Financial freedom means having enough residual income to cover your living expenses. It is not about being rich and having tons of money, but having enough to cover your expenses so that you can spend your precious time doing what you like rather than doing things just to earn money. It also means you can make big life decisions without being stressed about money. 5 steps are laid down to gain financial freedom.
1. Build a six-month emergency fund
Covid-19 taught us many things. One of the major thing is to have emergency fund aside to meet any kind of emergency. Life is a roller coster ride, where it can take you no one knows. First step towards financial freedom is to have a six-month emergency fund. To achieve true financial freedom, you have to be able to take care of life’s financial setbacks. And those setbacks do happen. Car accidents happen, people get laid off from work or become permanently disabled—no one is immune from financial problems. And in order to reach and maintain financial independence, you need to be able to take care of those financial challenges when they arise.
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2. Pay Off your Debt
The biggest freedom, one can have is to live a debt free life. Once you have an adequate emergency fund, you must begin to aggressively pay off all debt. That includes credit cards, student loans, medical debt, installment loans, vehichle loans, personal loans, and all other debt so that you can cover any large financial setbacks that might come your way. One should work to pay off all of debt as quickly as possible.
The sooner you can get out of debt, the better! When you are debt free, you get control of your most powerful wealth-building tool—your income.
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3. Invest regularly to fund your retirement
Investing is the next step for financial freedom. Investing in the assets that grow with compounding rate is necessity now a days. Compound Interest is the 8th wonder of the world. He who understands it, earn it, he who does not pays it. One should start to invest systematically for retirement. There are various option available for investment like Fixed Deposit, Equity Linked schemes, Provident funds etc.
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4. Cut your spending
Once you have paid off your debt and started investing your income toward retirement, start getting serious about cutting your spending. Expenses for daily parties, eating out, etc can be cut if looked carefully. Start Tracking your spending Habits. A good way to make sure you’re limiting your spending to things you get value from is to set a per-use limit and figure out how much each item you’re considering costs per use.
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5. Increase your source of incomes
If your salary is your only source of Income, you are one step away from poverty. Atleast 5 source of income is recommended. Sources can be like Rent income, Dividend Income, Interest Income, salary income, Business income, share incomes etc. One must diversify investment in order to generate income from different sources. Investment asset classes generally include cash, fixed interest, shares, and property, with varying growth and income potential. When devising your investment strategy, some things to consider are investment risk, liquidity, investment timeframe, diversification, preservation rules and tax.
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As a final step to financial freedom, save and invest regularly to build wealth so that you can stop working when you want to. If you are currently living paycheck to paycheck or if you regularly overspend, learn how to break that cycle so that you will have money to save and invest to reach your awesome financial goals and to finally reach financial freedom.
The author of above article is Riya Thawani.
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