Financial freedom can mean a variety of things to different people. For some, it looks like starting retirement early. For others, it’s being able to travel freely. Most would agree, however, that financial freedom is essentially having enough savings and passive income to be able to afford the lifestyle you desire without having to worry about a steady paycheck.
If you want to set yourself on a trajectory towards financial freedom, here’s how to get started:
Think ahead: We know, it’s easier said than done. The “dream lifestyle” looks different for everyone. Determine what your ideal future looks like and what financial freedom means to you. Is it being able to work just part-time or not at all? Is it being able to retire just a little earlier or having enough money to donate to charity? Then, crunch the numbers on how you can achieve that goal.
Pay off debt: Nothing can hold you back from improving your financial outlook – except debt. Creating a strategic repayment plan to pay off all outstanding debts is the first step to achieve financial freedom. Focus on high-interest debts first while maintaining minimum payments on other bills. Tap into the power of budgeting and disciplined spending in an effort to allocate extra funds towards debt repayment. Don’t be afraid to explore debt consolidation options to lower high-interest bills.
Build your savings: Once you’re free of debt, it’s time to switch into savings mode. A healthy savings account, once again, looks different to everyone. Determine the ideal amount for a safety net or emergency fund. If something were to go unexpected, this account should be able to pay for living expenses for an extended period of time. Remember, the easiest way to start and grow your savings is to do it automatically. Make sure this is a high-yield savings account that will reward you for maintaining a high balance through interest payments.
Create passive income sources: We’ve all heard about the value of passive income, but what really is it? Passive income is essentially money generated from something other than an employer. This could be from a rental property, stock dividends, royalties, or sales on a digital product. Identify these opportunities and potential income sources and take the leap on one that aligns with your skills, abilities, and goals. Once you put in the initial work, this should be a “mostly” hands-off way of earning money. Passive income is the key to unlocking financial freedom!
Invest: Once you achieve the “extra money” range, it’s time to invest it. Investing is a necessary component of building wealth and achieving financial freedom. Once you put your money in the right place, it will work for you and generate returns that outpace inflation and interest on savings accounts. Educate yourself on different types of investments, like stocks, mutual funds, bonds, and even real estate. If you’re investing with the purpose of achieving financial freedom, it would be wise to seek advice from a financial advisor. Keep in mind that this step requires patience and is intended to be a long-term strategy.
For more information and tips on achieving financial freedom, visit www.PennCommunityBank.com.
