieving those goals.
Make a budget to cover all your financial needs and stick to it.
Pay off credit cards in full, carry as little debt as possible, and keep an eye on your credit score.
Create automatic savings by setting up an emergency fund and contributing to your employer’s retirement plan.
Take care of your belongings—maintenance is cheaper than replacement—but most importantly, take care of your health.
Set Life Goals
What is financial freedom to you? Everyone has a general desire for it, but that's too vague a goal. You need to get specific about amounts and deadlines. The more specific your goals, the higher the likelihood of achieving them.
Write down these three objectives:
What your lifestyle requires
How much you should have in your bank account to make that possible
What age is the deadline to save that amount
Next, count backward from your deadline age to your current age and establish financial mileposts at regular intervals between the two dates. Write all amounts and deadlines down carefully and put the goal sheet at the front of your financial binder.
Make a Monthly Budget
Making a monthly household budget—and sticking to it—is the best way to guarantee that all bills are paid and savings are on track. It’s also a regular routine that reinforces your goals and bolsters resolve against the temptation to splurge.
Pay off Credit Cards in Full
Credit cards and other high-interest consumer loans are toxic to wealth-building. Make it a point to pay off the full balance each month. Student loans, mortgages, and similar loans typically have much lower interest rates; paying them off is not an emergency. However, paying these lower-interest loans on time is still important—and on-time payments will build a good credit rating.
Create Automatic Savings
Pay yourself first. Enroll in your employer’s retirement plan and make full use of any matching contribution benefit, which is essentially free money. It’s also wise to have an automatic withdrawal into an emergency fund, which can be tapped for unexpected expenses, as well as an automatic contribution to a brokerage account or something similar.
Ideally, the money for the emergency fund and the retirement fund should be pulled out of your account the same day you receive your paycheck, so it never even touches your hands.
Keep in mind that the recommended amount to save in an emergency fund depends on your individual circumstances. Also, tax-advantaged retirement accounts come with rules that make it difficult to get your hands on your cash should you suddenly need it, so that account should not be your only emergency fund.
Start Investing Now
Bad stock markets—known as bear markets—can make people question the wisdom of investing, but historically there has been no better way to grow your money. The magic of compound interest alone will grow your money exponentially, but you do need a lot of time to achieve meaningful growth.
However, remember that—for everyone except professional investors—it would be a mistake to attempt the kind of stock picking made famous by billionaires like Warren Buffett. Instead, open an online brokerage account that makes it easy for you to learn how to invest, create a manageable portfolio, and make weekly or monthly contributions to it automatically. We’ve ranked the best online brokers for beginners to help you get started.
Get a Financial Advisor
Once you’ve gotten to a point where you’ve amassed a decent amount of wealth—either liquid assets (cash or anything easily converted to cash) or fixed assets (property or anything not easily converted to cash)—get a financial advisor to help you stay on the right path.
These steps won’t solve all your money problems, but they will help you develop the good habits that get you on the path to financial freedom. Simply making a plan with specific target amounts and dates reinforces your resolve to reach your goal and guards you against the temptation to overspend. Once you start to make real progress, relief from the constant pressure of escalating debt and the promise of a nest egg for retirement kick in as powerful motivators—and financial freedom is in your sights.
Securities and advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC. Longleaf Wealth Management Group, LLC and LPL Financial are separate entities.