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The Ultimate Guide To Financial Freedom

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In the Spring of 2021, household debt for Americans hit a new record at $14.6 trillion. This amount of debt can make financial freedom seem unattainable. However, you just need the right financial advice.

In this article, we offer our best financial planning advice to get you closer to financial freedom. Whether you’re working on business finance or personal finance, we have the tips you need to gain independence. Continue reading to start changing your life.

What Is Financial Freedom?

The definition of financial freedom changes based on who you ask. Part of financial freedom is meeting your personal goals. You can make decisions without worrying about their financial impact.

Contrary to popular belief, financial freedom is not about having a large disposable income. It’s about balancing your income and expenses in a way that grows your net worth.

Understand Your Personal Finances

If you want to achieve financial freedom, you have to start by understanding personal finance. If you don’t have a good understanding of your baseline, then you can’t set adequate goals.

Set aside time to gather all of your financial documentation including bank statements, pay stubs, bills, and investment account information. Once you have all of your documents, you can start your financial planning journey.

Debt vs. Income

For some, one of the most stressful aspects of financial planning is looking at the amount of debt you’ve accumulated. However, this is one of the most important parts of financial budgeting.

We recommend calculating the total amount of money you owe from credit cards, student loans, car payments, mortgage payments, and anything else. Then, calculate all of your monthly payments towards these debts.

Next, calculate every source of income including active forms of income such as your monthly paycheck and passive forms of income such as income from rental properties.

Current Savings

To get the whole picture of personal finance, don’t forget to factor in any existing savings. One of the characteristics of financial freedom is having adequate savings in your account.

If you already have some money saved up and/or you make regular contributions to your savings, factor this into your monthly expenses. Leaving out savings contributions will make financial budgeting goals less valuable.

Credit Score

Most people have multiple credit scores that are constantly changing. Your credit score helps you gain access to things like car and mortgage loans. Lenders also use your credit score to determine the amount of interest you pay on your loans.

Learning about the current status of your credit score and what you need to do to improve contributes to financial freedom. We recommend finding a trustworthy site that offers free credit score checks so you can set a baseline.

Financial Budgeting

The best financial advice we can offer you is to spend time creating an effective budget. Whether you’re working on your business finance goals or your personal finance goals, the right budget is the key to financial freedom.

Create Your Budget

At this point in your financial planning, you should have a clear idea of your debt-to-income ratio. That is a fancy term for how much money you owe vs how much money you make.

Your debt-to-income ratio is an important factor in determining your financial health. It can help you make decisions on how to improve your financial wellbeing with a budget.

When creating a budget, it’s important to remember that significant habit changes will make the most difference in your financial future. This is why we recommend trimming your spending as much as possible to see the most future growth.

Goals for Savings

An important aspect of your budget is setting your goals for savings. There are many different ways to build your savings. While any means of saving is beneficial, some are better equipped to help you gain financial freedom than others.

For example, a low-interest savings account won’t contribute in a meaningful way to your future in the same way that a 401k would. So it’s important to invest in the right accounts.

Track Spending

We recommend categorizing your budget based on your spending habits. Set weekly or monthly limits on expenses such as groceries, bills, entertainment, and whatever else you spend money on.

Once you have your limits, you’ll need to track your spending to ensure you stay within your limits. Thinking that you can keep a rough account of your regular spending is dangerous to your budget.

If you start regularly tracking spending, you may be surprised by how the numbers come out. Many of us don’t realize how all the small, seemingly inconsequential purchases we make add up. This can blow your budget quickly, so keep track.

Develop Discipline

Arguably the most important part of financial budgeting is learning self-discipline. You can have the best budget plan in the world but it will still be ineffectual if you don’t follow it.

Try setting a series of behavioral goals to achieve every day, week, and/or month. This can be paying off your credit card in full every month, contributing a percentage of each paycheck to savings, or something similar.

The more you practice, the more success you’ll notice. By setting and maintaining these goals, you’re developing new habits. Creating these positive spending habits will help you gain financial freedom.

Building an Emergency Fund

Once you get a handle on your business finance plans or your personal finance plans, consider working toward an emergency fund. This should be separate from your savings if at all possible.

An emergency fund helps buy you time in the event of a financial emergency such as job loss, business closure, or other major expenses. The ideal emergency fund has enough to cover your expenses for 3 to 6 months.

Start Working Towards Financial Freedom

Whether you’re working on business finance or personal finance, you need good financial advice and financial budgeting for success. Use the above financial planning guide to start building your financial freedom immediately.

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