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Financial Freedom Guide

Andrew Goldman

Andrew Goldman has been writing for over 20 years and investing for the past 10 years. He currently writes about personal finance and investing for Wealthsimple. Andrew's past work has been published in The New York Times Magazine, Bloomberg Businessweek, New York Magazine and Wired. Television appearances include NBC's Today show as well as Fox News. Andrew holds a Bachelor of Arts (English) from the University of Texas. He and his wife Robin live in Westport, Connecticut with their two boys and a Bedlington terrier. In his spare time, he hosts “The Originals" podcast.

If you’re in debt and wondering how to achieve financial ffreedom, you are not alone. According to the Federal Reserve Bank of New York, U.S. consumer debt is at an all-time high.

Even if you’re in debt, you can get your finances in order and reach financial freedom. Here’s how.

What is financial freedom?

Financial freedom means that you are in charge of your finances. It means that when your dishwasher dies or your roof springs a leak, it’s just an inconvenience and not a major catastrophe. It means having enough money to absorb easily handle crises while affording the lifestyle you want for your family.

But it requires building up a nest egg that will cover all of your needs and some (and maybe all!) of your wants.

How to achieve financial freedom?

Manage your behavior

We all have certain beliefs and behaviors when it comes to money. They are influenced by our parents, our upbringing, our own experience with money, and what we learn along the way.

If you want to achieve financial freedom, you need to focus on your relationship with money. Being a spender doesn’t make you bad with money and being a saver doesn’t mean you have it all figured out.

Educate yourself about personal finance and what it takes to accumulate wealth. Focus on building your savings and managing your money the right way. Make sure your partner is on board and you are both on the same financial page.

Learning how to manage your behavior will help you control your spending and work toward building wealth.

Set financial goals Before you can achieve financial freedom, figure out what it means to you. How much money do you need to feel secure? Why? What do you want to do with your time if you don’t have to worry about money?

Setting financial goals will motivate you and provide milestones on the way to financial freedom. It will give you that added push to keep going when all you want to do is quit.

Don’t just think about your goals but write them down on a piece of paper and put them somewhere you can see them. The more specific your goals, the better chance you have of reaching them.

Focus on goals that will give you an emotional push. For example, you may want to pay off your student loans, save for a down payment on a house, or start a business. Watching your debt balance go down or your bank balance go up can be powerful motivators.

Make a budget

If you want to have a better relationship with your money, you need to know how much you’re making and how much you’re spending. These two metrics are crucial pieces in the financial freedom equation.

A budget helps you determine on paper where your money will go each month before a single dollar leaves your bank account. It will help you decide how to spend your paycheck—and how not to spend it.

Track your spending against your budget to ensure you’re on the right path. Save part of your income and use it to grow your net worth.

Automate your savings

Automating your savings is one of the best ways to set money aside every paycheck without having to rely on your self-control.

Start by enrolling in your employer’s retirement plan and have your contributions taken out of your paycheck. Since the money is taken out before you get paid, you likely won’t miss it. Make sure you contribute enough to get all employer matching benefits.

Next, set up an automatic transfer out of your checking account into a savings account. This should be timed with your paychecks so the money is whisked away before you have the chance to spend it.

Use it to build up your emergency fund, which you can tap when you have unexpected expenses. You can also set money aside every paycheck to save for a vacation, contribute to your kids’ college savings accounts or to a separate brokerage account.

The key is to set an automatic withdrawal timed with your paycheck to avoid temptation. If the money is not there for you to spend, you will learn to live (and budget) without it.

Start investing

If you want to achieve financial freedom, you need a big enough nest egg to cover your expenses. While maximizing your savings will help you get there, investing will speed up the process.

Use the magic of compound interest to grow your money over time. The earlier you start, the longer your money has to grow. Consider investing in a diversified mix of stocks and bonds build with your risk tolerance in mind, such as those offered by an automated investing provider.

Don’t try to pick stocks or time the market. While you may get lucky from time to time, studies show that even seasoned fund managers and experts get it wrong. If you’re trying to achieve financial freedom, you want a portfolio that takes the guesswork out of investing.

Set up weekly or monthly contributions to your brokerage account and watch the balance grow.

Pay off debt

Make a list of your debts and organize them from the highest interest rate to the lowest. Pay the minimum on your other debt and throw all extra money toward your highest interest balance. Once it’s paid off, roll the payments you were making toward the next debt on your list.

Keep going until you pay off all debt and are free from the financial burden of owing anyone anything. Paying off your debt will lift a burden off your shoulders you didn’t even know you were carrying.

Not having any debt will help you build up your savings and invest more for the future. When you pay off your debt, don’t let the money that used to go toward payments sit idly in your account.

Funnel it toward your emergency fund, kids’ college funds, retirement accounts, brokerage accounts, and so on. You can also use it to invest in income-generating assets, such as a rental property.

Spend less, save more

The less you spend, the smaller the nest egg necessary to cover your expenses. It means you’ll have more available each month to put toward saving, investing, and building wealth. Paying off your debt will help you boost your savings rate since it will free up money that was going toward payments.

Look at your monthly budget and figure out areas where you can cut expenses or eliminate them altogether. Are there monthly or yearly subscriptions or memberships you no longer need? Can you cut back on entertainment or eating out? Do you need to pay for both cable TV and Netflix each month?

When you get used to certain expenses, it’s difficult to notice the money trickling out of your account. Plan to do a complete review of your spending every six months and identify areas where you can cut back or go without.

Take care of your assets

Besides maximizing your savings, you need to protect your assets to ensure they last. Do regular maintenance on your home and carry adequate home insurance to protect yourself in case of a disaster.

Same goes for your car. Take care of your vehicle by doing regular maintenance recommended by the manufacturer. Change the oil on schedule, get your tires rotated and make sure your car is in the best shape.

Your assets also include your body. Eat healthy, exercise, and take care of your overall health. What’s the point of reaching financial freedom if you’re not feeling well enough to enjoy it?

Make sure you carry adequate insurance including health, home, and auto, to cover you in case something happens. A major disaster can wipe away your savings and derail your progress if you don’t have sufficient coverage.

Talk to a financial advisor

If you want to reach financial freedom, you need a plan on how to get there. Talking with a financial advisor can help you define your goals and put together a blueprint for achieving them.

You should also consult a financial advisor when you have a life event that can impact your finances. Talking with a professional will help you identify your options and determine next steps.

Achieving financial freedom

When you reach financial freedom, you no longer have to worry about money but can focus on living your life. No one knows what the future holds but having sufficient funds to cover your expenses can help you better adjust to whatever comes your way.

Want to start investing but don’t know where to start? Take Wealthsimple’s risk-free survey to get a personalized investment portfolio that fits your risk tolerance. We offer state-of-the-art technology, low fees, and friendly service you may not expect from an automated investment service. Get startedtoday!

Last Updated August 28, 2019

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