The 5 Ways to Plan Your Finances to Achieve That Financial Freedom

Let me paint you a picture of what financial freedom looks like: all bills are paid in full each month, you enjoy regular family vacations, and you will never have trouble paying your kids’ tuition. And you still maintain healthy savings, emergency funds, and a retirement fund.

Financial freedom means you can make life decisions without worrying about how they will affect your future. Sadly, achieving this is not an easy task. It is not taught in school, so many people don't know where to begin or what needs to be done.

Worry not; we’re here to help. This simple guide outlines how you can achieve financial freedom.

Why Financial Freedom Is Important

Achieving financial freedom means you have lifelong security and stability. You can spend less time working and live your life how you want.

Simply being able to pay for your immediate needs is not enough; you must be well prepared for anything that can happen in the future. If you face an emergency, you need ample cushion to handle it without sacrificing your well-earned stability.

Five Simple Ways to Plan Your Finances

1. Set Specific Financial Goals

Set specific financial and life goals for yourself. They will significantly impact each other, and you can use these goals to develop a plan for the future. For example, if you want to retire early, striving for financial independence is crucial for building up your retirement money.

Your goals must be SMART (specific, measurable, achievable, relevant, and time-bound). “I want to have enough money to live comfortably for the rest of my life” is not nearly as helpful as “I want to save $2 million by age 60 so that I can live comfortably after retirement.”

The second statement is more specific, and the road ahead is clear—there is no uncertainty about the steps you need to take. The more quantitative your financial goals, the better.

Most importantly, your goals should be feasible; if they seem too out of reach, you will not be motivated to achieve them. Approach your most outlandish goals from another angle so you can keep pushing yourself.

Your goals should be practical and meaningful, and not just items to cross off your to-do list. You should strive to achieve them within a specific timeframe to stay focused.

Once you know your financial goals, decide how your life goals can help you reach them. If you want to own a home in five years and make all the payments, one of your life goals should be to get promoted at work, earn more money, and increase your market value.

2. Pay Off All Debt

Paying off debt must be a top priority. This will help you build your credit score, expand your financial options, and give you much-needed peace of mind to focus on your financial goals.

There are two schools of thought regarding debt: balance vs. interest. Paying off smaller loans first can be very beneficial if done correctly. This strategy is known as the snowball method, where you start by chipping away at your smallest loans and paying them off as quickly as possible.

In contrast, prioritizing loans with the highest interest rates is called the avalanche method, where the strategy is to pay less interest over time.

Debt is one of the biggest obstacles to accomplishing financial goals. If you really want financial freedom, this is something you need to work on before anything else.

3. Create a Budget and Track Your Spending

It can be difficult to save money and maintain a healthy budget if you live paycheck to paycheck. To figure out how much you can realistically spend each month, you must first figure out where you currently stand financially.

The first step in budgeting is to track your current expenses. Write down how much you earn and spend every month. Include every expense, no matter how big or small, from your rent or mortgage payment to utilities, groceries, cellphone bill, streaming services, etc.

Once you know how much money comes in and goes out every month, starting your journey to financial freedom will be much easier. You can begin to figure out how to make the most of what you earn and curb your spending. Set specific income percentages for your necessities, savings, emergency funds, debt repayment, and luxuries.

Moving forward, the challenge will be keeping to your budget. You can keep a close eye on your expenditures with money-tracking apps. This will require some effort, and for most people, a significant change in behavior.

Tracking where your money goes will keep you focused on your financial goals and what you need to do to achieve them.

4. Build Your Savings and Emergency Fund

Your savings and emergency fund are your safety net, which will protect you from unexpected expenses and situations that require quick cash.

At least three to six months' worth of living expenses is a good baseline to have on hand in case of an emergency, but the amount can vary depending on your situation and personal preferences.

Start small by setting aside $50 or $100 per month until you can save enough for three months' worth of living expenses.

It’s best to open separate accounts for different savings, so your funds remain discrete and organized.

5. Start Investing

Investing is a long-term strategy that involves putting money into an avenue that will generate returns over time. A good investment can be anything from your children's education or a house to buying stocks or bonds.

When you invest, diversify your portfolio so that if one income stream fails, others can still provide funds for your needs. Do not put all your eggs in one basket; do your due diligence before putting your money in anything.

Conclusion

Financial freedom isn't just about money or assets; it's about your life and future comfort. Working towards it will help you support yourself now and for decades to come.

To start, you need to set attainable goals and then work towards realizing them by employing different strategies like investing, saving, and increasing your income.