Are you looking to gain financial freedom and become more empowered every day? It’s not uncommon to stress about money and personal finances. It isn’t something that is necessarily covered in grade school, nor discussed transparently in households. Unless you went to college for finance or your parents were dedicated to teaching you good money habits, best practices are something you must learn as an adult.
Reaching financial milestones like purchasing a home, applying for student or personal loans, saving for retirement, and others, are often lessons you learn as you go. Keep reading to learn how you can take control of your money, gain financial freedom, and be empowered.
Educate Yourself in Personal Finance
Committing to educating yourself on personal finance is an excellent opportunity to reflect on lessons you’ve learned in the past and new areas of opportunity. Maybe you just want to become more fluent in finance or you want to learn about finances to be able to pay off debt. Regardless of what reason drives you to become financially free and empowered, you must do your due diligence and educate yourself about good money habits.
This process can begin with a simple Google search with news and various articles on different money habits. Fortunately, there are numerous helpful resources available. One is the National Empowerment for Financial Education (NEFE). NEFE is a platform dedicated to ensuring everyone lives their best financial life. Do some research and pick resources that will be best suited for your financial goals.
Create an Emergency Fund
A key step in achieving financial freedom is establishing an emergency fund. Focus on saving until you hit one thousand dollars. Then, put it in a sealed envelope, store it in a safe, put it in a “break glass in case of emergency” picture frame, or anywhere else where it might be a little challenging to use it. Note, this thousand dollars is not just a random savings you have on the side. This is your emergency fund, and only to be used for emergencies.
Life happens and things come up that are out of your control: essential car repairs, medical procedures, or home repairs. All instances you cannot avoid and have to address promptly. Instead of panicking and throwing these expenses on a credit card and pushing yourself further into debt, an emergency fund offers money to fall back on for whatever is thrown at you unexpectedly. The main reason for an emergency fund is to give peace of mind, which is crucial to becoming financially free. While living your normal life and using your paycheck for normal expenses, you will have worry-free days if something comes up where you need a significant amount of money to help you along the way.
Get Out of Debt
Debt is the biggest contributor that restricts your income and keeps you from achieving financial freedom. Not to mention the toll it will take on you emotionally, pushing you further and further away from being empowered. Start by writing down or making a spreadsheet of all your debts: student loans, car, medical procedures, boat, mortgage, home appliances, and so on. From here you will be able to easily see and manage all of your debts.
Best practice when dealing with debt is to develop a plan for paying it off. You could just keep paying your various monthly payments, tracking each one in a spreadsheet, and slowly watching them go down. Or, you could focus on one loan at a time. For instance, focus on the loan with the highest interest rate first. This allows you to pay the least amount in interest over all, and meanwhile your other loans wouldn’t be gaining as much interest as the one your attention is on. Additionally, there is the option of consolidation. Instead of managing multiple payments and balances, loan consolidation allows you to lump all of your debts into one payment. In this case, you take the lump sum of the payout on each of your debts, apply for a flexible personal loan in the full amount, and have one payment to worry about going forward. Not only will the personal loan make it easier to organize your debt, but the high-interest rates on some debts will be avoided and your new debt will be manageable. Getting rid of debt as organized and quickly as possible will take you one step closer to financial freedom.
Build Runway & Pay Yourself First
One of the most important parts of gaining financial freedom and being empowered is making small sacrifices in your daily life for long-term gain. For example, ditching the latte on the way to work and paying yourself first. By making little sacrifices today, you will be financially free in the future. Start by calculating your financial runway. This is when you add up all of your monthly expenses and multiply them by six. Whatever this amount is, that’s what you’ll need to save up to have enough money to survive and pay all your bills for six months. If you were to ever lose your job or you aren’t able to work due to injury, you would have the stability to still live and be taken care of with your runway.
Next, you should open up a 401k or IRA depending on your work situation. Come up with an amount of money you feel comfortable contributing to the account each time you get paid. By setting up automatic withdrawals, you’ll get in the habit of knowing your paycheck amount post-retirement contribution. When focusing on building your runway and paying yourself first in a retirement account, you will be on the right track for successfully achieving financial freedom in the future and if a crisis arises.
Regardless of whether or not you were set up for financial success before you left your childhood home, there is always more room to grow and learn about money. Focus on the key areas of having that one thousand dollar emergency fund, pay off your debt, gain a significant amount of runway in your savings account, and build your retirement. Then, you will be on your way to financial freedom and being empowered.