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5 Steps to Reaching Financial Freedom

Start by outlining your goals, creating a budget and reducing troublesome debt.
May 15, 2019
Managing Money, Personal Finance
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In a perfect world, nobody would have to worry about whether they have enough money to live the life they want. In reality, many of us do have that concern.

When you reach the position of being financially free, you can live “without worrying about having enough income coming in or being able to pay for your lifestyle,” says Anna Sergunina, a certified financial planner with MainStreet Financial Planning Inc. in Burlingame, California.

What is financial freedom?

Financial freedom means having control over money and not letting it stand in the way of your decisions. Not to be confused with financial independence, which specifically concerns retirement or working only when you want to, financial freedom is about living comfortably and having choices.

For you, it might mean being able to send your child to college, taking an annual trip or starting a business. Or, maybe it’s all of the above. The exact definition of financial freedom varies from person to person.

Here’s what you can do to achieve financial freedom in your life.

Really get to know your money

NerdWallet gives you a complete view of your money, bills, debts and spending — all in one place.

Set clear goals

First, establish your financial goals. If you’re like most people, you’ll probably have a few. Some may be near term, like saving for a new car, and others long term, such as paying off a mortgage.

“Identify what it is that you’re working so hard for,” Sergunina says. “If you say, ‘I want to buy a house in two years’ or ‘I want to retire in 10,’ what is that really going to take as far as money goes?”

While the ultimate goal is total financial freedom, you’ll want to account for the other things you hope to accomplish along the way. Creating a plan to achieve one goal at a time is a great starting point.

Keep a budget

Now that you have financial goals in mind, work them into a monthly budget along with your recurring expenses. That way, you’ll know where your money is going and can measure progress over time.

If you don’t plan to track every dollar, it’s important to at least follow a few core budgeting principles:

  • Avoid spending more than you make. Ideally, you’ll spend 50% of your income on needs, 30% on wants and 20% on savings and debt.
  • Cut back on expenses where you can. Canceling unnecessary subscriptions or refinancing an auto loan can free up more money in your budget.
  • Contribute to savings. This includes retirement funds and, perhaps most importantly, an emergency fund to safeguard against unexpected repairs, medical bills and other expenses.

Take a fresh look at your budget each month and address any changes, such as an increase in income or a major expense.

Find a debt-payoff strategy

For many, debt is the biggest obstacle in the way of financial freedom. A vacation could be out of the question while you’re stuck paying steep student loan bills. Finding the right way to pay off debt can bring much-needed relief.

Debt payments should be factored into your budget, but it’s equally important to consider which method to use. Effective strategies include the debt avalanche plan — paying off your debt with the highest interest rate first — and consolidating with a balance transfer credit card, which moves your debt to a card with a lower interest rate.

Examine your career path

Figure out how much money you’ll need to support your vision of financial freedom. Then, take a look at your current income and earning potential. Are you making enough? If not, do you see opportunities for a raise or promotion down the line? Depending on the answers to these questions, you might decide to make some adjustments.

It could require additional education, some networking or experience to lay the foundation.

Mark Struthers, Sona Financial LLC

“It varies with industry, but quite often it could require additional education, some networking or experience to lay the foundation,” says Mark Struthers, a certified financial planner with Sona Financial LLC in Minneapolis.

Know when to seek help

Despite your best efforts, it can be difficult to reach financial freedom on your own. If you follow the steps above and still feel overwhelmed, try finding support. A trusted friend, family member or financial advisor can point you in the right direction.

“When you talk to a third party, you get a sounding board to run ideas by, to make sure you aren’t overlooking something or making a mistake,” Sergunina says.

Articles, books, blogs, apps and other tools can also help. Explore the options and resources available to you.

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