Are you dreaming of financial freedom? Do you want to retire early or quit going to work for 8 hours a day? A lot of people have been trying hard just to attain their dream to have a financially free life. If you are spending your money unwisely, it’s time to reevaluate your financial goals. You don’t want to rush things when you reach the age of 50 or 60 after you realize that you can’t be financially independent of your family. You can’t live your life paying your debts either. So, here’s how to focus on financial freedom instead of debt.
1) Stop eyeing for luxury things.
There are factors you need to consider when you are spending on your wants: your income, expenses, and savings. If your income is just enough to cover your monthly expenses or bills, you should not aim for expensive things such as branded clothes, shoes, and gadgets. This material stuff will only make you get a loan so you can buy them. Financial freedom is not achieved by that kind of spending habit.
Consider the number of your expenses as well. Even if you are earning above the minimum and your expenses are equivalent to 80% of your income, it’s obvious that you don’t have the financial capability to buy luxury things. What more if you don’t have savings yet? It’s a reminder to stop eyeing for expensive material things if you can’t afford them. This will stop you from borrowing money and lead you to better spending management.
2) Spend according to your budget
The next step that will take you close to financial freedom is spending according to your budget. After summing up your income from all your sources, you need to set a budget for your expenditure. In this case, you will be needing the list of your monthly recurring expenses so you can budget properly. You have to eliminate unnecessary expenses on your list as this will help you reduce your expenditure for the month.
The ideal budget for your expenses should not exceed 50% of your income. The 30% should be allotted for your daily needs and the remaining 20% for your savings. Live according to the 50/30/20 rule if you want to be financially free. Get the word “debts” out of the picture. You won’t need them with proper budgeting.
3) Focus on savings regularly.
If you are going to live by the 50/30/20 rule, you have to save 20% of your total income for your savings. Open a savings account, deposit 20% of your earnings, and do it every month. As you do it gradually, you will develop a good habit of saving, which will eventually make you a good saver rather than a spender.
Focusing on saving regularly will move you closer to financial freedom. If you have enough savings, you won’t need to get a loan to finance your existing obligations or pay for your bills. You will have enough cash you can withdraw anytime if you need to pay for emergencies. Savings will contribute a lot to your success.
4) Increase your income.
It’s not only your savings and expenses that you need to control. You also need to increase your income by adding additional streams of it. If you are relying on your employment alone, that’s going to be a problem. Getting fired or losing your job can happen anytime. What if you don’t have enough savings? This is enough reason for you to get a second or third stream of income. You can get a part-time job if you want. This will be your second active income.
Or, you can focus on passive income. Passive income is what you will get fro investments and rental properties. With this type of income, you don’t have to exert physical effort just to earn. Your money will do the work for you.
5) Pay off your existing debt.
Last but not least, try to pay all your existing debts. Don’t bring it with you next year! If you can get rid of them as early as now, don’t hesitate to do it. Note that you are aiming for financial freedom here, not a financial burden. You also have the option to pay them gradually.