Financial freedom definition
The definition of “financial freedom”—sometimes used interchangeably with “financial independence”—can vary depending on who you ask. In general, achieving financial freedom means living comfortably without money-related stress.
For some, that means having paid off all outstanding debts. For others, it means having enough money after paying the bills each month to save, grow retirement savings or simply afford a preferred lifestyle. For some, it might mean being able to pursue their interests and passions without having to worry about financial strain.
Reaching a point where worries about money become less frequent—due to careful planning and hard work—can be a realistic goal.
How to become financially independent: 7 helpful habits to build
If you’re looking to pursue financial freedom, here are seven places to start.
1. Clearly define your financial goals
The first step to take toward becoming financially free is to determine what your specific goals are for your finances. Consider asking yourself a few of the following questions:
• Am I simply looking to save more and spend less?
• Am I looking to eliminate credit card balances, student loan debt or medical debt?
• Do I want more money to work with in my monthly budget?
• How can I get more out of the money I currently have to work with each month?
• Do I have a big purchase I want to make, like a car or a boat?
• Am I hoping to save for a house, wedding or vacation?
• Am I hoping to save more for retirement?
• Am I hoping to build an emergency fund?
Once you’ve determined whether one or more of these questions apply to you, you can identify the next steps to take.
2. Track and analyse your spending
To understand where all your money goes every day, week, month and year, it can be wise to start tracking your spending habits. Documenting your spending can help you assess where there’s room to cut excess costs. It can also help you identify habits you can eliminate or reduce—like dining out instead of cooking at home—to free up additional money in your budget.
You can create and stick to a budget manually or with a budgeting tool.
3. Automate your money
In addition to tracking your spending habits, it can be helpful to automate the movement of your money. You can choose a specific amount to have automatically transferred into your savings account every pay period. The Consumer Financial Protection Bureau calls it one of the “easiest and most consistent ways” to build toward a savings goal.
Savings is just the start. You could also set up automated payments for your bills to ensure you’re avoiding late penalties and fees.
You can also automate payday with direct deposit, which is often faster and more secure than cashing a check.
4. Pay down your debts
Reducing the amount of debt, you carry can help you achieve your other financial goals and move toward financial freedom. Creating a debt repayment plan—using the debt avalanche or debt snowball method, for example—can help you stay on track until you’ve successfully repaid it all. Consolidating your debts can also help make it easier to start paying them off more efficiently.
Once your debts are repaid or reduced, it might give you more wiggle room in your budget to pursue other financial goals.
5. See whether investing makes sense
While there’s always some risk involved in investments, putting some of your available funds toward stocks, bonds, mutual funds, Roth IRAs, 401(k)s and other investment opportunities can potentially help to grow your wealth and achieve financial freedom. Consider talking to a financial expert about how to build an investment portfolio and choose the right investment assets to best fit your goals.
6. Keep an eye on your credit score
Having a good credit score can open up a lot of doors, like getting approved for mortgages, auto loans and credit cards with better interest rates and credit limits. So it’s good to regularly check your credit scores and to take steps to improve them if needed.
7. Consider meeting with a financial adviser
It can be difficult to know where to begin on your journey toward financial freedom. But working with a trusted financial expert can help, especially when you’re just starting out.
Achieving financial freedom in a nutshell
Becoming financially free and having more flexibility with your finances is a desirable goal for many people. And with dedication and consistency, you, too, can achieve financial independence later on down the road.
You can learn more about a specific type of financial freedom called the Financial Independence, Retire Early (FIRE) movement. And if you’re looking to build more financial habits that could lead to greater independence, check out how to reduce your expenses.
Financial freedom definition