Achieving financial freedom should be one of your main goals in life. However, to see results and achieve financial freedom, you need to continue learning to increase your financial intelligence and act on what you know. To understand what financial intelligence is, you can watch a video on our YouTube channel titled Explained: What is Financial Intelligence.
But, you need to also be smart with your money, as people tend to spend their money quickly as they start to make more. In this video titled Financial Freedom 101 – What are the Steps to Achieve Financial Freedom?, you will hear the story of professional boxer Mike Tyson, who had it all. Tyson earned over $30 million from his fights and $300 million throughout his career. In 2003, at the age of 37, Tyson filed for bankruptcy!
You may think that it solves all your financial problems if you can reach a high-paid job position. But, unfortunately, a 6 or 7 figure salary or a significant financial investment does not guarantee financial freedom.
Everyone has a different concept of what financial freedom means to them. Most would agree, though, that financial freedom is when you’re so financially secure, you forget it’s payday! So think about it – what does financial freedom mean to you?
The Core Concepts of Financial Freedom
The following core concepts are explained in the video and can help you understand financial freedom, and by putting them into practice, you can be on your way to financial freedom. So, let’s do a quick summary of each concept.
1. Track Your Spending
Your first step is to start tracking your spending. Determine how much you would like to spend in ideal situations, such as when you retire. This will give you a goal to work towards and allow you to work out a plan surrounding your spending habits until then.
Create a budget at the start of each month to help you commit to tracking your spending. It will help you know your total income and how much needs to get allocated to your expenses. If you find yourself in a challenging financial situation during the month, don’t be too hard on yourself, and instead, learn from your mistakes.
Overspending can lead to bankruptcy in the long run, so focus on how much money you can save and not on how much you are earning at that moment. Aim for a positive cash flow and invest your savings.
2. Make Your Money Work For You
Now that you have your monthly budget in place, you need to make your money work for you with assets that can give you a regular income stream. You want to make money while you’re sleeping each night! To achieve this, you need more assets than liabilities, as they pay for your liabilities. If you don’t know the difference between an asset and a liability, click here to learn more!
The ways that you can make your money work for you include:
- Invest in the stock market
- Invest in real estate
- Invest in anything that can generate an income for you while you sleep
These investments will generate a passive income in the long term.
3. Pay Off Your Bad Debt
Paying off bad debt is a significant step in achieving financial freedom, and sometimes you need to take drastic measures to pay them as quickly as possible.
The measures you can take include the following:
- Create a plan to pay your debt and decrease your expenses
- Pay your debt from highest interest rate to lowest interest rate
- Live your life where less is more
- Try a 30-day “no spend month”
4. Plan For Your Future
Life has many physical and emotional challenges, and we need to be prepared for all of them. An emergency fund will help you prepare for anything life throws at you.
Determine for yourself how much you need to cover yourself and your family in a worst-case scenario emergency such as losing your job, and start saving towards it. Make sure your money is easily accessible, as emergencies usually need to be paid for immediately!
5. Make Your Personal Finances Smart Habits
Your personal financial habits need to be smart, as they’re the best investments for your future. Smart habits include:
- Managing you money
- Paying your debt
- Saving for emergencies
Conclusion of Financial Freedom 101
Reaching financial freedom is not difficult if you work hard to achieve your goals. Be wise with your spending habits, have goals, pay your debt quickly, and start investing as soon as you can.
Focus on increasing your financial intelligence, and you will reach financial freedom sooner than you think!