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Achieving Financial Freedom in 2019

  Sanjiv Gupta CPA  Published 
Achieving Financial Freedom in 2019

Unexpected bills can just up and sometimes the amount is so big that individuals often find themselves in debt trying to figure out how to pay for it. This is when bills become an inconvenience. That is why instead of worrying, it is better for people to have an emergency fund that they can pull money from especially in situations like these. Paying bills easily will be just a hiccup if that is the case. There is also a sense of relief. This is what financial freedom is all about.

Here's another example. Paying the bills for car repair and not being stressed about it shows that the individual is free from financial burden. Financial freedom is beyond than being able to pull money out for emergencies. It is also knowing that retirement is not another cause of worry because an investment has already been made and this has been consistent for decades. Financial freedom is also the luxury of quitting one's job in order to pursue a passion even if this move means to getting less money.

Financial freedom means that the person can make life decisions and not even be stressed about the financial impact because he or she is prepared. It is possible to control the finances instead of the other way around.

The path to financial freedom is often mistaken as a get-rich-quick strategy. This is false. Financial freedom does not mean that the individual is free of the responsibility in handling money. It is actually the opposite. It is all about having utter and complete control on finances that are the results of sacrifice, hard work and time. All this effort is worth it.

The first step in building a life that is free from financial stress not just for one's self but for one's loved ones require a definition of what financial independence is for the person.

Defining Financial Freedom

First and foremost, financial freedom has to be personal. It is all about dreaming big and being specific about the goal.

Here are examples of defining financial freedom:

  • Choosing a career that may not be earning a lot but is pursued because it is the individual's passion.
  • Taking an international trip each year and not even having to worry about costs.
  •  Paying cash for a new boat.
  •  Responding to others' needs with utmost generosity.
  •  Retiring 10 years earlier.

When an individual is financially independent, there are options. One does not have to wonder if the bank account can handle buying groceries or replacing heater. In other words, whatever unexpected bill comes up, it can be paid just like that without straining the budget or the over-all account.

It may sound too good to be true and people are made to believe that these are usually scams. Truth of the matter is, anyone can begin their journey toward financial freedom as long as they know exactly what they are doing and how to go about it.

Step 1. Manage Money Better

One can never get ahead if there is no plan for finances. Instead, the person may find himself or herself wondering where his account goes at the end of each month. This is not financial independence at all. In fact, this is the beginning of a financial disaster. For those who are married, they have to be on the same page as their spouse especially when it comes to budgeting. Those who are single must have an accountability partner.

Accumulating wealth is impossible if the individual currently lives paycheck to paycheck. There must be set budget every month and spending must also be tracked. If the individual overspends or even underspends, then the amount is adjusted in every category.

Budgeting is the key to getting finances on the right tack but it is just the first step. It is still possible to complete the unique budget for every set month. No matter how much money the person has, the plan is still necessary.

Getting into financial independence cannot be achieved by accident. Budgeting is the first step in building wealth on purpose.

Step 2. Cleaning Up Finances

Once the individual starts managing money, it is easy to realize that mistakes have been made in the past. In order for one to be financially independent, then the mess must be cleaned up before wealth can be built.

This means that if the person has debt such as credit cards, car loans or student loans, it's time to kick the curb and start getting serious.

This is because even if you owe money, then the paychecks have someone else's name on it. If the individual is striving toward a goal, then the full income is at his or her disposal. These are not bits and pieces that can be left after credit cards and student loans have been paid.

Paying off debt helps laying a foundation in order for lasting wealth to be built. Make sure that there is $1,000 in savings before the debt is fully tackled. People do not want to have unexpected expenses derailing their progress in coming up with a budget that would last.

A number of people believe that they need to get a raise in order for them to start budgeting. That is good news for them. Throw all of that extra at the smallest debt until it is gone and just keep the snowball rolling. Paying off debt is quite hard work but there is nothing like feeling that you can keep the money that is brought in every month.

Once the individual is debt free, then the smartest thing to do is to stay debt-free. For good, if it possible. Having debt undermines the ability in building wealth and it also puts the financial plan at risk. It is that simple. The main foundation of building wealth is steering clear of debt.

Step 3. Be Smart About Career Choices

The biggest wealth building tool is the person's income. When it comes to selecting a career, there are so many things at stake. Staying at a dead end-job will not lead individuals to their goal, instead it will make them miserable. Finding a job that one enjoys and also supports goals for financial security can help in enjoying the journey.

Here are a couple of things to remember:

  • 10-year goal. Always start with the end. Does the job that the person pursues make sense in achieving goals?
  • Income-earning potential. Even if the person is not making his or her dream salary at the beginning, there is still an opportunity for income to increase when one's value also increases. Make sure that certain accreditation and further education are taken in order to make one more valuable in terms of employment. 
  • Possibility for growth. Are there opportunities for the individual to move up and then grow on the professional and personal aspects?
  • Enjoyable work. A career must not be made at a job that one hates. The individual must find something that he is passionate about in order to allow one to use his or her skills and gifts. 
  • The benefits must support the goals of financial freedom. The options for health insurance and retirement savings can also dramatically affect the individual's ability to build wealth. 
  • An individual’s choice of career has a deep and huge impact on long-term financial planning, so this must be taken seriously.

Step 4. Create Strategies for Short-Term Savings

Imagine pulling money out of 401(k) when air condition must be replaced. What if one needs to open a credit card to buy groceries because he or she lost his or her job? It is impossible to get ahead if one keeps borrowing money for one's future.

If the goal is financial freedom, then there must be a buffer for unexpected life events that can happen to any person, like medical deductibles, broken appliances and car repairs. That is why there should be an increase in emergency funding when covering three to six months of unexpected or expected expenses when one is out of debt.

Having the cash on hand in covering an unexpected life event also gives one the peace of mind that this is the critical part for the total financial plan. Once that savings account is fully funded, then he or she is able to start and feel more flexible in the budget. He or she can say yes to any splurges or last-minute vacations and not feel bad about it.

Since the person is not taking on any debt, then there is a need for a savings plan especially for big purchases that are not considered emergencies. For example, summer vacations. It is very simple to do this. There must be a line item in monthly budgeting and divide the total amount by the months that it is still possible to save. When the person is not in debt anymore then this means that he or she can enjoy taking vacations instead of having a credit card bill that follows one around.

With a full emergency fund and a plan to cover the big purchases, then investment is the financial foundation necessary.

Step 5. Learn About Investment Options

Now that there is a plan for short-term savings, then the next step is to pair up with a financial advisor who can help in making the most out of long-term investment options. The good news is that the earlier investments start, then the more time money can grow. That is compound interest at work. Here is also how one can get started.

Retirement savings

Individuals can start working on their 401(k) by discussing this with their financial advisor so they can take advantage of the tax-favored retirement accounts that are made available for them at their work place. They must ask themselves the question of how much must be allotted toward retirement? The ideal is that 15% of one's income. If the employer matches the contribution, then the individual must accept because it is silly to not accept free money.

If there is access to 401(k) along with the good mutual fund options, then this can also be a step toward financial freedom. If this is the case, then the full 15% is apparent. If the 401(k) is the traditional kind, then invest up to the match that would leave 15%. If there is still 15% left after the amount has been maxed out, then go back to 401(k).

Roth IRA or Roth 401(k) is a good idea because the money invested is tax-free. This means that the individual does not have to pay taxes on it when the money is withdrawn for retirement. This is a big benefit that one must not miss.

Step 6. Be Active in the Journey Toward Financial Independence

Making the right investment decisions is just the first step but the individual must still stay in tune with the fund performance that is crucial in getting the most out of the investments. Setting investments on autopilot is also not a strategy to invest.

The idea of actively making decisions about investments can be overwhelming. Most of the time, those who wish to achieve financial freedom have done their best to lay out the right foundation so leaving this crucial step must not be left to chance. There is a need for a financial advisor to help navigate investment options and also brave the highs and the lows of the stock market.

A financial advisor:

Makes decisions on investment strategies

•    Rebalances funds regularly so the client minimizes his or her risk

•    Creates a realistic budget and plan for financial independence

•    Knows what investment options have beyond the retirement accounts

•    Sets up a withdrawal plan for specific situations

Reaching Financial Freedom

Financial Freedom is more than just being able to cover unexpected emergencies and not worry where to get the money to pay for it. Once the individual realizes that all his needs are met and he or she can finally purchase wants, then this individual is heading toward financial freedom. Imagine being able to also share financial blessings to others, then this is definitely the freedom that a lot of people have always aspired.