If you are ever serious about becoming financially free, you can’t afford to waste any more time. You need to start now. When it comes to financial freedom, time is your friend. The earlier you start, the earlier you can achieve the kind of life you want.
Envision the kind of life you want for yourself and your family, both now and in the future. If you are financially free, you are able to provide them not only with a secure tomorrow but with today’s necessities as well. When you are financially free, you don’t have to wait until you retire before you can experience the good life. You can have the best time now even when your kids are still growing up.
If you need the push to get started, here is a checklist to get you going:
Start with specific goals.
Everything begins with a goal. Make it as specific as possible. Don’t just say you want to be financially free. Define what you want to achieve in one year, five years, ten years, twenty years and thirty years as far as your finances are concerned. It could be something long-term as buying a house, paying off the mortgage, sending your children to college or retiring comfortably. Commit the goal in writing and own it.
Commit a monthly amount for savings.
Don’t make the mistake of saving only when windfalls come to you. You should save monthly. Commit an amount to your savings each month—it could be five percent, ten percent or twenty percent of your income. Whatever the amount, the important thing is that it is consistent. Automating your savings is better because you are certain that the amount you have allocated for savings will really go to your savings account. If it still passes through your hands, there’s a chance that you might use it for something else.
As far as savings are concerned, see to it that you tie it to a goal so that you can be encouraged to keep at what you are doing. You can save up for an emergency fund, for the downpayment for a new home or a vacation that has been long overdue.
Commit to a regular monthly investment plan.
See to it that you are committing an amount for your investments monthly. Also known as dollar cost averaging or a constant dollar plan, this will ensure that your investments will continue to grow through the years. These are offered in various brokerages all over the country. Try to automate the transfers as much as possible so that everything is done even without any major effort on your part.
Have a rainy day fund.
Don’t let your savings be derailed by those emergency situations that will necessitate you to spend money just to get through it. The car breaks down, an appliance needs to be replaced or the plumbing needs to be fixed. An emergency savings fund will be able to shoulder these expenses without the need for you to charge repairs or purchases to your credit card or funnel some of the money you have allocated for your monthly retirement savings to spending for the emergency.
Sign up for your employer’s 401k.
You should prepare for retirement even if this is just your first job. Most employers offer a retirement plan, such as a 401k, which enables employees to save up for retirement. Contribute as much as you can to get your employer’s matching contribution so that you are able to beef up your retirement funds without doing any additional work.
Consolidate all your previous 401k plans from previous employers.
When you’ve already changed multiple jobs since you first worked, you may have already contributed to various 401k plans from your employers and have forgotten about them. Those are source of retirement funds so don’t just leave them lying around. Instead of cashing out or withdrawing them, open an IRA and move the assets there. Doing so puts you in control of our 401k.
Having insurance is crucial because it helps you prepare for those unexpected moments. Health insurance coverage mitigates the high cost of healthcare while car insurance protects you from the large liabilities that come with accidents, whether you caused it or not. See to it that your insurance policies are sufficient. If you have already built up wealth, see to it that you have an umbrella policy that will provide insurance in addition to the liability coverage in your homeowner’s and car insurance policies. If you are the primary breadwinner in the family, think about getting life insurance so that in case you pass away, your family will not be facing undue hardships.
Know your net worth.
If you don’t know where you stand financially now, you’ll be hard pressed to know exactly what you need to do in order to achieve your financial goals. In order to know your net worth, follow these simple steps: List down all your assets and then your liabilities. Be as comprehensive as possible. Then, subtract your liabilities from your assets. The resulting figure is your net worth. You should have a positive figure here. If you have a negative result, it only means that you have your work cut out for you. Work towards making that figure positive and gradually increase it through the years.
Pay off your debts.
If there is one thing that is going to prevent you from achieving financial freedom, it’s going to be your debts. Don’t let the interest balloon up on your consumer debts to the point that you won’t be able to pay them back. Settle your loans and credit card debts as soon as you can. In case you are dealing with a situation that will prevent you from making a regular payment, see to it that you inform your creditor of it right away. Never let your debts get to collections so that you won’t have to deal with debt collectors. It’s always much easier to deal with your creditor right away.
Follow a budget.
If you want to discipline your spending, you need to have a spending plan. When you have a budget, you know exactly where each penny goes. You can discipline yourself to spend only for the really important stuff and save for the future. Stick to it as much as you can.
Live below your means.
The only proven way to build wealth is to constantly spend less than what you earn. If you are in debt, it means that you are spending more than what you are making. If the latter is allowed to continue, you can’t expect to truly become financially free. You’ll be making the minimum payments on your credit card debts and never really be able to get out from it.
Spend for the things that are really important.
Each household puts importance on different things. However, there are common things such as mortgage or rent, food, utilities, insurance premiums, car loans, childcare and retirement contributions which each family puts at the top of their list. Make sure that the things you spend for are really important. If you think that eating out five times a week is more important than saving for a downpayment for a home, that’s up to you. But you should know that if you keep on spending for the unimportant stuff, you’ll never be able to achieve true financial freedom.
But allocate money for life’s little luxuries.
While spending only for the important items will help you build wealth, don’t forget that you should also experience life while you are still on the way towards being financially free. So allocate a budget for those little luxuries. You might have to substitute for the meantime, though. For example, instead of taking a vacation with your family in another country, you can still spend time together at a local tourist spot or even at home watching your favorite movies. If you want to gift yourself with a bag, you don’t have to go for the designer ones. A cheaper but quality handbag will do. You don’t even have to eat a full restaurant meal just to be able to go to a restaurant. You can just eat your dinner at home and eat dessert at the restaurant if you really want to, greatly lessening the cost.
Celebrate your success.
When you have achieved financial milestones, make it a point to celebrate it. Just a little dinner or treat will do. It need not be ostentatious but just a little pat in the back for all your hard work. Let this success encourage you to fulfill your other financial goals.
With these tips in mind, it’s time for you to start implementing your financial plan. Don’t wait for a financial windfall or an inheritance to get started. Put your plan in motion right now and be glad that you took action right away.
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