Financial freedom basically means having enough residual money to live life the way you want. It is important to be financially independent as that allows you to meet all your essential expenses for survival and have enough left over for other things you enjoy.
However, a recent study by Pew Research Centre found that only 24% of people are financially independent by 22 years of age. To belong in that category, here’s what you should do:
1. Understand Where You Are Presently
The first step towards financial independence is understanding your current situation. Understanding your finances down to the last penny is essential as that will help you be aware and make a conscious assessment of what you need to improve upon.
Calculate how much debt you have, all your sources of income, your savings, and all your expenditures.
2. Pen Down Your Goals
Once you have figured out your current financial position, the next thing you need to do is create goals for yourself. Financial independence is not something that you can achieve overnight. It requires constant effort. In order to stay on the right path, it is important to keep a set of goals that you wish to achieve.
Make a list of all the reasons why you want to be financially independent. After that is done, you will be able to figure out what you want to achieve through the process. Make this your goal and set a time limit by which you want to achieve it.
3. Track Your Spending
Controlling your finances is essential. Managing your expenditure properly will help you save a lot of money that can be put to better use. Keep a diary that you use specifically for writing down all your expenditures. No matter how small the amount you spend, you must write it in the diary.
Review the diary monthly or weekly and go over all the things that you have spent money on. You will realize that there are a lot of things you can do without. Try to avoid those expenditures going forward.
4. Pay Off Your Debt
If you have taken a personal loan, home loan, or any other type of loan, it is important to repay as soon as possible. Making timely payments will help you avoid fines and in extreme cases, legal action. Debts are a huge burden on your finances.
Getting rid of them at the earliest will free up a lot of your money that is supposed to go into EMIs and interests. This money can be used for savings and investments.
5. Create Additional Sources Of Income
Having multiple streams of income will help you multiply the money you get every month and take you a step closer to financial independence.
It is definitely easier said than done but in the long run, you will be financially strong because of the additional savings you’ll be able to gather. Find out the various things you are good at and try to work more than one job.
Investing your money wisely will go a long way in achieving financial independence. Presently, there are numerous investment options that you can opt for.
However, you need to do some research and study which option suits you the best. Investing a part of your income monthly can help you grow your wealth over time.
7. Pay Yourself First
In the context of personal finance, paying yourself first means allocating a fixed amount for your savings each month. Before you use your income for any other sort of spending, the first thing you should do is put some of it aside as your savings.
Savings are extremely helpful in case of an emergency where you require a lot of money immediately. Having solid savings behind you will allow you to be more comfortable with your finances as you’ll be assured that you have some money to use if the need arises.
Keep the saved amount aside and use it only for its intended purposes to make the exercise effective.
These 7 techniques are highly effective and following them will not only help you achieve financial independence but also maintain it once you reach that point.