December 6, 2023

Financial Freedom

Financial freedom is a monetary backup that allows a person to do what they desire. It can mean different things to different people. It means having complete control over one’s time without trading it for money, being able to explore or pursue a different interest, or quitting a job with passive income.
A financially free individual can manage their finances comfortably to live on their terms. It gives them a choice, security, comfort, and the time to pursue things they like. Therefore, planning to achieve this state early in life is important.
Financial Freedom Explained
Financial freedom can be stated as the feeling of liberty experienced by a person about their finances. It could mean different things depending on the people who enjoy it. For example, it could be having enough money not to work every day and to try new things without fear of not having money.
Generally, it is inclusive of the following:
•Obtaining a steady source of income and feeling in charge of one’s finances.
•Staying on track to reach financial objectives.
•Having sufficient funds set aside in case something goes wrong.
•Having enough money to live a certain lifestyle.
Anyone can achieve actual financial freedom through the creation of enduring wealth. In the end, everyone’s definition of financial freedom is different. However, having the power and freedom to do whatever one wants is the common unifying factor.
Here are the stages of how a person can achieve financial freedom:
The first step is to be aware of one’s current financial situation. It includes estimating how much money they have, how much debt they have, the goals they want to achieve, and within what period. It is important to know where one is to get to where one wants to go.
This stage concerns being self-sufficient, which means being in a position not to accept help from other people to meet one’s needs. It may involve living pay check to pay check or even taking out loans, but it is important to reach a certain level of sufficiency.
3.Breathing Room
Once basic needs are taken care of and people are sufficiently fed, they can work towards building their dreams. This can be accomplished by saving whatever is left after spending on necessities and diverting it towards one’s emergency fund or investing for retirement. The road to financial freedom demands critical saving skills.
Individuals who reach this level would have incurred high-interest debt, including credit card debt or personal loans. In addition, they would have saved up an additional six months’ worth of expenses as an emergency fund. This stage allows people to move to another place or shift jobs. In addition, unexpected shocks, such as job loss, can be absorbed by savings.
People at this stage have at least two years’ worth of savings. The saved amount will be sufficient to cover their living expenses. This amount need not always be in hard cash; it could also be in the form of investments, as long as it is liquid enough to be accessed when needed.
6.Financial Independence
People at this stage have achieved financial independence, meaning they can live off the income generated from their investments without other sources of income. However, individuals must invest much of their income to get here. Therefore, they might need to downgrade to a simpler life to reduce their living expenses significantly. Pursuing this lifestyle necessitates a shift of perspective away from the conventional paradigms of personal finance.
7.Abundant Wealth
This stage is for financially independent people with an investment portfolio that allows them to safely withdraw 4% of their retirement account, adjusted for inflation. This portfolio of stocks needs to be balanced and should have the potential to grow continuously.
How to Achieve?
Financial freedom can be achieved through several strategies, and they are as follows:
1. Budgeting
Living on a budget is key to financial success. Every penny must be tracked and planned for the previous month so that nothing goes unaccounted for. The road to financial freedom starts with budgeting.
2.Pay Off All Debts
All debts, including student loans, car loans, and credit card bills, must be paid off immediately. When the dues are paid early on, it saves money from being thrown away as interest. An emergency fund should be created before closing off debts. This will provide a monetary cushion in unexpected situations. The next step is to work one’s way up by closing the smallest items first and working your way to the biggest.
3.Setting Financial Goals
Setting financial goals is the key to financial freedom. Getting out of doubt and saving for retirement are examples of such goals. Goals must be specific, measurable, and within a time limit, and the means of achieving them should also be planned out. Keeping track of it with a simple financial freedom planner can also help.
4.Emergency Fund
A fully funded emergency fund is a must for being financially free. This fund should ideally have three to four months’ worth of expenses saved up.
5.Plan for Big Splurges
Big purchases are not emergencies; however, there may be such situations, and spending may go overboard. This can save dents in the plan and help with being organized with spending and disciplined with investing.
Investing is best when it gives great interest, and the power of compounding will work its magic better when it is started earlier. Contributions to a 401(k) and a Roth IRA are good options.
7.Saving Money and living Below Means
It’s better to restrict spending to the absolute minimum. This includes cutting out unnecessary costs. It could be anything as simple as cancelling a gym membership. Unwanted things need to be cut off. However, getting health and life insurance can be a good option and need not be considered an expense. Savings can be categorized, and the amount can be divided into small goals. A financial freedom planner can come in handy here.
Being financially free awards an individual with a great many benefits:
1.Freedom of Choice
Financial freedom gives the power to make the right decisions for an individual. Living the life one desire is a crucial component of financial or otherwise freedom. This might imply having enough money to spend time and whatever one likes.
2. Better Security
Individuals work hard to save in hopes of a better future. They toil away their days, hoping for a better tomorrow. One of the most basic needs of humans is to feel secure. This influences the decisions made, especially those of a financial nature. Feeling secure about one’s financial future alleviates stress and allows individuals to pursue their dreams without hesitation.
3.Control of Time
Time is the most valuable asset that, once lost, cannot be regained. With financial freedom, individuals have better control over their time. For example, with money, one can often travel to see their family on an airplane. If an individual does not have that luxury, they must endure a long journey through other slow modes of travel that consume more time and effort. A financially free individual has more time and resources to compensate.
4.Fulfilment of Goals
Individuals may develop new interests at any time, or sometimes they would need help to pursue a long-lost interest. Being free financially gives them a way out of their mundane jobs that tie them up and prevent them from pursuing them. Individual goals may vary; they may pursue a different career, an expensive hobby, travel, learn a new skill, buy a house, etc. Using a financial freedom calculator can make the process easier.
5.Generational Wealth
When individuals create companies or invest in properties that can continuously generate income, they and their families are wealthy. Some legacies continue, and the family can become financially secure for more than a generation.
6.Alignment of Actions with Values
Individuals may be stuck in a job that aligns differently with their values; it may be something other than their passion. Being financially free allows them to be driven not by profit but by passion.
7.Taking Risks
There are few things an individual can do when living pay check to pay check and trying to make ends meet. It may not allow them to shift jobs or leave the job to pursue their interests as this is their only source of income, and leaving it would be a disaster. Being financially free helps individuals make that shift they have always wanted because they are financially secure.

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