You don’t have to graduate with an Ivy League degree or come from a million-dollar household to begin on the path toward financial freedom.
What you do need is discipline, patience, and the will to commit.
Sadly, 63% of Americans say they live paycheck to paycheck – specifically since the start of the COVID-19 pandemic.
If you feel like you are part of that 63% living paycheck to paycheck, there is a way to move closer toward financial freedom – and it starts by reading this article.
Let’s dive right in.
What is Financial Freedom?
Financial freedom is living your life on your own terms. It’s when you are in total control of your finances because you are not worrying about how to pay your bills and you are not feeling the burden of debt.
Financial freedom also focuses on your long-term future by investing in the stock market, investing in your knowledge, and building an emergency savings fund for unexpected expenses.
Financial freedom is when you:
- Live on your own terms
- Take ownership of your life
- Take ownership of your finances
It takes time and it’s not a linear path – you’ll have bumps in the road – but it’s certainly worth it once you do achieve financial freedom.
11 Steps You Can Take to Achieve Financial Freedom
I have used the 11 steps personally to achieve financial freedom and live the life I want.
Let’s walk through the steps together, below.
1. Know Where You Are and Where You Want to Go
The very first step to achieving financial freedom is understanding where you are currently versus where you want to be.
I find that many people just dive right into budgeting, paying off debt, etc. without even knowing their current financial situation!
When I started my path to financial freedom, I made sure I knew the following:
- How much debt I was in
- How much savings I had
- How much money I needed
- How I was spending my money
Understanding my current financial picture helped me draw a better roadmap to understanding what I needed to do to get from Point A (where I was) to Point B (financial freedom).
This is the step where you want to:
- List your debts
- List your assets
This is done best by compiling a net worth statement – and you can download my free printable net worth template, below.
Free Net Worth Template
Sign up below to receive my free net worth template and my latest content updates.
Make sure you are honest with yourself as you input your information into the net worth template.
Remember to include money you owe to friends, family members, etc.
Ignorance is not bliss in this case.
Understand your current financial situation now so that you can make changes for tomorrow.
If you’re starting to worry about money – please take a few deep breaths. You’re not the only one. Trust me.
In fact, the average American has a consumer debt of $92,727!
The worst thing you can do is ignore your debt level.
Now that you have established how much you owe, it’s time to consider how much you own (aka your assets, like your savings accounts, your 401k plans, etc.).
Keep these numbers in mind – your liabilities and your assets – as you start working through the next steps to achieving financial freedom.
2. Write Down Your Goals
Now that you have an idea of your current financial situation, it’s time to figure out what you want.
Here are some questions you may want to ask yourself:
- Do you want to escape your 9 to 5?
- How do you envision your future lifestyle?
- What do you want to use your money for?
- Do you want to save up for a major expense?
- When do you want to achieve your financial goals?
Writing down your goals is a very powerful way to make your future dreams a reality.
Ink never fades.
Statistically speaking, your chances of achieving your goals increase by 42%.
Here’s what I did when I started my journey to financial freedom: I realized I am a visual person who thrives on “seeing” goals.
In May of 2020, when I started The Millennial Money Woman, I bought 2 massive whiteboards and colorful markers, and started building out what I called my “Vision Boards.”
My Vision Boards had:
- Motivational quotes
- A list of specific future goals
- A list of my previous accomplishments
- The reasons why I was working toward my goals
- A date by which I wanted to accomplish those goals
I made sure I placed my Vision Boards in a place that I was able to see day-in, day-out. In my case, it was my office.
Every morning, afternoon, and evening I would see my goals, and for about 12 to 14 hours a day.
My goals always reminded me of why I was doing what I was doing.
Saying “I will run a successful blog” doesn’t really motivate me… at all.
However, when I say that “I will run a successful blog by May of 2022, earning at least $10,000 per month so that I can retire with my family and live on a passive income stream,” I feel SO much more motivated to accomplish my goals.
The more specific you are, the more likely you will achieve your goals.
Hearing the words “I will” is so much more powerful.
And although you may not accomplish all of your goals within the first few months, you should celebrate the small wins with every goal that you have accomplished.
Be persistent, show grit, and never lose that burning desire to win.
Likely one of the most important steps when it comes to financial freedom is budgeting and tracking your spending.
One of my favorite budgeting apps is YNAB, aka You Need a Budget.
YNAB is an app that you can download on both your computer and your phone, which syncs with your bank accounts.
Below are some things that YNAB can help you with:
- Managing bills
- Tracking investments
- Reconciling transactions
The reason why I’m a fan of YNAB is that for those of you who struggle with sticking to a budget – YNAB will do the job for you.
It’s an app that’s 100% dedicated to budgeting.
Plus, you get a 34-day free trial so you can explore the app’s functions and determine whether it’s a good fit for you.
Below are some budgeting rules of thumb that I think everyone should know and start implementing today:
|Type of Expense||Rule of Thumb||Gross vs Net|
Monthly housing debt
< 28% gross monthly income
Total monthly consumer debt
< 20% of net monthly income
Total monthly debt payments
< 36% of gross monthly income
Retirement & savings
> 10% of gross monthly income
And if you find that you’re overspending in 1 area, that’s perfectly OK – that’s why these are simply called budgeting rules of thumb.
The trick is to be flexible in your spending habits.
So, if you find that you’re spending too much in 1 category, you’ll just have to dial back your spending in another category – and that’s where I find YNAB can help you in terms of spending flexibility.
4. Pay off High-Interest Debt
Now that you have some budgeting tools in your toolkit to unlock financial freedom, the next step is to check out the debt you owe, back from your net worth exercise.
First, determine the types of debt you have.
Typically, there are 2 main types of debt:
- Bad debt
- Smart debt
Below is a breakdown of the difference.
|Bad Debt||Smart Debt|
Debt used to buy depreciating assets with high-interest rates
Debt used to buy potentially appreciating assets
Second, determine if the snowball method or the avalanche method works best for you.
Getting out of debt has to do with 2 popular methods:
- The snowball method
- The avalanche method
Below is a quick breakdown of the 2 methods:
|Snowball Method||Avalanche Method|
Pay off the lowest balance first
Pay off the highest interest rate first
Keep in mind that both the snowball method and the avalanche method work best for bad debt scenarios.
If you carry smart debt (for example, I carry a mortgage, and I’m only making minimum payments, since I know my money is going into an appreciating asset), then chances are you’ll be OK continuing making minimum payments.
If we’re talking pure numbers, however, then the avalanche method often makes more financial sense, because you’ll be paying off the highest interest rate first, saving you more money.
My suggestion is to make paying off your debt a priority.
When I paid off the credit card debt I racked up during college, I made it a goal to pay 3 to 4 times more than what the minimum monthly payment was, which helped me rapidly accelerate paying off my debt.
One easy – and often affordable – way to pay off your existing “bad debt” is to consider consolidating your loans.
Upgrade might be the right company for you when it comes to debt consolidation 👇
Upgrade gives you a fixed rate and term with a clear pay-off date.
This can translate into savings while eliminating the surprises of high-interest rates that can change at any time.
Although debt consolidation may not be for everyone, it certainly is a viable option to cut down on stress, spending, and worrying.
5. Build an Emergency Fund
Especially since the pandemic caused millions to lose their jobs, the last thing you want is to stay up all night worrying about whether you can meet next month’s bills because you lost your job.
One proven method to help you prepare for any type of emergency – and move one step closer to financial freedom – is building an emergency savings fund.
You’ll want to save between 3 to 6 months’ worth of your living expenses in cash in an emergency savings fund.
That means if it takes you $2,000 to live each month, then you should make sure to have between $6,000 (3 months’ worth of living expenses) and $12,000 (6 months’ worth of living expenses) saved in cash in your emergency savings account.
And what if you need to pay for an unexpected emergency and your emergency savings account balance decreases?
Make it a priority to replenish your emergency savings fund back to what it originally was.
A trick that can help you earn a little more money on your emergency savings fund cash is by stashing your cash in a high-yield savings account.
Yes, that means you have to physically search for and open a new high-yield savings account.
But, setting one up is pretty easy and seamless.
Given the current 2021 interest rate environment, you may want to check out setting up an emergency savings account through Axos Bank.
The Axos Bank interest rates are competitive in the current low-interest-rate environment and will help you earn a little extra cash on your money. Plus, it’s FDIC insured.
6. Invest 20% or More
Most people will say to invest around 10% of your gross (your total) income.
The reason why I suggest aiming to save around 20% or more of your gross income is that if you want to pursue financial freedom, you have to step up your game.
To be honest, the average American typically saves less than 5% per year.
If your goal is to reach financial freedom, then you need to do a lot more than the average American.
Here’s my 2021 gross personal savings rate: 70%
That means I save (and invest) 70% of my annual income.
That’s why I am an avid investor – and yet I don’t feel like I’m sacrificing all of my life at this point – I’m still having fun, just living on a budget.
For those of you who haven’t started investing yet, I’d suggest you check out this neat investment app that came across my radar recently: Acorns.
Acorns is probably one of the better – if not the best – investment app for beginners and investors who want a little guidance when it comes to selecting their investments.
Below are some Acorns features:
Minimum to Open Account
Minimum to Invest
$1 to $5 per month
Remember that you don’t need $100’s or even $1,000’s to start investing.
With Acorns, you can start with just a few $1’s.
And the most important part of investing is just starting.
7. Build up your Credit
There may be mixed opinions about building up credit since some people completely disagree with holding a credit card in the first place, while others are open-minded to credit cards.
Hear me out: If you plan to purchase a car, home, or plan to take out a loan for your business in the future, then you may very likely need to build your credit.
Sadly, credit (which often is built through credit cards) is a necessary evil in this world.
In fact, having good credit often helps you achieve your goal of financial freedom faster since good credit will help open some doors for you.
Here’s why you may need a good credit score:
- Lower car insurance rates
- Lower interest rates on loans
- Increase your loan approval limits
- Improved chances of employment
- Increased chance to be approved on loans
- Faster approval for apartments and/or rental homes
As you can see, there are many reasons why you may want to improve your credit.
If you feel like your credit score is lower than what it should be and you want to repair your credit, I’d suggest checking out Credit Saint.
Credit Saint is one of the top-rated credit repair companies, which can challenge all 3 credit bureaus.
8. Invest in Yourself
Even if I had attained financial freedom and had all the money in the world, one thing I would continue to invest in would be my knowledge and my education.
It’s true, your return on investment (ROI) will pay you back 1,000x when you invest in yourself and your knowledge base.
There is a reason why those who better understand personal finance often don’t face financial issues.
So, I urge you to take 30 minutes out of your day to practice the healthy habit of reading – specifically reading about personal finance topics.
I’m not saying you have to study to become the next Wall Street hedge fund investor.
But I am saying to start learning more about money.
Some personal finance topics you may want to study include:
- Compound interest
- Retirement solutions
- Tax planning strategies
- Investment strategies
- How to prepare your estate plan
You can find many free e-books, blogs (like this one), videos on YouTube, and podcasts to help break down those seemingly complex financial topics for you.
I would also suggest doing some research on mindset.
Although the courses offered through Mindvalley do cost some money, they certainly can help you rearrange your mentality.
And remember, when you change your mentality, you change your reality.
Below are some courses to master your life that are offered through Mindvalley:
- How to become positive
- How to build confidence
- How to increase productivity
- How to build leadership skills
- How to manifest your dreams
You have the chance to learn the things you wish you were taught in the classroom.
9. Spend Less than you Earn
This rule should make common sense: When you spend less than you earn, you’ll have money left over at the end of the month… which means you’ll be one step closer to financial freedom.
Yet, not everyone follows this rule.
Because we’re not Spock (emotionless). We’re only human – and most of the time we are driven by our emotions.
And emotions cause us to do impulsive things, like buying stuff that we don’t need to impress people who don’t care about us.
There is a reason why wealthy people live frugally – they spend less than they earn.
Anything leftover they save and invest. That’s how they build their wealth.
Start thinking critically and question yourself as you spend money.
The best example of living below your means is likely Warren Buffett.
Warren is the 6th richest man in the world and worth $102.5 billion (as of April 2021), and lives in a 5-bedroom home he bought for $31,500 back in 1958!
If he can do it, so can you.
10. Stay Healthy
Yes, it’s important to work hard and build your future so you can achieve financial freedom.
But, you cannot sacrifice both your mental and physical health in the process.
If you work in a 9 to 5 job, make sure you take your vacation days.
I used to take mental days of leave as well, to make sure I focus and recenter.
It’s also important to exercise regularly every day.
In fact, 76% of millionaires exercise for at least 30 minutes per day.
Source: Business Insider
I’m not a huge fan of exercising.
So, I have created “tricks” to help me start exercising by.
For example: Laying out my gym clothes next to my bed the night before.
I literally have everything ready, from my running shoes to the water bottle.
My first alarm starts at 4 am and I am out of bed by 4:30 am, ready to start the day.
And you only get 1 body.
11. Increase your Income
What if you don’t spend extra money – on anything?
What if you are very frugal with your spending habits?
And you still find yourself scraping the pennies together just to get by.
What do you do then?
This is the point where you need to start asking yourself about your current job, your current income, and how you plan to attain financial freedom.
Because from what I’m hearing, you’re probably not earning enough money.
The solution would be to increase your income.
You can increase your income in several ways:
- Start a side hustle
- Work an additional job
- Build your own business
- Leave your current job and start a new (better paying) job
These options are all viable – and they will all help you build multiple income streams.
The most important things include:
- Educate yourself
- Stick with your plan
Build that extra source of income and you’ll see – it will pay off.
Recommended Reading: Best Passive Income Ideas
Here are 11 steps that you can take to achieve financial freedom:
- Stay healthy
- Invest in yourself
- Invest 20% or more
- Build up your credit
- Increase your income
- Write down your goals
- Build an emergency fund
- Spend less than you earn
- Pay off high-interest debt
- Know where you are and where you want to go
There is no magic number for financial freedom because it comes down to how much you spend per year on living costs.
It is safe to assume that you can withdraw a 4% annual rate from your investments.
So, if you can live on $40,000, pre-tax, then your “number” may be $1,000,000.
However, it comes down to how you envision your future spending – and whether you are OK living modestly (at around $40,000 per year) or if you want to enjoy spending money, which would mean your “number” would likely have to increase.
Financial freedom is liberating because that is when you realize you can rely on yourself to live in this world – you don’t need anyone else to help you survive.
Financial freedom means you can live life on your own terms, without any strings attached.
Financial freedom is arguably the highest level of freedom.
Although you may not reach financial freedom in exactly 5 years, there are some steps you can take today to increase your likelihood of getting to financial freedom in 5 years.
These steps include paying off high-interest debt, building an emergency savings fund, decreasing your monthly expenses, and investing in the stock market.
Financial Freedom: The Bottom Line
Although my 11 steps to help you achieve financial freedom probably won’t make your money problems disappear, they will help you form healthy financial habits that you can use to build the future you want.
The first time I started following the path to financial freedom, I was just out of college and started my first job in corporate America.
When I realized that I was not free – my income was tied to my employer – I knew I had to start taking steps to build my path toward freedom. And I did.
Trust me, the process takes time and it can be a little discouraging at times.
That’s why it’s important to think back to your initial goals – the reason why you actually want to achieve financial freedom.
When you follow – and stick to – the steps in this article, you will start moving 1 step closer to your ultimate goal of financial freedom.
Your bank accounts will thank me later.
What will your first step be in your quest to achieve financial freedom? Let me know in the comments, below!