Worrying about keeping up with household expenses seems to be a universal concern, and many Americans continue to plod along through jobs they hate because they need to pay the bills. However, you don’t have to be a slave to your paycheck. With the right kind of financial tools and financial planning, you can realize your own financial freedom.
What do we mean when we talk about financial freedom?
The definition varies depending on whom you’re talking to. The short answer is that financial freedom gives you options. Having financial freedom means having enough money to deal with emergencies, such as unexpected auto repairs or home repairs. It also means you have enough money so that you don’t have to worry if you lose your job and can make career choices driven by your passions rather than your earnings. For some, financial freedom means being able to retire early to spend more time with family and friends.
Financial freedom means different things to different people at different stages of their lives. Whether your definition of financial freedom is to be free of debt or to retire 10 years early, attaining that freedom requires a strategy and careful planning.
You need a plan to achieve freedom.
In order to realize financial freedom, you first have to define what it means for you, and that means establishing specific objectives. You need to be able to establish short-term objectives that can be used as financial stepping-stones, and have an understanding of how those immediate milestones will shape your life goals.
Most people start by working toward freedom from debt. That means eliminating all credit card debt, student loans, car payments, and anything else that places a burden on your monthly budget. Some even feel they need to go as far as paying off their mortgage before they can call themselves truly debt-free.
Beyond eliminating immediate financial concerns, what about working toward your financial dreams? Do you want to have enough money to buy a boat or a vacation home? Do you want to be able to support your aging parents, or pay for your children’s college education? Everyone’s financial dreams differ, but those dreams are the brass ring that can mean financial freedom.
You need to start by achieving short-term financial goals. Look at your finances and determine where you want to make immediate changes, such as eliminating credit card debt or increasing your retirement savings. Taking care of the short-term goals will help you achieve your financial life goals.
Take the next steps to freedom.
As soon as you have defined what financial freedom means for you, you can start to build a strategy. Here are some steps that you will need to include:
Build your savings strategy into your household budget.
Your monthly household budget is structured to make sure that you pay for your monthly expenses—your monthly nut—including fixed expenses such as rent or a mortgage payment, insurance premiums and other set costs, as well as variable expenses such as food, utilities, and transportation. You need to build your savings strategy into your monthly budget. Allocate money for debt reduction, retirement funding, investments, and other tactics that will help you achieve financial independence. Use automatic savings programs and tools such as iQ’s Easy Saver to automatically transfer money into savings.
Maintain a lifestyle you can afford.
It’s common for people to use all their earnings to pay for their living expenses, leaving little or no money for savings. In fact, 78 percent of Americans are living paycheck to paycheck, which means they don’t have any extra money for savings. Rather than letting your income dictate your lifestyle, take charge and make a conscious effort to live on less. Be frugal so that you have more money to set aside for your financial dreams.
Be proactive and take control of your finances.
If you save money in a savings account, money market account, or certificate of deposit, that money will earn interest, but earnings from compound interest won’t be enough to help you achieve financial freedom. Use your savings to build wealth. Talk to your financial advisor about investment strategies. Establish goals for your investments and revisit those goals and make adjustments periodically. You need to take an active role in helping your money grow.
Watch your credit.
You want to monitor your credit because it will save you money. Not only do lenders use your credit score to assess your creditworthiness, but your credit can also affect other things such as insurance premiums. Maintaining good credit is one way to show others and yourself that you are financially responsible, so be sure to check your credit regularly and watch for errors as well as personal financial habits that can drag down your credit score, such as late payments or a high debt-to-income ratio.
Work with a financial advisor.
iQ Credit Union prides itself on helping its members achieve financial freedom. Our financial specialists can recommend savings and retirement strategies, help with investments, and work with you to establish achievable financial goals. We also have a number of financial education programs to help you improve your financial literacy, which will help you achieve financial independence.
To help you get started on the path to financial freedom, why not start with our Financial Survival Guide, which offers tips and techniques to help you take control of your personal finances? Of course, our financial experts are always available to help. Working together, we can help you find your own financial freedom.
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