5 Steps to Financial Freedom

We write a lot about saving money, making money and spending it or investing it wisely. It’s easy to get stuck in the weeds and forget the ultimate goal. So here’s a reminder: The goal is to achieve financial freedom — the ability to live comfortably, fulfill your goals and live without anxiety about the future.

To that end, here are five steps that you can develop into habits to reach financial freedom:

1. When spending, ask yourself why

Before plunking down a fat stack of cash or swiping that card, stop for a moment and think. Are you getting something you need or a tool that helps you achieve your goals, or are you buying a status symbol that serves little purpose but to compete with the friends or neighbors? How much do you need it? How much will you enjoy it? How much does it improve your quality of life? This line of questioning will help you resist or delay spending money that you could instead save or invest for your longer-term goals.

If you’ve decided to make a purchase, commit to memory some of these easy ways of getting the best possible price:

• “10 Ways to Get a Discount on Every Online Purchase“
• “5 Tricks to Get Discounts on Everything You Buy in Stores“

2. Invest a portion of your savings for growth

Invest a portion of your savings so that it can outpace rising prices. That said, don’t try to pick stocks or time the market. For most of us mere mortals, that is folly. Instead, find a low-cost mutual fund, like the Vanguard Index Fund, which spreads your money across a broad swath of companies to track the market as a whole. By doing it this way, you won’t drive yourself crazy trying to manage individual stocks or take an unreasonable risk on any one asset. You can select funds for the degree of risk (and potential profit) you are comfortable taking and then adjust your risk downward as you get closer to retirement.

Here are a couple of good articles on investing safely for the long term:

• “How to Get Started Investing When You Don’t Have Much Money“
• “A Simple Way to Invest Your Retirement Savings“

3. Pay down debt

Money that costs you money needs to be tackled with determination and strategy. If you have a credit card or other balance that carries a very high interest rate, pay it down as aggressively as you can, while keeping up with minimum payments on other debt. If the rates on your various cards and other debt are roughly the same, you can try another approach that some people find very motivating: They “snowball” debt by paying off the lowest balance first (while always keeping up with minimum payments on other debt) and then taking the amount that had been used for that now-closed account and applying it to pay down the next-lowest balance debt, and so on. Here are some more ideas on tackling debt:

• “How to Pay Off $10,000 in Debt Without Breaking a Sweat“
• “Which Debt to Pay First — Lowest Balance or Highest APR?“

4. Carve away expenses

Most of us have regular expenses that we can eliminate or reduce simply by slowing down long enough to think about it. A place to start is to make a budget — made easier by budget software that allows you to track your spending and your goals. We recommend our partner PowerWallet, but there are many alternatives. Then you are in a position to consider where you can cut your costs. Do you really need that fancy cable package, are you even using your gym membership anymore, and is it possible to cut down on a habit, say smoking or triple lattes?

The key is to be somewhat systematic about this task. Once a system is in place, it will be a whole lot easier to keep spending under control.

Here are some more thoughts on the subject:

• “10 Commonly Overlooked Expenses That Are Ruining Your Budget“
• “8 Secrets to Building a Budget You Can Live With“

5. Build an emergency fund

There will be emergencies. You can count on them even if you can’t predict what form they will take. So you want to be sure that you don’t have all of your money tied up in ways that make it hard to get at. For peace of mind, build a cash reserve at your bank or credit union that you can draw on if things go sideways at work, you’re faced with a dental emergency or whatever life throws your way. Ideally, you can pull together enough to cover six months worth of expenses, but of course, you have to start somewhere. A month’s worth is better than nothing. Here is more on how to make it happen:

“How to Prepare For and Deal With an Income Emergency”

That’s it! Read these tips, take in more details in MoneyTalksNews articles, and start heading for financial freedom.

What steps are you taking towards financial freedom? Share with us in comments below or on our Facebook page.