Categories

Personal Finance

How to Achieve Financial Freedom

When you achieve financial freedom, you are able to comfortably afford not only your necessities, but also goals and experiences that make money feel like a tool, not a restriction.

That doesn't mean you have to be rich to be financially free. Instead, what it takes to reach financial freedom depends on your income, debt, savings, spending patterns and values. It's important, though, to meet certain universal milestones, such as paying all bills on time and having enough saved for emergencies, before you can truly live without feeling anxious about money.

Here's how to build your own path to financial freedom.

What Is Financial Freedom?

There are many ways to feel financially free. You can earn a modest income and experience a great deal of freedom around money if, for example, you define it as being able to take your family on a meaningful vacation once a year. The primary feature of financial freedom is a feeling of security around money: that it will be of service to your goals, rather than a source of stress.

For most people, reaching that place involves the following:

  • Paying every bill on time each month: Financial freedom begins when your basic needs are met. That means living without fear of your electricity or water being turned off, and avoiding damage to your credit score with a missed loan or credit card payment.
  • Being debt-free, or working toward eliminating your debt: It's difficult to have a healthy relationship with money when you feel you're not in control of it. When you're in debt, and interest charges make your balance grow faster than you can pay it off, you're also losing money you could be saving instead. Work toward getting out of debt—with the help of a nonprofit certified credit counselor, if necessary—as part of your path toward financial freedom.
  • Having at least three months of basic expenses saved: Maintaining a safety net of savings may be the biggest contributor to financial well-being. It can keep you from worrying about how you'll deal with a job loss or unexpected bills. Experts recommend keeping an emergency fund of three to six months' worth of basic expenses, but you may wish to save more if your income fluctuates month to month. This will also help you avoid accumulating credit card debt to pay for unforeseen costs.
  • Saving for goals or experiences beyond emergencies: The next level of financial freedom is keeping your emergency fund intact while saving for other goals, like retirement, a home, vacations or your child's college costs. Retirement should come first, since you can't borrow for it, and saving up for retirement longer generally means having more when you stop working. You'll know you're on the right track when you're able to allot portions of your paycheck—even if they're small—to several needs simultaneously, including regular bills, debt payoff and short- and long-term savings.
  • Not feeling regularly preoccupied with financial concerns: A key feature of financial freedom is a general feeling of well-being around money. A little bit of worry is natural, but consistent anxiety, fear, shame or uncertainty about the future are signs that you haven't achieved a sense of control over saving, spending or debt repayment. When financial freedom is yours, you can monitor your finances and address issues that come up with openness, confidence and optimism.
  • Being able to treat yourself and those you love—responsibly: A financially free person can use their money in ways that fulfill them, which for many includes gift-giving. Freedom around money gives you the opportunity to, within reason, provide yourself and others with things and experiences that bring joy—whether that's theater tickets or a new yoga mat.

How to Start on a Path to Achieve Financial Freedom

The steps to finding financial freedom correspond to healthy financial habits generally. Everyone can benefit from following these guidelines, no matter your ultimate financial goal:

  • Put bills, savings and investing on autopilot: Harnessing control of your money becomes much easier when you use autopay for as many bills and transfers to savings as possible. You can focus on family, friends, work and play while knowing important tasks are taken care of in the background. That includes signing up for deductions from your paycheck for your workplace-sponsored retirement account. You can also consider choosing target-date funds as retirement vehicles, if they're available at your workplace, which automatically rebalance your investments as you age. Using autopay can ensure you never miss a bill payment, which will go far toward keeping your credit in good shape. Additionally, having your bank automatically transfer money from your checking to your savings account, usually on or just after payday, will help you reach other financial goals.
  • Pick a budgeting method: You won't be able to pay bills and save at the same time if you're not sure where your money is going. Budgeting doesn't need to be restrictive; you can start, for instance, by assigning a flexible percentage of your income to needs, wants, savings and debt payoff using the 50/30/20 rule. Or pick from among a range of other budgeting options, and go with the one you're likely to stick to.
  • Get help: Starting to budget and get rid of debt from scratch is hard, and many of us didn't learn how to do it in school or from parents or guides who could teach us. There are several ways to get help now, including from certified financial planners, credit counselors and even online from resources like the Consumer Financial Protection Bureau. You can start with the CFPB's 25 tips to improve financial well-being.
  • Regularly monitor—but don't obsess over—your finances and credit: Keep an eye on your income, savings, debts and credit score so you're never caught off guard and can spot issues—like a missed bill payment—as fast as possible. Try using free tools available online, such as an app like Personal Capital, that give you an overview of all your account balances and net worth. You may be able to access your credit score through your bank or credit card company for free, or use free tools offered by Discover, Capital One or Experian. But don't let tracking finances take over your life. One of the markers of financial freedom is the ability to focus on the things that matter without feeling consumed by money.

Why Financial Freedom Can Be a Worthy Goal

Achieving financial freedom will take time. But it's a useful goal because it focuses on your internal well-being and your relationship to money, instead of encouraging you to fixate on saving a certain amount or hitting milestones by a certain age.

It's a wholly individualized approach to personal finance, and it's likely the one with the biggest payoff. When you're financially free, you'll be able to do what you want while knowing you're in good hands, now and in the future.

Resources