How to Achieve Financial Freedom

Updated: Feb 2



Nick Carroll

@nickwcarroll


Achieving financial freedom is a life-changing event for many households. It determines if a family will be financially stressed or financially free. By following a plan and a strategy to become financially free, you have the opportunity to impact your family's life forever while setting an example for them.

In this article, you will discover how to achieve financial freedom.


1. Stop Living Paycheck-to-Paycheck


2. Make a Plan to Get Debt Free


3. Budget Your Monthly Savings


4. Understand the Rule of 72


5. Get an Affordable Term Life Insurance


6. Reduce Your Spending


7. Revisit Your Budget Weekly



1. Stop Living Paycheck-to-Paycheck


Easier said than done! It is a vicious cycle breaking the struggles of having enough money to make ends meet that 59% of Americans face every pay period.


If you are serious about breaking the cycle, you must take action, and every effort begins with a plan. Start by creating a budget and be intentional about it. To get you started, visit our store to purchase your budget template starting under a dollar. Put some skin in the game.


Having a budget template gives you a daily visual to track your progress, remind you of upcoming expenses, and holds you accountable.


Now, budgeting alone doesn't stop your money shortfall problems, but it organizes your money to start working for you. Make drastic cuts to your budget, if possible.


Find areas in the budget that can be reduced, lowered, or removed entirely. For example, if you are serious about this goal, can you reduce the number of entertainment streaming services you're paying for monthly?


Budgeting your money is where the road to achieving financial freedom begins.


Related Article: How to Save Money Every Month on a Low Income



2. Make a Plan to Get Debt Free


One of the essential steps in budgeting is making a plan to pay off your debts. From credit cards to consumer loans and eventually your mortgage, you need a plan of action to tackle these debts forever.


Before you do that, you must stop using debt to pay for your expenses and bills. Imagine draining the bathwater in your tub slowly while the faucet is still wide open. The water will never empty. The water filling up the tub is you adding more debt keeping it full.


Obviously, you have to turn off the faucet, and in your case, stop using credit to make purchases and start using cash or your debit card to pay your bills.


Try our Credit Card Payment Calculator to determine how fast you can pay off your credit card!


The first step in getting debt-free is to identify all of your debts and list in an organized manner the debt balances, minimum payments due, interest rates, and the due dates.


You never want to miss a payment because most credit card companies and financial institutions will charge a late penalty, which can range from $10 to $39 dollars, sometimes more.


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Take a few moments to carefully review your credit card statements, loan documents, etc. to ensure you are listing the correct interest rates.


Next, you need to determine which debt you have to pay off first. There are two strategies to approach this, and each strategy depends on one's financial situation.


The two strategies are debt stacking and debt snowball. Both are very effective.


With the debt stacking model, align each debt from the highest interest rate to the lowest. This organizes your debt to focus on paying more on this debt with the highest interest rate while minimum payments on the other debts.


The debt snowball is a debt payment strategy where you list debts from lowest balance to the highest. In this model, you focus on paying off the debt with the lowest balance while making minimum payments on the remaining debt.


Which strategy is better: debt stacking or debt snowball


Both debt payment strategies are very effective and useful models. Still, you must choose one and remain consistent with the plan. The debt stacking strategy is very effective because it pays off debt the highest interest rates quickly. However, with the majority of Americans living paycheck to paycheck, most do not have the extra income to stick with this strategy effectively.


That is why the debt snowball is a beneficial model. By paying off the debt with the lowest balance first, it frees up income to apply towards the next debt with the lowest balance. And then, the debt payment strategy is cyclical.


Pick which strategy is best for your financial circumstance, and go tackle that debt.


Debt Snowball: Preferred method of debt repayment; includes a list of all debts organized from smallest to largest balance; minimum payments are made to all debts except for the smallest, which is attacked with the largest possible payments. ~ Dave Ramsey, Financial Peace University


3. Budget Your Monthly Savings


Budgeting is a dirty word. Many people cringe when they hear the word repeatedly because they associate it to "Stop spending!" But that is not the case. It is a financial map.


Like budgeting your expenses and debt, you need to budget to save money too. Add a regular contribution every month to save money for short-term vacations, emergency fund, a house fund if you are seeking to buy a home, and your retirement.


Many financial planners will recommend saving 10% for retirement. So if you contribute to a 401(k) and an IRA, you should seek to find extra money to put towards other goals too.


For instance, I plan to buy a home within the next few years when I move from Washington D.C. back to San Antonio, Texas. I have a "housing fund" that I regularly contribute to help me reach my goal.


Because everyone only makes so much each month, adding more to your savings will require doing less of something. That is why having a budget is so crucial. There are things that I give up regularly to ensure I can reach my financial goals. It is how committed I am towards a goal. What are your financial goals?


4. Understand the Rule of 72


Even if the Theory of Relativity wasn't enough by the great physician, Albert Einstein, he also is credited for the Rule of 72. The ruling declares a simple mathematical formula stating how

long an investment will take to double one's money.


Yes, DOUBLE your investment! For instance, a child inherited $500 from his grandparents and put into a bank Certificate of

Deposit earning 1%. It would take 72 years for his investment to double.


MATH FORMULA:

72 years / 1% interest = 72 years

72 years / 3% interest = 24 years

72 years / 6% interest = 12 years

72 years / 9% interest = 8 years


You can see from the formulas above why seeking a higher interest rate is better. Although the higher the interest rate, the riskier an investment is going to be. However, I want you to consider

this.


Ever thought about how banks make their money? Yes, they loan it out, but lets put things into perspective. You put $1,000 into a bank, and in return, you may earn 0.01% on it as it sits in your checking account. How thoughtful of the bank, you think. The bank then will either loan it out for, let's say 4%. The bank already made a nice gain from you.


But what if banks had loaned money to you in the form of plastic? Yes, credit cards. They generously pay you 0.01% while charging you from 12-23% or more. With the rule of 72, the financial institutions are raking in the dough very quickly. Consider this the next time you want to charge something onto your credit card.



5. Get an Affordable Term Life Insurance


Life insurance is something that many people do not discuss. It's almost a dirty word because families won't talk about it, let alone share how much they have. Oddly enough, it is those family members who need to know the most should something happen.


Consumers tend to believe life insurance is just another expensive monthly bill. That was the case decades ago, but technology has really dropped prices. You can get a $250K term life insurance policy for a 20-year term for under $30 in most cases.


How Much Life Insurance Do I Need


The primary purpose of life insurance is to leave a financial contribution that covers one's death expenses.


Another purpose of having coverage is the comfort it provides. At the same time, the family is adjusting to the loss of their loved one and learning to fend for themselves both emotionally and financially. In some cases, the insured person is not the primary wage earner. Instead, they are the primary person who provides care for the home and family. This can leave a significant financial burden on the family.


Life insurance money can be used to cover the new expenses they may incur for childcare, cooking, cleaning, and other domestic services that the family may need.


I recommend you read How Term Life Insurance Can Save Your Family



6. Reduce Your Spending


Other than paying off debt, making it a daily practice to reduce your spending will be difficult. It is always easier to spend than it is to save money. This isn't to say you need to start penny-pinching, but to start spending wisely.


Before you make purchases, take a few moments to think about two things. Do you need this product? Can you get it cheaper somewhere else?


Put these two daily questions into practice every time you make a purchase. Saving small amounts daily add up to significant gains every month. For instance, $2 a day is about $60 a month.


More importantly, live within your means. I've known millionaires while working at Thornburg Investment Management, and I've known poor people living on wealth fare. What they both have in common is that neither can live within their means are broke.


Reign in your expenses and find waste in your budget. Be intentional about it.


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7. Revisit Your Budget Weekly


Don't go an entire month without reviewing your budgeting progression. Waiting a whole month to track your progress is not intentional, but lazy.


Take a few minutes every weekend or once a week, and track your progress. Did you make your payments on time? Did you overspend in one category and offset it another?


Revisiting your budget regularly can help you from getting into financial trouble.

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