Financial freedom is an achievable goal for everyone, but it demands dedication and hard work. In this post as we delve into the 5 crucial steps to guide you on your path to financial freedom.
Whenever I ask my friends or my siblings what they dreams are, many express the desire to never work again but have infinite money to spend. I had the similar perception about financial freedom before I started delving into finance and started my ongoing journey towards financially liberation.
While this definition isn’t incorrect, it may give people the idea that a achieving financial freedom means becoming a millionaire or incredibly wealthy, and that there is no need to acquire financial knowledge to achieve it and maintain their wealth. Part of the reason, I believe, is shaped by deceptive portrayals on social media and in movies. Rich people and influencers flaunt their wealth and extravagant lifestyles—nice cars, partying all day without having to work. It may be true in some cases, but in most cases it is not.
For me, financial freedom means never having to work for money or worry about money. It is about taking money out of the equation and doing whatever I want.
Financial freedom is a step-by-step process and it requires careful planning, consistent effort and a well-thought-out roadmap. If you wish quit your 9-5 job, do whatever you want, and not work for money, you need a plan and ways to generate passive income that exceeds your expenses. In this blog, I’ll share the five steps I’m currently taking to achieve financial freedom.
1. Create a goal and a budget
The foundation of financial freedom is to determine your budget and hence your goal or definition of financial freedom. Start by calculating your expenses how much more you need to live the life you want.
For example, if you are earning $5000 a month, your expense including housing, utilities, groceries, fuel, insurances, dining out, entertainment comes to a total of $4000. However, maybe you want to dine out more, spend a little bit more on your groceries and live a more extravagant life. You need to know how much more you would need. Furthermore, you need some money to invest, let say around $2000. Now the expenses of your desired life comes to $8000 a month.
Apart from that, you might want a new house, a new car, you might want to support your children when you go to college. This kind of expenses are unlikely to be a regular expense. However, the idea is the same, how much more you need, create a budget that aligns with your financial goals. That budget will be the target for the passive income you aim to achieve.
This step is slight different for me personally. I am not calculating how much I need to live the life I want, but I do have a goal.
2. Build an Emergency Fund
After you have calculated your expenses, it is time to build an emergency fund. Life is unpredictable, and having a financial safety net can provide peace of mind and protect you from unexpected expenses. Aim to save at least 6-12 months’ worth of living expenses in an easily accessible account. While having more in your emergency fund makes it safer, it also means having fewer investment opportunities. This emergency fund can cover unforeseen medical expenses, car repairs, or job loss. By having this financial cushion, you won’t have to dip into long-term investments or rely on credit in times of crisis.
I do not have many expenses, because I am still studying and living with my parents (good thing about being Asians, I guess). But I do have an emergency funds of more than 6 months, and additional cash sitting in my bank account to be invested.
3. Eliminate High-interest Debt
High-interest debt, such as credit card balances or personal loans, can be a significant roadblock on your journey to financial freedom. Develop a plan to systematically pay off high-interest debts while making minimum payments on others. Consider debt consolidation strategies or balance transfers to lower interest rates. As you pay down debts, redirect those funds towards savings and investments. This step not only improves your financial health but also frees up resources for wealth-building activities.
4. Learning and Self-improvement
Educate yourself and start learning about personal finance, investing in properties, stocks or anything that provides passive income. There are countless free resources online, such as blogs and Youtube. I would suggest making education as part of your expenses, attending workshops, read books, and consider consulting with financial advisors. As you expand your financial knowledge, you’ll be better equipped to make informed decisions. Optimize your investments, and adapt to changes in the economic environment. It is important to realize solely rely on others to manage your money without having any knowledge in a particular matter it is not a safe practice.
I am currently doing dropshipping, thought I have doing inconsistently for about a year. I have made some sales but I am at a loss now and still learning about this business model. Additionally, I am reading books about finance, business, self-development and also learning about stocks investing.
5. Generating passive income
There are several ways to generate income, with one of the most common being investment, such as stocks and real estate. Once you have conducted enough research and education on a particular subject or investment, start investing. It may be a bit daunting at first and it is likely that your first investment will result in a loss, but do not be discouraged, believe in yourself and keep learning. Do not start when you feel like you are completely ready, because you will never be, learn along the way. Begin with low-risk investments and gradually increase your exposure as you gain confidence.
Conclusion
Being financially free doesn’t necessarily mean effortless income pouring into your account without work. While you might reach that stage one day, achieving financial freedom typically demands a lot of hard work and effort. Seta goal, keep educating yourself, make small changes, invest, and I hope that one day you will be living your dream life and become financially free.
Feel free to reach out via email with any questions, thoughts, or topics you’d like to see covered in future discussions. This is my first blog and I would very much appreciate any feedback. Your feedback is invaluable and thank you for reading this.
“Unleash your potentials and achieve financial freedom”
