Average Americans live from paycheck to paycheck, with credit card debts mounting and savings dwindling in their accounts. But, with the right strategies and plans, you can get rid of these burdens and attain financial freedom. It is a term that may differ in its significance from one person to another.
The freedom to manage and enjoy your finances comes with strict discipline and proper planning. When you reach this level, you don’t have to worry about your income and lifestyle. The steps that can make this goal feasible are:
Assess Your Current Financial Standing
When you plan to optimize your money for long-term financial stability and freedom, take stock of all your finances and holdings first. In short, assess your net worth and financial status. It refers to your financial value after deducting the liabilities from the assets you own.
Understand how much money you make, how much you can save, and what exactly do you need for the future. Track your money and determine accountability for the same.
Make Long-Term and Short-Term Budgets
Whatever your financial plans, avoid overspending at all costs. Overspending leads to unnecessary debts. But, you can prevent it by making budgets. Set your financial objectives, determine your expenses/liabilities, and calculate your income/assets to make robust budgets.
Make adjustments according to changing scenarios. The ideal way is to spend 50% of your earnings on immediate needs, 30% on wants, and the remaining 20% on your savings. Also, create emergency funds and make active contributions to the same.
Reduce Your Debts
When you have a long-term outlook on securing your financial future, you have to reduce your debts in the best ways. Every bill, loan, or repayment is a debt that needs to be paid off. You can pay them outright with timely repayments.
Debt settlement and debt consolidation are the most effective methods to reduce your debt burden. You can settle the debts for less with a program that meets your needs. Consolidation of debts refers to programs where you can consolidate multiple debts into a single loan.
Also, you may consult credit counselors to determine the best terms for your credit cards and other loans. Make an effective debt management plan that lowers your interest rates and assures monthly payments according to your affordability.
Increase Your Emergency Savings
If you have a secure income, consider saving for up to 3 months’ worth of expenses and unexpected emergencies. However, if your income is fluctuating, make these savings for at least six months to enjoy financial freedom. Keep your money in a savings or high-yield account where it is easily accessible and safe.
Even if you have little money, you can ensure financial stability by investing wisely. It will help if you start with safe options like 401k. You can also consider diversification of your income streams.
Go for a side hustle or gig whenever you have extra time. Every penny earned will ensure a free future where you don’t have to worry about your immediate or expected needs.
Follow the best practices to clear your debts and maintain good credit scores to stay safe in terms of finances. Most importantly, don’t hesitate to take help from experts.