10-Step Formula to Achieve Financial Freedom in 2023
Financial freedom. It can sound like a
nice theory. But the truth is, it’s possible for anyone to achieve. And I mean
anyone – even someone who once had tens of thousands in student loan debt like
yours truly. No matter what financial troubles you have today, there’s always a
way to get back to black. Perhaps trying a budgeting
app is your first step.
In this article, we’ll dive into the importance of financial freedom and share some financial freedom tips, including a few that worked for me.
What
is Financial Freedom?
Financial freedom is about taking
ownership of your finances. You have a dependable cashflow that allows you to
live the life you want. You aren’t worrying about how you’ll pay your bills or
sudden expenses. And you aren’t burdened with a pile of debt.
It’s about recognizing that you need
more money to pay down debt and maybe increasing your income with a side
hustle – we’ll get to that in just a minute. It’s also about
planning your long-term financial situation by actively saving for a rainy day
or retirement.
10
Game-Changing Financial Freedom Tips
1.
Understand Where You’re At
You can’t achieve financial freedom
without knowing your starting point. Looking at how much debt you have, how
much savings you don’t have, and how much money you need can be a depressing
reality. But this is a valuable step in the right direction.
Compile a list of all your debts:
mortgage, student loans, car loan, credit cards, and any other debt you may
have accumulated. Don’t forget to include any money you may have borrowed from
friends or family members over the years.
Now, take a deep breath. And another
one. Then add up all the numbers.
How much debt do you have?
If it’s a big number, don’t freak out, I
promise I’ll share some ways to pay that down later in this article. If it’s a
small number, congratulations! Feel free to share your financial freedom tips
in the comments below.
Next, take a look at all the money you
have saved up.
Compile a list of all your savings:
savings accounts, stocks, company stock-matching programs, company
retirement-matching programs, and retirement plans. Then we’ll add the
recurring monthly payments you receive such as salary, side hustle money, and
so on.
Keep these numbers in mind as we work
through the next few financial freedom tips.
2.
Look at Money Positively
Debt can definitely be a little bit
discouraging.
But remember that money is a good thing,
even if it seems to carry a lot of burden right now.
You deserve to achieve financial
freedom.
According to You Are a Badass at Making Money by Jen Sincero,
people who don’t make a lot of money often feel shame when it comes to making
money. And so the biggest obstacle that many people experience when it comes to making money is that they feel
like having money is bad. Many feel guilty for having it and guiltier for
wanting it. Sincero has said about money, “We use it
everyday to enhance our lives, yet we always seem to focus on the negative
about it.”
Money is simply a necessity like food or
water. It helps you buy the things you need and live the life you want.
To experience financial freedom, you’re
going to need to look at money as a tool to help you achieve your dreams, fuel
your energy, and live a stress-free life you can enjoy.
Because if you view money negatively,
you’ll subconsciously sabotage your chances of making it and keeping it.
3.
Write Down Your Goals
Why do you need money?
Do you want to get rid of debt for good?
Are you desperate to escape the 9-to-5 grind? Is there a place you’ve always
wanted to travel to? Do you need to save for a wedding, kids, or retirement?
When I achieved financial freedom, it
was because I tied it to an emotional goal. My goal was to get out of student
loan debt and save for my first home. And honestly, it was a euphoric
experience watching the debt dwindle away and my savings rise.
I got so excited by seeing the numbers
change that I worked harder to make more money to see a bigger change in my
personal finances. Would I have achieved my goal of financial freedom if I
hadn’t tied the goal to something emotional? Probably not. I was desperate to
get out of debt and move out of my parent’s house. That desperation kept me
motivated throughout my journey.
Another interesting thing happened. In
February 2016, I wrote on a scrap piece of paper a few of my goals:
- Make $100,000 selling products online
- Save $20,000 for a down payment
- Pay off $24,000 worth of student loans
I ended up misplacing that paper and
completely forgot about it. And then one day, just over a year later, when I
was already living in my new home, I found the it in my notebook. Sure enough,
I had accomplished all three things. The funny thing was that I wasn’t even
consciously thinking about those goals.
You might not accomplish everything you
want in a month. But a year is a long time to make progress on your goals. Make
sure your goal is tied to a specific number that you want to hit. Believe it or
not, you’ll start working towards those goals without even realizing it.
Knowing exactly what
you want to achieve makes achieving financial freedom a million times easier.
4.
Track Your Spending
An important step toward financial
freedom is tracking your spending.
You can use a tool like Mint, which
will let you know how much money you’re spending, which categories you’ve
overspent in, how much money is in all of your accounts, and how much debt you
have.
Another cool thing about Mint is that it
allows you to set goals within the dashboard. You can keep
track of your goals and know the exact month you’ll be expected to hit the goal
based on how much money you put in. Thus, keeping you accountable and reminding
you to keep putting money towards it for you.
After using Mint for one month, I
managed to save some extra money towards my new wedding fund goal. Mint helped
me stay focused on my goal and pushed me
towards creating more passive income to hit my financial milestones.
5.
Pay Yourself First
You’ve probably heard the expression
“pay yourself first” before. But in case you haven’t, “pay yourself first”
means putting a specific amount of money in your savings account before paying
anything else, such as bills. And the act of paying yourself first has helped
countless people inch closer to achieving financial freedom.
Why?
Because if you want to pay yourself
$1,000 per pay period first, then whatever’s left over needs to go towards
bills. And if you don’t have enough to cover those bills, then you’re forced to
pick up a side income to make up the costs.
By paying yourself first, you guarantee
that you’re always putting money aside to invest in yourself. By doing the
opposite, you only get whatever is left over, which usually isn’t substantial
enough to help you experience financial freedom.
You can pay yourself first in other ways
too. For example, if your company has a retirement savings program, you can ask
to have money withdrawn for your retirement. That way you’re investing in
yourself and your future first. The money gets deducted from your pay so
everything that’s left over is money that you can put aside for your bills and
expenses.
6.
Spend Less
In 1958, Warren Buffett purchased
a five-bedroom home for $31,500 and hasn’t
moved out of it since. His net worth? An astounding $90.3 billion. He can
afford a bigger and more expensive home. But his frugality might very well be
the reason why he’s one of the world’s richest people.
Kanye West, on the other hand, isn’t
afraid to flaunt his money. He lives in a $20 million mansion. And at one point, with
$53 million of debt, he decided to ask Mark Zuckerberg for $1 billion… on Twitter.
The difference between the two super
successful gentlemen? Buffet didn’t spend more than he needed to, and West
spends money he doesn’t have.
The truth is, plenty of rich people
don’t look like rich people. Zuckerberg literally wears the
same boring t-shirt and jeans everyday.
Buying less stuff can actually help you
get richer.
By spending less, two things work in
your favor. One, you’ll have more money to put aside for your financial
freedom. Two, you’ll learn that you actually need a lot less stuff to survive,
which also helps you put aside more money.
And this goes into our next point…
7.
Buy Experiences Not Things
Life’s short. It’s not about hoarding
all your cash until you’re 65. You’re allowed to enjoy life while you’re alive.
Ultimately, the things that’ll help you
live a more fulfilled life will be the experiences you have, not the products
you own.
And are the things you buy making you
happier over the long-term? Does the debt you have from buying a bunch of stuff
make your life easier?
Now let’s flip the switch.
What’s your happiest memory? What were
you doing? Who were you with?
Let’s create more memories just like
that.
Maybe you have a friend you love working
out with. Invite her over to workout to a YouTube playlist at home for free.
It’s date night. You want to make it
unforgettable. Find a cool activity you’ve never done before on Groupon for
a fraction of the price.
You’ve always dreamed of travelling to
Rome. You’ve been saving up money for a year to experience your dream vacation.
Go on that vacation feeling guilt-free. You didn’t go into debt for it, you’ve
earned it. Or you can become a digital
nomad and travel the world while working abroad.
Life is made up of moments. The best ones
come from quality time spent with friends and family. While some products can
help bring you closer to your family (like weekly family video game night) most
of them don’t add much value.
Don’t spend money you don’t have to
pretend that you have money.
8.
Pay Off Debt
Some people will tell you it’s wiser to
invest your money in stocks instead of paying off your debt. If you’re an
expert stock picker, maybe that’s true. But if you’ve never invested in stocks
before, you could wind up with more debt.
A lot of people feel the same thing
after finishing their last debt payment: relieved.
If you have $50,000 of debt, even if you
have $30,000 cash in the bank, you can’t really call yourself financially free.
You’re still $20,000 in the hole.
While paying someone else isn’t as
glamorous as having money in the bank, it does bring you closer to financial
freedom.
There are two main methods of paying off
debt: snowball and avalanche. Snowball is when you pay off the smallest debt
first. Avalanche is when you pay off the debt with the highest interest rate.
You need to decide what works best for
you. But when I was working towards becoming debt-free, I did the snowball
effect. It helped keep me more motivated. Since I was able to get rid of my
first debt, a $1,200 credit card bill, in only a month, the feeling of
accomplishment helped motivate me to tackle a much bigger, lingering student
loan.
And since credit cards were no longer a
problem, I would pay about, on average, three times more than the measly $300
minimum payment. In the end, it took about three years to finish paying off the
student loans instead of the nine years I was allotted.
Paying off a big debt lifts a massive
weight off your shoulders. After paying off your debt, you see the amount of
money you have in the bank rise. It’s an awesome feeling watching the number
climb (even if you had to watch it fall at the beginning), and it keeps you
motivated to continue growing it.
9.
Create Additional Sources of Income
Okay, so at this point, you’re probably
thinking, “My debt is a lot more than my salary, how can I pay it off if I
don’t make enough?”
If you’re serious about financial
freedom, you’ve got to sacrifice some blood, sweat, and tears.
Your 9 to 5 might not cut it. If that’s
the case, you need to step it up and look for money outside your current job.
Some experts recommend having seven streams of income. If you have a 9 to 5
job, congratulations, you have one, only six more to go!
Now, you can look at your sources of
income in two ways: active income (trading time for money) or passive income
(money that can keep coming in, even while you sleep).
If you trade your time for money, you’re
limited by the hours of the day. Here are a few side jobs you can do to earn an
active income:
- Become a freelance writer finding jobs on ProBlogger
- Help a business owner as a virtual assistant with jobs on Upwork
- Acquire new skills via online courses for entrepreneurs and
monetize
- Become an Uber driver
- Help with household tasks on Task Rabbit
- Pick up the odd, ocassional job on Craigslist
- And more!
If you don’t have a lot of time to
devote to earning income, you can focus on increasing your income streams with
passive income like:
- Starting a dropshipping online store with Shopify
- Start your own custom clothing business on Shopify
- Sell profitable content (blog, ebooks, courses, webinars, audiobooks,
podcast, apps)
- Become an affiliate marketer
- Buy properties and rent them out
- Invest in stocks
Fortunately, your seven streams of
income can all come from the same source. For example, if you’re an ecommerce
expert, your streams of income can come from creating
seven different stores. And remember: you don’t need to start with seven
streams, you can build up to it over time.
10.
Invest in Your Future
The last financial freedom tip is an
important one. Say you follow the advice and recommendations in this article,
get out of debt, and grow your savings. That might be enough to help you out
right now. But what if the unexpected happens? Will you be prepared for it?
It’s important to set aside money for
rainy days, retirement, and (sorry to be morbid here) in case you die to help
ensure your family doesn’t drown paying for your funeral, debts, and taxes.
Okay, now let’s get back to that happy place.
If you’ve got that 9 to 5 job, talk to
your company about adding a retirement plan, or check to see if you’re already
having deductions made towards it. The deduction gets taken out before it
hits your account, so you never feel like you’re losing money. And it’s pretty
cool to check it out periodically and see your savings grow.
Next, you also want to save enough money
for an emergency fund. Some experts say $10,000 is fine while others say six
months of your salary. And to be honest those numbers can seem pretty high if
you don’t make a lot of money. So instead, start with a goal you can afford –
like $100 your first month. And as you start earning more active or passive
income, start increasing your goal to $500 a month to $500 bi-weekly and so
forth. If you’ve overspent on credit and a high credit card bill comes up,
don’t use your emergency fund – focus on taking up more active income
opportunities so you can pay it down faster.
The emergency fund is only for unplanned
emergencies like a tree crashing onto your house, a car accident you need to
pay for out of pocket, or a visit to the hospital.
By setting aside money for rainy days
and retirement, you’ll be less likely to end up back to where you are now:
wishing for financial freedom.
Conclusion
Financial freedom can help you take
ownership of your finances and, more importantly, your life. It’s about living
within your means, being a bit frugal, and making sure that money is spent on
things you really need like food, shelter, and yup even vacations (relaxation
is important too, you know). By following the financial freedom tips in this
article, you’ll inch closer to achieving the financial freedom you deserve. So
take a look at those finances, build additional streams of income, pay down
that debt, and before you know it you’ll be free.
How close are you to achieving financial
freedom? Let us know in the comments below!