Finance / Retirement

9 Steps to Achieve Financial Freedom

Working just to pay the bills—this is the life of most of us. I tell you now, bills never end but your job will. Even in death, still there are bills to pay. How do we escape this cycle of working-paying-working-paying again? The answer is: Financial Freedom. It is the status in life where in you have enough stream of income to pay for your living expenses without solely relying on your job. Once you have achieved this, you will probably retire early and enjoy life.

How do we become financially independent?

  1. Identify which is a “need” or a “want” in your life.
  2. Learn to prioritize
  3. Set up your goal
  4. Proper Budgeting
  5. Find Sources of Passive Income
  6. Clear your Debt
  7. Always Have An Emergency Funds
  8. Choosing the right investments
  9. Take care of Your Health

1. Identify which is a “need” or a “want”

This is the first thing you need to know about yourself. This is the foundation of your financial independence goal. It is a major disaster if you keep putting your “wants list” into the “needs list”. Needs are things you can’t live without—now and in the future.

What are “now” needs? Let’s say, you have enough money to buy a car, should you buy it or not? It depends. Are you doing fieldwork and field sales? Do you have children you need to take to school? Then it is a need. But if you are buying so that you can do road trips, then ask yourself again. Can I still travel without a car? Do I have more important things to buy other than a car? Perhaps a house?

What are future needs? Take a memorial plan for example. Do you really need a memorial service now? Or a burial lot now? The answer is not “no”. The answer is “not yet”. Reality check—everybody dies whether you are young or old. This is certain to happen so why not buy now even if you don’t need it yet.

2. Learn to Prioritize

We all have a lot of things written down on our “needs list”. We need money to pay for utilities, for food, clothes, house, car, your child’s tuition fee and many more. The problem is, your income is not equal or less than the amount of your “needs list”. So what do we do? Learn to prioritize. Which is more important to you? Your child’s education or a car? Food or Clothes? House or Car?

3. Set-up Your Goal

A Goal is your “mission and vision” towards what you would like your life to be in the future. This is very important because once you have identified your goal, you can start strategizing on how to achieve your goals. Setting up your goals on a time line is the best strategy. A lot of people fail in this area because they lose focus on their goals. Goals can be short term or long term

What are short term goals? Take credit card loans for example. You want to be debt-free in 1 to 2 years or anytime earlier than maturity but your salary is not enough. What will you do? You can either find other source of income or you can change to a higher-paying job or just lessen you spending.

What are the short term goals? These are retirement funds, owning a real estate property or college education for your children. The length of time achieving this takes more than just paying your credit card debt or your car amortizations.

4. Budgeting

Budget is the movement of cash—cash that comes in, the cash that comes out, and the cash that stays. Budgeting is the most stressful part of achieving financial independence. You need to balance your budget between your “wants and needs”, your priorities and your goals. There is a predefined set of plans you can do to your expenses which most of them who does budgeting. Through this pie budget process, you will eventually learn more budgeting hacks

50-30-20 Budgeting Rule

5. Passive Income

What is passive income? It is an income requires little or no effort to maintain or manage. Choosing what is the best source of passive income for you depends on your skills, background knowledge and resources. For example, you have a fair amount of financial resource on you bank, then interest payments can be your passive income. A regular flow of interest coming into your cash flow can help you pay small bills of water or internet.

6. Clear your Debt

Why clearing your debt is important? Unpaid debts restrict you from moving on with your proper budget pie. It will always have a portion on your “essentials”. Why this must be on the essentials? Simply because it will earn interest and penalties if you missed paying it.

7. Emergency Savings

As the term implies, emergency funds are your savings which are intended for unexpected expenses like hospitalization or unemployment. Many people tend to forget to set aside a portion of their savings to fill up the emergency fund. Ideally, you should have 3 to 6 months’ worth of your salary as your emergency fund.

8. Investments

An investment is an asset you acquired with the expectation to earn income from it or with the expectation that it will appreciate in value. Investment is the best way to make your savings grow faster but it can also be risky. This is a very broad topic in financial management. Here are some sample of investment types.

  1. High-Interest Savings Accounts
  2. Fixed Deposit
  3. Mutual Funds
  4. Pension Schemes
  5. Equity
  6. Bonds

9. Take care of Your Health

Health is your best investment but a lot of people neglect this because they are still young and healthy or they thought they are. Remember these:

  • You can’t do anything when you are sick
  • All your plans will be useless or put on hold until you gain better health
  • All your savings and investment can be drained by hospitalization
  • A sick family member has big impact on the lives of the other members of the family

Let us know your budgeting style for financial freedom. Please leave a comment below.

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