How to achieve financial freedom in 4 steps - SmartAsset (2023)

How to achieve financial freedom in 4 steps - SmartAsset (1)Having "financial freedom" means different things to different people. But in general, it is understood as being able to live the lifestyle of your choice while managing your finances responsibly. In other words, it meanshave enough savings, investments and money available to live the way you want, now and in retirement. Also, many people classify financial freedom as having their money work for them, rather than having to work and stress about their money. Those interested in making a plan to achieve financial freedom should consider working with aprofessional financial advisor.

4 steps to achieving financial freedom

Once you've decided that financial freedom is your goal, you can start taking steps to achieve it. The first step to achieving financial freedom is defining exactly what it means to you. For some, it might mean becomingdebt freeand paying all of their monthly expenses out of their cash flow, while others may just want to say they have theindependenceto make your own financial decisions. Usually you can't achieve something you haven't defined. So, once you've defined what financial freedom means to you, you can start taking steps towards your goals.

1. Select a budget method

The first step is to make a budget that fits your goals. It is essential to understand where your money is going. While budgeting can seem like a daunting task, you have several options. You might want to start by using abudget calculatorto get an idea of ​​how you are currently spending your money and how you would like to change your spending.

Before you start budgeting, you might want to do some research on which budgeting method is best for you. Here are three popular budgeting methods:

  • 50/30/20 rule:Los30/50/20The rule is a way to divide your after-tax income based on your needs, wants and savings. The rule states that people must spend 50% of their income on their needs. This includes health insurance, housing, transportation and groceries. The guideline states that people should spend 30% of their income on wants or not needs like entertainment, travel and more. Finally, the last 20% of a person's income must be saved or invested. This can include saving for retirement and building a stock portfolio.
  • Zero-based budgeting:Zero-based budgeting instructs professionals to allocate every dollar they earn to a specific item. For example, if a person needs to pay rent, buy groceries,pay off student loans, invest, and earn $1,000 per paycheck, the person must deduct each of these items from the $1,000. If the person's expenses only total $950, you'll need to allocate the extra $50 from your budget to a specific line item. For example, the person might want to contribute an additional $50 toward student loans.
  • Cash only quote:Also calling "envelope budget”, this method instructs people to withdraw money every time they receive a paycheck. They then allocate specific amounts of money to each of their envelopes or budget items. The idea behind cash-only budgeting is that when a person runs out of money, they can no longer spend money until they get their next paycheck.

2. Automate your payments

Automating your payments is one of the easiest steps you can take to ensure you're on your way to financial freedom. You can set up automatic payments for yourmortgage,car loanycredit cardbalances You can also set up automatic payment for your utility bills. In addition, you may want to make sure your employer-sponsored investments are automated, including your401(k) Contributionsand employee stock options.

An added benefit of automating your finances is that you'll lessen the chances of missing a payment. This will help you save money on fees. Paying your credit card and other bills on time and in full each month will help improve your credit history and increase yourcredit scorealso.

When your payments are automated, you can eliminate the time it takes to pay your bills each month. You can also automate your savings andinvestments, which means your money will keep growing without you having to think about it. It will help you reach your financial goals quickly and easily.

For some people, automating monthly or quarterly payments can also weaken the temptation to cheat when they suddenly want to spend some money that their budgets don't allow.

3. Get help from a professional

Managing your money is not always an easy task. As you age, you may be able to increase your family, receive promotions that change your income, and make other decisions that affect your finances. With so many moving parts, it's wise to enlist the help of a financial advisor or financial planner who understands your goals and the market.

financial plannersand counselors have worked with people in your situation before. They will be able to help you navigate the market and make recommendations based on your goals. You can search for a certified financial planner in your area with ourfinancial advisor matching tool.

4. Complete regular financial checks

How to achieve financial freedom in 4 steps - SmartAsset (2)

It's important to check in with yourself and your finances along the way. You may need to adjust your financial plan or reassess your goals as life changes. One way to check in with yourself is to monitoryour credit score.

Many banks and apps let you check your credit score for free as many times as you like. By regularly monitoring your credit, you'll be able to quickly identify what helps boost your credit score and what can hurt it. If you have negative marks on your credit score, you can quickly resolve them or identify if you might be a victim of identity theft.

You can also monitoryour investment accountsand have regular check-ins with your financial advisor. They will be able to help you pivot as needed and help you adjust your investments based on your goals and how far you are from achieving them. You can also regularly review your budget to ensure that your daily, weekly, and monthly activities are helping you reach your goals.

It's important not to get hung up on these financial milestones either. While you can choose to check your credit score daily if you like, being too picky about your finances can end up being stressful for you. So, set aside time every two weeks or months to review your finances. That way, you can stay on top of what's going on with your finances without letting them take over your life.

Is it worth achieving financial freedom?

When you decide you want to start working towards financial freedom, it's important to remember that you won't be financially free overnight. It will likely take years to reach your goal. During this time, you may become exhausted or discouraged. So it's important to remember why you want to achieve financial freedom. Keeping the big picture in mind will help you navigate day to day decisions.

By paying off your debt, you will have more money in your budget toinvestor spend. Depending on your unique relationship with money, this could be very attractive to you. If you achieve financial freedom sooner than expected, you may be able to retire earlier, take more vacations, or spend more money on things and activities you enjoy.

the bottom line

How to achieve financial freedom in 4 steps - SmartAsset (3)Financial freedom means different things to different people, but it generally means having enough savings, investments, and money (along with little or no debt) so that you can have the kind of life you want. People can take small steps each day towards this goal by following a budget and paying close attention to their finances. This will lead them to take leaps towards a safer future.

financial planning tips

  • Consider talking to a financial planner about your goals and the steps you're taking to reach them. Finding a financial advisor doesn't have to be difficult.Ferramenta gratuita SmartAsset connects you with up to three financial advisors serving your area, and you can interview their advisors at no cost to decide which one is right for you. If you are ready to find an advisor who can help you reach your financial goals,Start now.
  • Financial freedom is different fromFinancial independence, which means having enough money that you can stop working for a living if you want to. A key to achieving financial independence is smart asset allocation, whicha free calculatorcan help you comply.

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ashley kilroyAshley Chorpenning is a seasoned financial writer who currently serves as an investment and insurance specialist at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for individual owners and Fortune 500 companies. Ashley earned a degree in finance from the University of Cincinnati. When she's not helping people understand their finances, you can find Ashley cage diving with great white sharks or on safari in South Africa.

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