5 Steps On The Road To Financial Freedom

5 Steps On The Road To Financial Freedom

Financial freedom will likely mean something different to each of you.  I’ll leave that definition to each of you to define in your own way based upon your own unique situation.  However you define it, here are 5 steps to take on the way: 

1.    Set specific financial goals

Putting money aside for the future versus spending it now on something you might want but don’t really need is easier if you have a goal in mind.  Maybe that is a nice retirement on the beach, or that new sports car you’ve always wanted, or perhaps ensuring that your kids can get through college.  The key is to establish goals that are quantified and have a definite time frame attached to them.  This way you know when you will need the money and how much you will need to have saved.  This allows you to track your progress as well.

2.    Spend less than you earn

The amount of money left over for saving is a direct result of your lifestyle choices. Since you will typically want a similar lifestyle during retirement, your lifestyle decisions now will impact the quality of your life down the road. Step one is to get a handle on what you spend and determine what, if anything can be eliminated. This would typically include reducing nonessential expenditures, such as entertainment, dining out, and vacations. Another strategy is to find ways to spend less money on the things you currently buy. For instance, obtain quotes for car insurance from several companies, placing any premium reductions into savings. It is vital to track your spending via a budget.  Online tools can be a big help here.

3.    Save money before you see ever see it

Set up an automatic savings program where money is automatically deducted from your paycheck or your bank account on a regular basis and deposited directly into an investment account. One great way to do this is to sign up for your company’s retirement plan (in the U.S. this is often a 401(k) plan), where funds are withdrawn every pay period. The money is invested on a pre-tax basis, offering even more savings.  Make sure that you at least contribute enough to earn your company’s full match if one is provided.  You can save in a similar fashion into an IRA, a taxable brokerage account, or into a savings account to build an emergency fund.  I can tell you from personal experience that I have a number of clients who have accumulated enviable sums for retirement via this method.

4.    Don’t let debt derail you

If a significant portion of your income is going to pay interest on loans that leaves less available for saving and accumulating wealth.  Work to eliminate all debt except your mortgage. Pay cash for purchases so you don’t incur additional debt, take the attitude that if you don’t have the cash you can’t afford it.  Pay down your existing debts beginning with the debt with the highest interest rate. Once that debt is paid in full, start paying down the debt with the next highest interest rate, continuing until all of your debt is paid in full. 

5.    Invest with a plan, don’t just save

A financial plan should serve as the foundation for your investing activities.  A financial plan is like having a road map for a car trip.  With a map you’ll know where you are going, you’ll be able to track your progress en route, you’ll be able to adjust your route for unexpected developments such as road construction, and you’ll know when you’ve arrived.  Starting with a financial plan in place will help you develop an investment allocation that combines a level of risk that you are comfortable with while reaching for the level of return that will allow you to reach your goals.

These are just a few ideas for achieving financial freedom.  What would you add to the list?

 If you need help evaluating your financial situation please feel free to contact me. 

This guest post was written by Roger Wohlner, CFP®, a fee-only financial adviser at Asset Strategy Consultants based in Arlington Heights, Illinois, where he provides advice to individual clients, retirement plan sponsors, foundations, and endowments.  Follow Roger on Twitter and LinkedIn. Roger also blogs at The Chicago Financial Planner  and for The Smarter Investor at US News .

 This is a professional post – If you would like to see your blog posts published at humble savers, please review our Professional Posts page – Thank you.

General Advice Warning

The Information on this page has not taken into account your financial situation, needs or objectives. Before acting upon any advice, you should consider whether it is appropriate for you.

 Photo credit:  Flickr

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2 Comments

  1. This is really great time tested advice here! You’ve done a great job laying it all out.

    Reply
  2. All credit to Roger – Thanks for the comment

    Reply

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