More and more individuals are facing financial hardships today. Financial freedom isn’t going to magically appear. But with a “take action attitude” and a few tips on where to start, you can avoid extreme debt. These tips practiced over time can also help significantly reduce previously acquired debt and start you on a path to financial freedom.
1. Live within your means.
This simply means you shouldn’t spend more money than you make. “Charge it” are two tiny words that can cause insurmountable debt. Credit purchases might be necessary for a home, but that new pair of shoes can wait until you have the cash. Credit cards might seem like a great way to have what you can’t afford. But, your purchases will still have to be paid off eventually, so all you’ve done is prolong the inevitable financial crises. Practice financial discipline and purchase an item only when you can pay for it.
2. Budget your money.
A list of debts and an accurate account of your total income can show exactly where your money is going. It also helps keep track of how much money is left for luxury spending. Once the budget is set up and balanced on paper, challenge yourself to stick to it in reality.
3. Purpose to pay off debts.
Familiarize yourself with the pay off amounts on debts and work toward paying them off. Start with the smaller debts and pay extra on them when you can afford it. It’s very encouraging when you see that first “paid in full” or the lovely zero balance on a bill. Don’t run out and replace that debt with another one, but instead put that money toward the next debt pay off. The savings on interest alone can be substantial for each debt paid off early.
4. Pay your bills by the due date.
Paying your bills on time will eliminate extra fees. Late charges and penalties can quickly consume what would be extra cash. It also helps improve your credit score to consistently pay your creditors by the agreed upon date. Also, keeping a routine payment schedule can lessen the headaches and confusion of the bill paying process. Most bills come due the same date each month, enabling you to know ahead of time how much of your income is already spent for the month.
5. Keep updated records.
Financial records are necessary for tax purposes and help prevent any mistakes in over payment. It’s not unheard of for a company to make mistakes in billing. If you keep good records then you always have proof of what you owe and what you have paid. If there is a discrepancy you are fully capable of making sure you don’t get over charged. Also if you have receipts and records then you might receive tax credits that you wouldn’t have qualified for otherwise.
A willingness to work is most important to anyone that wasn’t born with a financial inheritance. The great way to obtain financial freedom is to maintain a stable and steady income. A second job might be necessary if you are already buried in debt. A good work ethic will bring in money, but it will also encourage smarter spending. Before you make a purchase, figure up how many hours of work it takes to pay for it.
7. Spend wisely.
It sounds like common sense, but people spend spontaneously more often than you might think. If you never wanted it before the commercial came out, then you probably could continue to live without it indefinitely. Don’t fall prey to the salesmanship of the sales clerk at your favorite shopping spots. Purchase what you know you need and wait on the other stuff. Stay away from any new purchase that requires a monthly payment unless it’s absolutely necessary. This doesn’t mean you can’t make purchases. Just think about what you really want and don’t get caught up in colorful advertising and trends.
8. Set goals.
Think about what you would like to see happen in your financial future and reach for it. Goals help to keep us motivated. Be realistic and start with short term goals to build your confidence. Remember you can’t have financial freedom in a day or month. It might take years to reach your long term goals, but it will be worth it. Higher education is a great goal to start with. No credit card debt is also a great goal. A long term goal might be early retirement. The goals are based on the individual, but a purposed driven set of ideas for your finances will help you stay focused.
9. Start saving.
Once the debt is under control, you can start to pay yourself. A savings account is a great way to keep financial freedom. An emergency can break the bank if you are caught up in one without any extra cash. An accident or illness that causes time off work can set you way behind if you don’t have a little money put back. Small unexpected needs like a broken appliance or vehicle repairs could ruin the budget. A savings account to fall back on can keep your goal of financial freedom on track. It’s also a great way to save for items that you want so you can pay cash and never again “charge it.”
10. Plan for retirement.
Don’t forget that you too will one day be retirement age. Experts estimate the average person will need 70% to 90% of their pre-retirement income to maintain their standard of living after retirement. Combine that information with the estimated number of years you might live retired to get a good idea of what dollar amount you need to secure financial freedom for the future. You can utilize your employer’s pension or profit sharing plan such as 401(k). Some companies even kick in a percentage to earn you free money. Individual Retirement Accounts are another option with information available on line and with your local bank. A long term plan started as early as possible can help insure financial freedom and piece of mind for the future. Also, make sure mortgages are setup around a pay off date that is before your retirement age. No one needs to try to make large mortgage payments on a retired income.
Financial freedom is a goal that requires self control and consistency. It might not always be easy but with a good plan, it is possible. Listen to the voice of those around you that have achieved their financial freedom and set goals that work for you. Think long-term because this is no short task. It will take time to reach financial freedom so stay focused on the long term prize.