These 12 Habits Will
Help You Reach Financial Freedom
Achieving
financial freedom is a goal for many people. Financial freedom generally means
having enough savings, investments, and cash on hand to afford the lifestyle we
want for ourselves and our families—and a growing nest egg that will allow us
to retire or pursue the career we want without being driven by earning a
certain amount each year. Too many of us fail to reach that goal. We are
burdened with increasing debt, financial emergencies, profligate spending, and
other issues that thwart us from reaching our goals. It happens to everyone,
but these twelve habits can put you on the right path.
1. Set Life Goals
A general desire for "financial
freedom" is too vague of a goal. What does it mean to you? Write down how
much you should have in your bank account, what the lifestyle entails and at
what age this should be achieved. The more specific your goals, the higher the
likelihood of achieving them. Then, count backward to your current age and
establish financial mileposts at regular intervals. Write it all down neatly,
and put the goal sheet at the very beginning of your financial binder.
2. Make a Budget
Making a monthly household
budget, and sticking to it, is the best way to guarantee all bills are
paid and savings are on track. It is also a monthly routine that reinforces
your goals and bolsters resolve against the temptation to splurge.
3. Pay off Credit
Cards in Full
Credit cards and similar
high-interest consumer loans are toxic to wealth-building. Make it a point to
pay off the full balance each month. Student loans, mortgages and similar
loans typically have much lower interest rates, making them less of an
emergency to pay off.
4. Create Automatic
Savings
Pay yourself first. Enroll in your
employer's retirement plan and make full use of any matching contribution
benefit. It is also wise to have an automatic withdrawal for an emergency
fund that can be tapped for unexpected expenses and an automatic
contribution to a brokerage account or similar account. Ideally, the money should
be pulled the same day you receive your paycheck so it never even touches your
hands, avoiding temptation entirely. However, keep in mind that the
recommended amount to save is highly debated; and in some cases, the
feasibility of such a fund is also in question.
5. Start Investing Now
There is no better or tried and true
way to grow your money than through investing. The magic of compound
interest will help your money grow exponentially over time, but you need a
lot of time to achieve meaningful growth. Don't try to be a stock picker or
trick yourself into thinking you can be the next Warren Buffett. There can be only one. Open
an online brokerage account that makes it
easy for you to learn how to invest, create a manageable portfolio, and make
weekly or monthly contributions to it automatically. We've ranked the Best
Online Brokers for Beginners to help you get started.
6. Watch Your Credit
A
person's credit score determines
what rate is offered when buying a new car or refinancing a home. It also
impacts seemingly unrelated things, such as car insurance and life insurance
premiums. The reasoning is a person with reckless financial habits is also
likely to be reckless in other aspects of life such as driving and drinking.
This is why it is important to get a credit report at regular intervals to make
sure there are no erroneous black marks ruining your good name.
7. Negotiate
Many
Americans are hesitant to negotiate for goods and services, worrying it makes
them seem cheap. Overcome this cultural handicap and you could save thousands
each year. Small businesses, in particular, tend to be open to negotiation,
where buying in bulk or repeat business can open the door to good discounts.
8. Continuous Education
Review
all applicable changes in the tax laws each year to ensure all adjustments
and deductions are
maximized. Keep up with financial news and developments in the stock market,
and do not hesitate to adjust your investment portfolio accordingly. Knowledge
is also the best defense against those who prey on unsophisticated investors to
turn a quick buck.
9. Proper Maintenance
Taking
good care of property makes everything from cars and lawnmowers to shoes and
clothes last longer. Since the cost of maintenance is a fraction of the cost of
replacement, it is an investment not to be missed.
10. Live Below Your Means
Mastering
a frugal lifestyle by having a mindset of living life to the fullest with less
is not so hard. In fact, many wealthy individuals developed a habit of living
below their means before rising to affluence. Now, this isn't a challenge to
adopt a minimalist lifestyle nor a call to action to head to the dumpster with
things you've hoarded over the years. Just making small adjustments by
distinguishing between things you need rather than things you want is a
financially helpful and healthy habit to put into practice.
11. Get a Financial Advisor
Once
you've gotten to a point where you are able to discern if you've amassed a
decent amount of wealth, be it liquid investments, or assets that are tangible
but aren't as readily available to convert to cash, getting a financial advisor
to educate and help you make decisions is highly suggested.
12. Take Care of Your Health
The
principle of proper maintenance also applies to the body. Some companies have
limited sick days, making it a notable loss of income once those days are used
up. Obesity and ailments make insurance premiums skyrocket, and poor health may
force earlier retirement with lower monthly income.
These
won't solve all your money problems, but they will help you develop helpful
habits that can get you on the path to financial freedom—whatever that means
for you.
