Everyone wishes to become financially independent. But, only a handful of people, ever get there. The reason is that financial freedom is something that doesn’t happen automatically. You need to be put in efforts to achieve it. To help you get started, here you can find a roadmap with seven steps that help you be freed from financial constraints.
Step 1: Acknowledge that you Desire and Aspire to Financial Freedom
The path to financial freedom begins with your desire to achieve it. You have to actively decide that you’re no longer a passive consumer, but an active investor. This means you have to start allocating a particular percentage of your income to start building your ideal retirement nest egg. The amount you have to set aside depends on your desired financial outcome.
Step 2: Develop a Strategy
Now, that you know where you want to be, the next step is to decide how to get there. Start by creating a timeline of small sub-goals. Then, decide on the best ways to achieve these goals. For instance, you can try out different investment options like mutual funds, stock trading, and fixed deposits to help you achieve these different goals.
Step 3: Stop Saving, Start investing
Very often people make this mistake. The natural reaction to building your retirement egg is to save money in a bank account or a tin at home, with the far-fetched hopes that it will help them grow their nest egg.
Wrong. As stated in an article at MoneyControl, Saving doesn’t help you build your wealth. It doesn’t grow to help you reach your financial dreams. The smarter way is to get your money to work for you. The answer to this is “you have to invest your money, to earn more.”
Step 4: Acquaint yourself with the Rules of the Game
Now, that you’ve decided to become an investor, this step is crucial. Instead, of blindly following the advice given by random people, make sure to acquaint yourself with the ins-and-outs of investing. Start by understanding the different investment options out there, the cons and pros of each method. This will help you choose the right investment techniques that work for you.
While it may not be possible to master investing overnight, remember that even a few steps in the right direction, is better than jumping into the vast waters of investing with no idea on what to expect.
Step 5: Pay off your Debts
This step plays a vital role in transforming how you handle finances in your day to day life. List all your debts. This includes your house mortgage, car loans, credit card debts and many more. Arrange all your debts in order, from smallest to largest. Start by paying off the smallest one.
This is because when you clear small debts easily, you can knock it off your list, which in turn helps you stay motivated. As you pay off debts, you can see a significant increase in your cash-flow. And, before you know it, you’re debt free and one step closer to your desired financial freedom.
Step 6: Build an Emergency Fund
Life is famous for throwing surprises our way when we least expect it. Ensure that you’re ready to handle all emergencies by building a separate fund for it. With an emergency fund, aren’t caught off guard, by medical expenses for a family member, a leaky roof or even a job layoff.
While experts recommend that you save between 3 to 9 months of income in your emergency fund, the exact amount depends on several factors like your monthly income, your liquid savings, job proficiency and much more. Use this Emergency Fund Calculator from MoneyUnder30 to figure out how much you need to set aside for your emergency fund.
Step 7: Diversify your Investments & Income Sources Too
You would have come across the saying, “Don’t put all your eggs in one basket.” This is very true for investments. Make sure to diversify your investments across different asset classes, to protect yourself from nasty surprises.
Just like you have a diversified investment portfolio, your income sources also should be diversified. Do not depend on just your primary job to achieve financial independence. Take up a part-time hobby or job, which is lucrative. This way you don’t just have an additional source of income, but also protect yourself from losing out, in the unfortunate case you lose your job.
Financial Independence isn’t just for the ultra-rich. With a bit of know-how, the right tools and a dash of determination, you can be freed from the constraints of living paycheck to check, and pursue your passions.