In the finance community, we talk about having money to create our wealth. There may be people that follow financial planners or a financial advisor’s tips and advice to hit this wealth. The question is why do we gain this wealth? Is it all about the money? Simply stated, it is all about financial freedom.
What is Financial Freedom?
I have talked about financial independence many times, but when we are talking about financial freedom we are talking about being free.
Financial freedom is about taking control of our finances. We are now in control of our money and what happens with our money. This money is used as a tool to set us free from the toils of life.
Anyone can do this. This is not a thing that the super rich can do. Financial freedom is for all people to achieve. It creates freedom in all aspects of life.
Freedom from Fear:
Oftentimes, we have different fears about money. It brings up stress in life, which can cause all sorts of problems. Money happens to be one of the main causes of divorce. That fear and anxiety can be detrimental to your health.
Fear drives us to do things that are very unexpected. We go and fear failure or even success, because we lack the confidence to take risks. You need to be able to take risks to be successful.
One of the greatest things is being able to start something. You push aside that fear and make something happen.
Money can give us this confidence. No longer to we need to fear taking risks. Having something to back us up gives us opportunities and freedoms to do more, fail more, and even succeed more.
Let’s get rid of these fears. Making money work for us instead of against us the main goal. There will be no more fears of running out of money once retired.
Fears of job loss will be gone, and even the fear of living paycheck to paycheck will be gone with some basic financial literacy.
Freedom from work:
Work is always the thing we all need to do to achieve financial freedom. Our 9-5 jobs bring in our cash flow in order to sustain our life.
These are the jobs that most people will hold until they are at retirement age or forced to retire.
Work can be good, but having options to do many other things can be liberating. Financial freedom gives us this liberating feeling to seek many other opportunities.
If you were financially free, you would no longer have to rely on work. Work can be made into a hobby, part-time, and even just something you enjoy. We all may enjoy our jobs right now, but having that F-U money to push us to freedom is uplifting.
Make your money work for you.
6 Steps to hitting Financial Freedom:
In order to achieve these freedoms that financial freedom gives us, it will take steps, time, and patience. There is no get rich quick scheme. Money does not grow on trees, and more importantly, we are changing the systems of how we believe.
Taking a look at all the factors, here are 6 steps to achieve financial freedom. Each step is different, but they help provide a path to achieving more. Let’s take a step at a time and make these work for us.
Step 1: Change Your Money Mindset
We are bombarded with the thoughts that money is evil. That is outlandish. Money is just a tool to make things happen. People that have evil intentions do more evil if they have more money. Those that are good will do more good with more money available.
It is time to change how we view money. There are so many money myths out there that really clouds our heads with wrong ideas.
We are bombarded with images of rich and famous people, but often don’t realize that a lot of these people have poor money skills. Being financial literate really helps us to know how to deal with money.
It is time to change how we think about money.
Take a step back and focus on what money can do for you. Make it work for you.
In the Richest Man in Babylon, George Clason wrote the Second Law of Gold:
“Gold Laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field.”
We need a change in how we think. If you are really serious about how you think about money, read the book The Psychology of Money. It is a short read explaining how people think about money.
It talks about freedom.
“If you want to be happy, try to make money a means to an end, not a goal in itself, and use it to be able to spend your time how you like it.”
Step 2: Live Below Your Means
“One in three Americans are having trouble paying expenses” People need to get out of living paycheck to paycheck.
Living below your means is a must in order to achieve freedom within your finances. You must be able to save money. Saving is very important and can help you to set up goals for your life.
The trouble comes when we are living paycheck to paycheck and recession hits, or something bad, then our finances are screwed. We have been living on the edge.
Let’s think differently. Make it a priority to save money first.
Pay yourself first. It is best to set a certain percentage of your income on the side, and then spend the rest for the month. This makes sure that you are living below your means.
Warren Buffett said: “Do not save what is left after spending, but spend what is left after saving.”
This is a great saving habit that can change your life. Then automate it. My wife and I save half of our income at paycheck time.
My income is in a separate bank account, which we never touch. So we can only spend my wife’s salary. That is how we have a savings rate of over 50%.
Having an emergency fund also helps fuel this. We are safe in case of an emergency. As you figure out your expenses, you need to figure out how you pay yourself first, save money, and break that paycheck to paycheck cycle.
That cycle will never end well. So let’s make a smart choice and live below your means.
Take action to spend less than you make.
Step 3: Create financial goals for yourself.
Goal setting is so important. We never realize it until we do it.
James Clear once said “Goals are useful for setting the direction. Systems are great for actually making progress.”
To make progress in our direction towards financial freedom we need to set goals, and then create a system to achieve these goals.
Without direction, we are like a person on a boat moving the rudder back and forth hoping to go forward.
Time is now to set your goals. How much do you want to retire on? What would financial freedom be like to you? Do you want to travel?
Retirement can be as easy as tracking your net worth or even figuring out your liquid net worth to see when you can retire early.
Make long term financial goals to achieve. Start with 5 and 10 year goals. Break those downs by years, months, and days, and then work on achieving them.
Once we establish our goals, we can then think about a system to accomplish these goals. It will be tough and grueling sometimes, but every little bit you work on these goals your fruits will come to fruition.
Step 4: Pay Off Debt
Debt can be such a crippling thing that can deter us from hitting financial freedom. Owing someone money, and not being able to increase your own wealth can be a mental block as well.
I know people that have anxiety and depression from debt. It really does affect people because it can feel like it is never ending and you never see the light at the end of the tunnel.
When taking steps to become financially free you need to take some time and patience to get rid of debt.
Dave Ramsey’s Baby Steps talks about paying off all debt. At some point, he is right that we need to pay off all debt, but there are some great things we can do with leverage. That is another topic for a different day.
Paying debt like credit card debt and student loan debt should be a high priority.
Let’s first take care of high interest debt.
This is primarily credit card debt.
When you look up the term credit card debt, one of the first articles is an article about the percentage of people that have debt. I found one article where 41% of Kiwis have a credit card debt.
It is just a matter of taking care of it.
1st: We need to plan to get out of debt.
Making goals to be debt free is great. It is often hard to know where to start.
Write down all of your debt. Put how much it is and the interest rate. Let’s exclude a mortgage because those should be low interest rates, and you can keep that since it is a type of good debt.
Then we have two methods to pay it off. Debt Snowball and Debt Avalanche. The debt snowball method knocks off the lowest amount first, and the debt avalanche is the highest percentage first.
Both ways work, but you need to have a plan to get these loans paid off.
Step 5: Invest in Yourself
One of the biggest things is investing in yourself. Warren Buffett said:
“the best investment you can make, is an investment in yourself… the more you learn, the more you earn.”
You can start investing in yourself. There are skills you can learn to be better at your job. Financial literacy is another thing that can help you grow your wealth as well.
Plus the more you learn the more you bring value to your company, which can bring in promotions and job raises.
Keep learning and growing. Being able to take time and money to invest in yourself will reap benefits beyond what you can see today.
This is one of those great life hacks. We think school is over once we hit the workforce, but the drive to learn and get better will help your life in so many ways.
This will eventually steer you into financial freedom from the knowledge you have learned through investing in yourself.
If you want to learn more about finances, I have found 7 Financial books that can help you become more financially literate.
Investing in yourself also means you health:
Learning things are great, but if we do not invest in our health we will never enjoy the fruits of our labor.
Most jobs we spend time sitting 7-9 hours a day. Let’s invest in our health. You are much wealthier if you can enjoy your body longer.
Step 6: Invest in Your Future
All of these things are helping you to reach financial freedom in your future. So let’s not forget investments into wealth.
This whole time you can be getting 401k matches, which is free money. You can be paying yourself first and making sure that money goes into your investments.
As we take care of each and every step we need to continue to invest in our future. We need to create an investment portfolio that will help sustain us through the rest of our life. This will help us in achieving financial freedom.
Investments into income-producing assets will produce more than working a job. This will become our passive income. Owning assets is much better than working a job.
Start by investing into low-cost index funds. These track the market, and will be consistent on the returns.
They are not flashy or glamorous, but in the end the index fund will be a mighty wealth building machine that will produce much more income for you in the future.
Invest in your family’s future:
We talk about investing in our own future. Work on securing a great future for your family as well.
After financial freedom, you have opportunities to invest for your children, your community, and other people within your network. Time to use your resources to help enrich others.
Set out new goals to invest in your children’s college education. This can help them start on the right foot.
This can be done through knowledge. It can be taught, donated, or even set up in account for people.
My Last Thoughts:
It is said “money doesn’t buy happiness,” but money does buy freedom. Make some moves today. Change how you think and seek financial freedom.
Financial Freedom is as simple as:
- Changing Your Mindset
- Living Below Your Means
- Have Financial Goals
- Pay off Debt
- Invest in Yourself
- Invest into your Future
What are you waiting for? Let’s hit financial freedom. Change your life today. It all starts today.
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” Spend less than you make, stay out of debt, and invest the rest”
I’m Steve. I’m an English Teacher, traveler, and an avid outdoorsman. If you’d like to comment, ask a question, or simply say hi, leave me a message here, on Twitter (@thefrugalexpat1). Many of my posts have been written to help those in their journey to financial independence. I am on my journey, and as I learn more I hope to share more. And as always, thanks for reading The Frugal Expat.
5 thoughts on “6 Steps to Hitting Financial Freedom”
I think one of the dilemmas comes from choosing between “Investing in yourself” and “Paying yourself first”. Like when those opportunities come but you are out of your budget, do you still take it or not.
And I think it also depends on which stage in your life are you at. We all have different focuses at different stages of life. And how much you believe in yourself. And then it’s all about consistency.
Thanks for sharing great tips and the nice breakdown. Looking forward to the article about mortgage and leverage haha.
I think Paying yourself first is very important. Saving is great part of becoming financially free. Now, being able to have some wiggle room for investing in yourself should be there as well. When the right opportunity knocks you should be able to take it.
Benjamin Franklin once said that investing in yourself pays the best dividends. So being able to save for your future, invest in your career, mind, and body is all important. Personal finance is personal. We all are in different stages of life with different goals.
It’s interesting how the first step to financial freedom is to change our mindset. That just goes to show that if we want change, it first starts with how we think that we turn into actions.
The right mindset is so important. Without the proper motivation, you’re not really going to want to do anything.
Mindset is everything. It is not the easiest thing to change, but if we have the right motivation then our mindset can change and our behavior can change. There will be endless possibilities to what you can do with the right mindset.
Great post! Financial freedom put in 6 simple steps that anyone can follow.
Step 5 & 6 never end! Continuing to work on myself and my future.
Thanks for sharing 🙂