The 12-Steps Formula to Reach Financial Freedom in 2024

January 10, 2024
financial freedom

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“A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life” – Suze Orman

Isn’t what Orman said is correct? The sole reason why people want to earn more and more is so that they can save and secure their and their loved one’s future. However, the sense of real security comes when you have the financial freedom to live your best life in both present and future. But what is financial freedom?

The meaning of financial freedom is quite simple, it is the state where a person is in full control over their financial circumstances and can make choices based on personal preferences without worrying about any financial limitations. Having financial freedom is quite important as it:

Importance of financial freedom

As an adult everyone should become financially independent, it has several benefits which can save you for life. Such as:

  1. Get early retirement
  2. Start your business with investments
  3. Make investments and earn side income

Understanding 12 Habits to Reach Financial Freedom

1. Where You’re At

Without knowing where you are starting from, you cannot achieve financial independence.

Knowing how much debt you have, how much money you need, and how much money you don’t have in savings might be depressing. But this is a noteworthy advancement.

Including your mortgage, credit card debt, student loans, car loans, and any other loans you may have taken out, make a list of all of your debts. Include any money that you may have borrowed from friends or family in the past.

Now, take a deep breath. Then add the remaining figures together.

2. How much debt do you have?

If the sum is substantial, don’t be alarmed; I’ll cover several methods for paying it off later in this post. If the number is low, congrats! 

Then, take into account all the funds you have accumulated in savings.

List your savings, including stocks, accounts, retirement plans, company matching programs, and investments. You will subsequently get regular monthly payments, such as your salary or earnings from a side job.

Be sure to bear these numbers in mind as we discuss the following few tips for achieving financial independence.

3. Look at Money Positively

Debt may undoubtedly be a little demoralizing. However, remember that money is a good thing, even though it appears to be burdensome.

You should be financially free in 2024. Be financially free, have money freedom early, and master how to achieve financial freedom.

When making money claims, those who don’t make much money frequently feel humiliated. You Are a Badass at Making Money by Jen Sincero. Earning money is the biggest obstacle people face because so many people think having money is bad. Many individuals feel bad for seeking and possessing it. Since claims that even though we continually prefer to focus on the negative aspects of money, we use it daily to enhance our lives.

4. Set Life Goals

How do you define financial independence? It’s a universal desire, yet it’s a highly elusive goal. The amounts and due dates must be exact. The more explicit your goals are, the more likely you are to achieve them.

As you move backwards from your deadline to your present age, set up financial checkpoints between the two dates at regular intervals. Make sure to carefully record all amounts and due dates on the target sheet, which you should place at the front of your financial binder.

Use three goals for financial freedom

  • The requirements of your lifestyle.
  • The minimum bank balance is needed to live a good life.
  • The age at which you must have saved that amount.

5. Make a Monthly Budget

The easiest method to ensure that all bills are paid and savings are progressing as planned is to create a monthly household budget and adhere to it. Additionally, having a schedule helps you stay committed to your objectives and resist the inclination to indulge.

A monthly budget can be created for you by a budgeting program or on your own. Here are three easy steps to creating your own 50/30/20 strategy.

Start by using a 50/30/20 calculator

You won’t need to split up dollars and cents since a budget calculator will do the math for you. You may get a general idea of how much you spend on wants, needs, and savings by entering your monthly after-tax income.

Keep track of your expenses

Next, examine your spending to determine which costs belong in your monthly budget. For instance, items that don’t come under needs, savings, or debt repayment may be included in your desired area, such as your ongoing music subscription, movie tickets, and other extras. Check out our list of monthly expenses for a thorough overview of potential budget categories.

Completing a worksheet for a monthly budget

Are you prepared to begin? Map your spending to the 50/30/20. There are several free budget spreadsheets and templates online if you would rather utilize Excel.

There’s a chance you won’t be able to stick to your monthly budget, no matter how you make it. Try these budgeting strategies if you’re feeling stuck to get back on track.

6. Pay Off Credit Cards in Full

High-interest consumer loans and credit cards poison the process of accumulating money. Make it a point to settle the bill in full each month. Paying off student debts, mortgages, and other similar loans is not urgent because their interest rates are often significantly lower. Even yet, timely repayment of these loans with lower interest rates is crucial because it improves credit standing.

You must choose what suits you the best.

The greatest way to pay off debt is to try the snowball effect. It increases motivation to carry on. For example, Harish paid off my first debt, a $1,200 credit card load, in only one month, and the feeling of accomplishment inspired me to take on a much bigger, lingering school loan.

It would generally pay three times as much as the modest $300 minimum because utilizing credit cards were no longer a problem. In the end, it took about three years to pay off the student debts rather than nine.

When you pay off a significant debt, you release a tremendous weight off your shoulders. After paying off your loan, you see a rise in the sum in your bank account. Even though you first watched the number decrease, it is still an incredible feeling to see it increase, and it motivates you to keep doing so.

7. Create Automatic Savings

First, pay yourself. Enrol in the retirement program offered by your workplace, and use any matching contribution benefits—basically free money—to the fullest.

Set up automatic withdrawals from an emergency fund that can be used for unforeseen requirements, as well as contributions to a brokerage account or other similar account. The money for your retirement plan and the emergency fund should preferably be withdrawn from your account the same day you were paid so that you never touch it.

Remember that your specific situation will determine how much money is advised to be saved in an emergency fund. Additionally, due to the restrictions that make it difficult to access your savings in the event of an emergency, you shouldn’t use a tax-advantaged retirement plan as your only source of emergency funds.

8. Start Investing Now

Even while some people may be sceptical about investing during bad markets, historically speaking, there has never been a greater opportunity to grow your money. Compound interest alone will cause your money to increase significantly, but it will take a long time before you start to see actual progress.

However, remember that anyone other than seasoned investors would make a mistake by attempting the style of stock choosing made popular by billionaires like Warren Buffett. Open an online brokerage account instead, allowing you to create a small portfolio, learn how to invest, and automatically add money to it every week or month.

It’s crucial to save money for emergencies, retirement, and—sorry to be morbid—in case you pass away so that your family won’t go bankrupt for your burial costs, bills, and taxes. Let’s return to that joyful spot immediately, okay?

Whether you work a 9 to 5 job, ask your employer if they can add a retirement plan or see if they already deduct money from your pay for one. Since the deduction is made before the money leaves your account, you never feel like losing money. It’s also very fun to check on it occasionally and see how your savings are doing.

Recommended Read: Investment Options: Top 15 Picks for 2023

9. Watch Your Credit Score

Your credit score is crucial in determining the interest rate you are offered, whether financing a home or a new car. 1 It also affects how much you pay for various other necessities, such as life insurance premiums and auto insurance.

Because someone with hazardous financial habits is likely to also be reckless in other aspects of life, such as not taking care of their health—or even driving and drinking—credit ratings are given a lot of weight.

This is why it’s crucial to obtain a copy of your credit report frequently to ensure that no inaccurate negative information tarnishes your reputation. To further protect your information, it would be worthwhile to investigate a trustworthy credit monitoring service.

10. Get Educated on Financial Freedom

Review pertinent changes in tax law to ensure that all adjustments and deductions are maximized each year. Follow financial news and market changes, and as necessary, don’t hesitate to restructure your investment portfolio. The best way to play safe from black hat hackers is to have complete knowledge of finance.

A brief on life can be learned through the financial freedom book. It is unnecessary to save up all of your money until you are 65. You should make use of your life while you have it. The experiences you have, not the stuff you own, are what will ultimately help you lead a more contented life.

And do the things you purchase ultimately make you happier? Does buying a lot of things by taking debt make your life easier?

11. Maintain Your Property

Everything from vehicles and lawnmowers to shoes and clothing lasts longer when the property is well-maintained. Maintenance should not be overlooked because investment is a much more feasible decision than replacement.

People get controlled by money when they constrain themselves to 9 to 6 jobs. Choose flexible hours working to lead life more independently.

12. Live Below Your Means

A mindset centred on making the most of less is necessary for mastering a thrifty way of life, and it’s simpler than you might think. Many wealthy people formed the practice of living within their means before becoming affluent.

Adopting a simple lifestyle is not difficult. It simply entails developing the ability to tell the difference between goods you need and things you want and then making modest changes that significantly improve your financial well-being.

Less consumption can increase your wealth.

Spending fewer benefits you in two ways. One is that you’ll have more money to save for financial independence. The next is that you will realize that people require a lot less than they occupy, and this will save more.

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Let’s Understand the Importance of Savings

1. Emergency fund

The emergency fund is one important way to save money, as life is uncertain and nothing is guaranteed it is good to save money for rainy days. Creating an emergency fund that you can liquify easily in need is a great way to make you live life with dignity and financial freedom during any hard time.

2. Retirement savings

Saving for your old is one of the major concerns for earning individuals, it’s better to start early and invest in multiple policies and retirement funds so that you can live carefreely and relax in your old age.

3. Other types of savings

There are other types of saving options that you can opt for to gain financial freedom in your life. Some of the best ways are creating FDs, buying sovereign gold funds, investing in real estate and much more. These saving options not only provide you with monetary benefits but also prepare you for rising inflation and a changing economy.

Also, read: 10 Best Saving Schemes in India 2023

Debt Reduction Strategies to Reach Financial Freedom

1. Prioritize debt payments

Create a debt payment strategy and become financially free from them. The best way is to list down all your debts and start prioritizing the paying debts with a higher interest rate and then move to small debts. This will help you keep a leash on your finances and maintain balance.

2. Negotiate with creditors

Having great negotiation skills can come in handy in gaining financial freedom. Try to negotiate with your creditors and explain to them your financial situation. You can ask them to lower the interest rate or extend the period of repaying debts.

3. Consolidate debt

Consider consolidating your debts into one loan or taking a credit card to pay off your old debts. But beware of all the terms and conditions specified. If done right this method can save you a lot and can help you achieve financial freedom.

4. Refinance loans

Refinancing your existing higher-interest loans is another great option to reduce debt and gain financial freedom. Through this method, you can revise the terms of the loan and lower your interest rates, extend the time of repayment or minimise the monthly payment amount.

How to Maintain Good Financial Habits for Financial Freedom?

1. Consistency

Thinking about how to achieve financial freedom? Then take action to be consistent in your efforts. Whether you want to save money, invest or learn about financial freedom, you need to be consistent in your efforts to see the actual results.

2. Discipline

Discipline is something that is taught in school itself, but growing up people tend to forget this. If you want to gain monetary benefits and become financially free, then you need to be disciplined with your money.

3. Accountability

Take accountability for your actions so that you don’t make the same mistake again. Be mindful of your spending and expenses, if you can limit them. This allows you to save money for investing or starting a new policy that might help you in future.

4. Education

Education is the prime tool to gain financial freedom, if you are educated you can learn how to invest, save, fill taxes or research various policies and funds. Everything comes from gaining a good financial education.

5. Continued learning

As you know learning never stops the same goes for learning financial freedom and all the new ways to become stronger in terms of money. So, keep learning about various money-saving techniques, get educated by new schemes and policies of government and grow your knowledge about finance.

Attain Financial Freedom-Takeaway

When you have financial independence, you can take charge of your life and, most importantly, your finances. It’s about being a little thrifty, budgeting, and ensuring that money is spent on essentials like living, food, enjoyment, and pampering. Apply the advice in this article, and you’ll get one step closer to reaching the financial freedom you deserve. Create other sources of income, examine your finances, and reduce your debt; these changes will make you debt-free.

Although these 12 steps won’t fix all of your financial issues, they will assist you in creating positive habits that will set you on the road to financial security. Simply creating a plan with precise dollar amounts and due dates strengthens your desire to accomplish your goal and protects you against the need to overspend. Financial freedom is within reach once you begin to make real progress and are freed from the constant pressure of mounting debt. These two factors also act as powerful motivators.

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How do you get financial freedom?

1. Recognize Your Current Situation.
2. Write Your Goals Down.
3. Monitor Your Spending.
4. Take Care of Yourself First.
5. Spend less money.
6. Pay Back Your Debt.
7. Always keep your career progressing.
8. Develop additional revenue streams.

Why is financial freedom important?

You can evaluate the progress achieved by your investments toward each goal by creating a different financial plan for each one. The financial goal must be monitored and updated with the change in living conditions and economic earnings.

What is the 50-20-30 budget rule?

In reality, the rule is extremely straightforward. 50-20-30 rules is an easy way to know how to achieve financial freedom in 5 years. Split the cash-in-hand into 3 equal parts as per the rule. 30% of income is spent on wants, 50% on needs, and 20% is set aside for savings and investments. This helps allocate enough funds for everything, and spending becomes easier through pre-set limits.

What is the 30-day rule?

You put off all unnecessary expenditures and impulsive purchases for 30 days using the 30-day savings rule. The 30-day rule teaches us to wait for a month before going on for a new investment. Within those 30 days think of the pros and cons and then analyze the benefits. If after the completion of the period, investors feel the investing to be the best fit then they should go for it.

What is the first step to financial freedom?

Establish an emergency fund by 2024. Your safety net during emergencies will be your emergency money, so make sure to plan for them. The first step to financial security is to deposit some money in the bank because it is difficult to achieve financial stability if you frequently incur debt due to emergencies.

How much savings should I have at 40?

As a general rule, you should have between 200% and 300% of your current annual wage in savings by the time you are 40 years old. Let’s revisit the prior illustration. You should have between 200% and 300% of your present salary of Rs. saved up by the time you are 40.

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