Financial freedom is a situation where a person has enough residual income to allow them to live the life that they want. People achieve it when their passive income exceeds their expenses, which allows them to resign from their jobs and live life to the fullest.
Achieving financial freedom is challenging, especially if a person is only starting his professional life. But it also provides him with a huge opportunity to start working on achieving financial freedom as he gets older. Even in the middle of a pandemic, people have numerous opportunities to work towards becoming financially free.
Having financial freedom allows a person to buy his dream home or dream car. It also allows him to travel to the places he wants to go. And he does not need to wake up every morning to prepare for work. Here are some tips that people should consider to increase their chances of achieving financial freedom.
Lay the Foundation
The first thing that people should do to achieve financial freedom is to lay the foundations for it. This means they should set their goals and maintain a positive mindset that they will achieve financial freedom. They should also focus on monitoring their income, expenses, and savings.
Staying motivated is also essential for concentrating on what they need to do to achieve their goal. It also allows them to avoid emotional spending, which will affect their budget. People should also look at their present status and work on improving it as they increase their sources of income.
They should set a clear path toward their goal and work on reducing expenses while increasing savings. Even if they dipped into their saving when the pandemic started, they should work on replenishing the funds they got when they lost their jobs at the start of the health crisis.
Set the Goals
People should make sure to set goals that help them focus on achieving financial freedom. They should write down the goals so that they have something to refer to when they start their journey towards financial freedom. The goals should be realistic and measurable. They should also be specific and achievable. Additionally, they should make sure that their goals are time-bound.
People should write five goals that they want to achieve for a specific period. Once they achieve a goal, they should add more to keep them motivated.
Pay Off Debt
Before a person achieves financial freedom, he should make sure he pays off his debt. So, people need to work on their cash flow to pay off loans that they took in the past. This also increases their credit score, which offers a lot of benefits in the future.
Having a good credit score allows a person to get better terms when they take out loans in the future. It also allows them to get a lower interest rate on these loans. This is advantageous to people who want to achieve financial freedom by starting a business.
Start a Passive Income Source
Achieving financial freedom means that the passive income source of a person is higher than his expenses. So, he should consider his options and create a source of income that does not require him to continuously monitor it while making money for him.
Once he pays off his debts, he should set aside a considerable portion of his income to invest. After setting aside a portion of the income, he should decide how to allocate the income for his investments. An allocation of 60-40 for equity and non-equity assets is advisable.
Even as the person can take control of his investments, he should also consider looking for a professional to do it for him. At this point, a person should seek fiduciary advice from a company offering this service. The professional financial advisers of these companies have the legal responsibility of acting in the best interests of their clients. So, people can ask for help in managing their assets and increase their investments.
With his investments taken care of, he should now focus on monitoring his expenses. Monitoring expenses offers a lot of benefits for people who want to achieve financial freedom. They should create a personal spending plan to achieve the goals they set at the start.
They should also make the necessary adjustments in the plan in case their income increases. With this, they have the opportunity to enjoy themselves once in a while even as they work towards achieving financial freedom.
Achieving financial freedom is challenging and requires a lot of discipline. But people who plan early will have a bigger chance of achieving it than others who spend first and save later.