5 Easy Steps Towards Financial Freedom
It’s a new year and it’s time to start working on all those resolutions. One of the most common is the desire to get finances in order and prepare for retirement. We all want to retire someday but without financial freedom, that can’t happen. So what is financial freedom? Quite simply, it is having enough passive income from investments and savings to cover all living expenses without having to rely on a paycheck. How to achieve this goal? Here are five easy changes you can start with this year that will make a significant difference.
- Build a budget. This is as boring as it sounds but it is also the vital first step. Know what is coming in and what is going out. Which expenses are fixed and which are discretionary. For the latter, take a good look and determine if any of those can be reduced or eliminated altogether. Without a budget, it’s easy to spend without much thought and before you know it you’ll be asking yourself, “Where did all the money go?”
- Pay yourself first. You have probably heard this nugget of wisdom countless times and perhaps ignored it, but it is the second most important thing you can do. If your company has a 401k plan, invest up to the maximum amount that is matched. Even if there is no match, contribute anyway. It’s automatic and you’ll never even miss it. If you work for a company with no plan or if you are self-employed, put the maximum allowable into a qualified IRA each year. For 2017, that will be $5,500 per person. It adds up so don’t blow it off.
- Cut credit usage. Don’t cut up the cards, you may need them! But do make a conscious choice whenever you pull it out of your wallet. Credit cards are not evil, in fact they are fantastic, but overuse can lead to excessive debt. Make sure you are buying only what you’ve budgeted for and not for impulse purchases. It’s the little things that add up and can lead to huge balances, much more than the large purchases that tend to be planned.
- Cook for yourself. Start eating at home more often. As restaurant prices skyrocket, eating out two times a week or more can eat up a significant portion of your disposable income. Plan and budget for meals out and you’ll find that they feel more special and satisfying than just running out on a whim.
- While this may sound obvious, it is imperative that you do something with the extra money that is available once you start putting steps 1-5 in place. It is all too easy for that extra cash to burn a hole in your pocket. Talk to your accountant or banker for ideas on what types of accounts would be best for your and your situation.
Of course this is only a list of steps on how to get started on the path to financial freedom, but with discipline and a plan, you’ll get there.
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