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Originally Posted On: https://www.intuit.com/blog/innovative-thinking/financial-tips/defining-your-financial-freedom/

 

Financial freedom is more attainable than you think. Implement these steps to move you and your family toward living the lifestyle you’ve always wanted.

Many people may not have a total understanding of what financial freedom is. While some think financial freedom is all about eliminating debt, that’s only a single part of it.

Feeling economically secure can depend on everything from your age to your life experiences. The bottom line is that financial independence means you have options. It means you don’t have to decide what necessities you can and can’t pay for, says Chris Hogan, best-selling author, and financial coach.

Financial freedom is a pressing desire for many of us. But progress is only sustainable when you have a clear and personal definition of what financial freedom means to you. These three steps can help you figure out your personal definition of living financially free.

What makes you feel financially free?

The answer to this question is unique to you. Here are some examples to inspire you:

• Living well without a paycheck
• Quitting your job or taking one you’ll love for less pay
• Having emergency funds
• Having zero credit card debt
• Paying for your child’s college in cash
• Paying off your mortgage
• Living off of investments
• Building your family’s financial legacy
• Taking early retirement to travel the world
• Living panic-free when a bill arrives

How to achieve financial freedom

You may question how you even start down the path toward financial freedom. Don’t worry—we have your back. Follow these steps to see how the process can be much less overwhelming than it may seem.

1. Set goals

The process begins with understanding your own version of financial independence. Ask these eight questions to arrive at your personal financial freedom goal:

1. What do you want to do in five years that you need to save money for now?
2. What one major financial goal do you want to accomplish in a year?
3. What steps will you take this month to get closer to that goal?
4. What are your top two financial worries?
5. How much financial help will you give your child or family member and why?
6. Which major life purchase makes you smile and feel excited?
7. Which major life purchase makes you feel sad or regretful?
8. Imagine the day you claim your financial freedom. Where are you, what are you doing, and who are you with?

Start a journal with your goals written out. Research in neuroscience shows a physiological response to writing down goals. The act of writing helps you encode them in your brain and transform those thoughts into reality. Your definition of financial freedom may shift over time. With more clarity, you can enjoy the journey and make it your own.

2. Make a budget

Budgeting is an important step on the path to financial freedom. Without knowing where your money is going, it’s easy to overspend on things that don’t matter or aren’t bringing you closer to your goals.

Think of your budget as the roadmap for your financial journey. Fortunately, you don’t have to do it alone. Apps like Mint can help keep track of your accounts and expenses in one simple dashboard—making it easy to track your spending and adjust when necessary.

3. Pay off debt

Any current debts are chipping away at the foundation of your financial freedom, especially consumer debt. Consumer credit cards typically have some of the highest interest rates—sometimes as high as 20% or more.

Once your budget is in place and you get rid of unnecessary expenses, you’ll have some extra money to use every month. Put some or all of this money toward your smallest debt first. After you pay off that debt, move to the next smallest, and so on.

4. Start saving

It’s important to note that you should have something in savings before paying down your debt. $1,000 is a good place to start, but you should build a larger emergency fund over time.

A reasonable savings goal is three to six months of expenses. You never know what can happen, and if you own a car or home, it’s only a matter of time before something pops up. The purpose of this account is to give you peace of mind. It takes some discipline, but you’ll start to have a more positive attitude toward money with these savings in place.

5. Invest in your future

While your emergency fund covers short-term savings, you should also consider your long-term savings goals. More specifically, you need to start retirement planning.

A sound first step is opting into any tax-advantaged investment vehicles your job offers. Many employers offer 401(k) plans that you can contribute to automatically. This is a good practice to get into because you’ll be investing in your future without even thinking about it.

How much should you invest? A good rule of thumb is 15% of your paycheck. Some employers will also match a percentage of what you contribute. Aim to contribute at least enough money to take full advantage of an employer match. It’s essentially free money to further your future goals.

A financial advisor can talk to you about additional retirement options. They may suggest adding a Roth IRA or life insurance as an additional retirement vehicle. There isn’t a one-size-fits-all strategy, so a professional can help you tailor your goals to you.

6. Increase your financial literacy

The more you know, the more confident you’ll feel. Dive into online resources and learn more about how money works, how to save for your kids’ college, and more. This type of financial literacy is vital to your financial freedom journey and helps ensure you don’t slip back into any bad habits.

Additionally, Intuit’s resources on job readiness can help you prepare to get the job and income you want, as well as how to advance in your current career.

7. Meet with a financial advisor

Regardless of what financial freedom means to you, it’s always helpful to have a mentor. Consider meeting with a financial professional early in your financial freedom journey. They can ask questions to help you clarify your goals. They can also provide extra resources and guidance on how to align your behaviors with those goals.