What is Financial Freedom? (And How to Achieve It)
If you’re wondering what is financial freedom anyway, you’re in the right place!
Think about how your finances make you feel. When you picture your latest credit card or bank statement, what feelings come to mind? Is it discomfort? Are you upset? Or have you not opened them for fear of the numbers you’ll see? I used to be the same, I promise.
But through some focus and hard work, my family has finally turned the corner in our financial situation. And you can too.
Here’s where this debt free blog comes in. I hope that it can help to push you out of your comfort zone, if even just a little bit. By doing that, I know we can change your financial situation together.
What Financial Freedom Is (And Isn’t)
The meaning of financial freedom is having enough money socked away in investments, real estate like a quadplex, savings account, etc. for your family to live comfortably. This means no more living paycheck-to-paycheck, having an emergency fund, and being able to lose (or quit) your job without blinking an eye.
The benefits of financial freedom are many. Having enough money means you can cover any issues that arise, like an unexpected bills, car issues, or home repairs.
Financial Freedom vs Financial Independence
Chances are you’ve heard the terms financial freedom and financial independence kicked around. So what is the different anyway?
True financial freedom allows you to be able to handle any unexpected expenses whenever they pop up – think vet bills, house repairs, etc.
Financial independence is a step beyond financial freedom. It allows you to deal with the super big stuff – like becoming disabled, death in your immediate family, early retirement, when you’re burnt out and just can’t pour from an empty cup anymore, and so on.
What amount is financial freedom?
The amount you’ll need is all about figuring out what is financial freedom to you, specifically. This number will vary for everyone. A great start is 3 to 6 months of expenses (or basic needs) in an emergency fund, as well as all debt paid off to create financial security.
For some people, they might want a bigger cushion than that. For others, they want more in investments. It’s really up to you to determine what you need and figure out what does financial freedom mean to you personally.
The Importance of Financial Freedom
Financial freedom and independence are important because having these means your family won’t have to struggle. You’ll be able to not only care for them while you’re here, but leave a legacy once you’re gone.
The important thing about having financial freedom means that when problems arise (not if – when!), you’ll have that extra money to be able to hand them without breaking a sweat.
What are the 7 Steps to Financial Freedom?
So, now that we know what it is, how do you get financial freedom? Learning how to achieve financial freedom isn’t difficult but does involve following some basic steps consistently. The key is consistency, just like with anything else!
If you have debt to pay off, chances are your financial situation feels like one of those crazy food eating competitions. You know the ones where there’s a burrito that’s the size of a baby and you’re trying to eat in 15 minutes to win a t-shirt and a polaroid on the Wall of Fame? Of course, you’re armed with only your appetite, some salsa, a stack of napkins, and a cheap set of plastic cutlery to get you through.
Sounds hopeless and overwhelming and like you’ll never score that free t-shirt, right?
And maybe your debt repayment really is the size of one of those baby burritos with all the fixins. But you can’t eat a burrito all at once, no matter how hard you try. It’s about picking up a knife and fork, focusing only on the task in front of you, and tackling it one bite at a time.
We’ll do the same with your debt and personal finances by taking it one important step at a time.
Here are the main checkpoints to help you tackle your financial burrito and rightfully claim that t-shirt!
1. Calculate your debt, assets, and net worth.
I’m guessing that if you’re here, you’ve already started the process of coming to terms with your financial mistakes. Great! As crappy as that might make you feel right now, you’ll feel a lot better when you start to get a grasp on your debt.
You can’t start on your path to financial freedom until you know exactly what your financial situation is, both good and bad. You need to know what you owe, and what you own. Having it all listed in one place is key to making sure you know where you’re at.
The first step is to gather all the information for your accounts and pull it together in one place. Consider using pen and paper, an Excel spreadsheet, or an online app like Mint.com or Personal Capital to keep track of everything.
List all of your debts, including home loans, student loans, personal loans, and credit card debt. Then, list all your assets, including retirement accounts, investment portfolio, home and car values (estimates are fine).
Note: Leased cars offer zero equity or boost to your net worth, so don’t count them. Learn more about the top 10 reasons not to lease a car here.
The next step is to figure out your net worth. You’ll take your asset amount, and subtract your debts. This is how you find your net worth. Knowing your net worth is helpful to see how you’re progressing over time, as well as giving you a true picture of your starting point.
Check Your Credit Report
Don’t forget to check your credit report for free at Annual Credit Report. You can do this once a year. It will not give your credit score, but you can review it for discrepancies in your credit history.
If you want to check your credit score, you can do so for free at Credit Sesame. You can also read more about what factors go into credit scores and how your credit score can affect your finances and life.
2. Set SMART financial goals and prioritize them.
Now that you know what you owe, you need to figure out what you want. Is it to be debt free? Is it to pay for your kids’ college funds? Is to retire at 50?
No matter what your goal is, make it SMART (specific, measurable, attainable, relevant, and time based).
An example would be:
By the end of the year, I want to pay off $20,000 of credit cards.
This is a SMART goal because it’s:
- Specific: It talks about a specific amount of money
- Measurable: It has an end date and an amount to pay off in that time period
- Attainable: It’s not something insane, like $500,000 in 2 months
- Relevant: It’s a goal that’s relevant to your wants
- Time based: It has a set end date
If you’re like me, I want it all, NOW. Unfortunately, no matter how late I stay up, or how hard I work – spoiler alert! – it’s impossible to balance everything at once. As the saying goes, “You can have it all – just not all right now.”
The key to achieving your goals is to focus on one at a time. Too many, and you’ll burn out and run screaming, never to touch your finances again.
Start organizing your finances by downloading this free printable, The Ultimate Cheat Sheet to Prioritizing Your Financial Life.
3. Create a monthly budget.
Even if your goal is not debt repayment (a huge congrats, if so!), you still need to set a monthly budget. Why? So that you know where every single dollar is going. I know what you’re thinking:
Oh, how restricting and annoying! What are you, my mother? I do what I want with my cash!
Yes, it’s yours, you earned it. However, budgeting has this crazy side effect that you’d never guess: the more you budget, the more financial freedom you have.
It’s true. The more honest we are with our finances and costs, the more we’re able to figure out what items are the most important to us, and how to rebalance to keep those items a priority.
If you’re looking for a monthly budget workbook, check out this 90 day budget bootcamp. We’ve been able to pay off over $14,000 (and counting!) in a little over a year!
4. Figure out your financial roadblocks.
Everyone has a money story. It’s the “truths” that’s been ingrained in you about money. Stop and think about your money ideas and where they came from. Do you fear it? Do you feel greedy for wanting it? Or you hoard it? Or do you avoid it?
This is a spot where a lot of different people fail when it comes to finances. Until they understand and accept their financial faults and downfalls, they won’t change their situation.
Using money affirmations can help you to drop those old beliefs and push past them once and for all.
It’s also important to know your financial worth. You need to be able to ask for what you’re worth when it comes to raises, promotions, and landing new jobs. If not, you’re losing out on money that you’re working hard for.
Here are some great articles to help you get around those roadblocks, for good:
- How to Reset Your Money Mindset & Change your Money Story for Good!
- 4 Rules to Follow When Talking the F Word (Finances) with Family & Friends
- How to Get Your Spouse on the Same Financial Page
- 4 Reasons Why You’re Failing at Becoming Debt Free And How to Fix It!
- 5 Critical Steps to Financial Success
5. Accelerate your financial goals by finding more money.
Everyone wants to know how to pay off debt fast, right? Once you’ve got your budget set, there are two ways to find more money: earn more or spend less.
There are a lot of side hustle opportunities out there, if you’re willing to think outside the box. Everything from blogging to helping older neighbors with yard work, you can find something to fit your schedule.
- How to make money online: 50+ Brilliant ways to make side money now
- Shortcuts to finding the perfect side hustle fast
- The Ultimate List of Best Side Hustles that aren’t MLMs
- How to Sell Feet Pics Online for Easy Money (2023)
It’s easy to cut your spending habits without making too much sacrifice. It’s just a matter of determining what makes sense for your family. There are a ton of rebate apps like Ibotta, Ebates and Topcashback. You can also buy discounted gift cards at Raise.com. It’s not always about switching to generic brands and going without. Here are some additional smart and easy ways to maximize your spending on everyday needs:
- The Best Money Saving App: How we saved $240 in minutes with Trim
- How to Quickly Save More Money: 10 Simple Rules for a No Spend Challenge
- 13 Quick & Easy Ways to Save Money that Freed UP $700 a Month!
- How to Easily Triple Stack your Savings on ANY Purchase!
- How to Stop Overspending Immediately with One Easy Trick
- Beginner Couponing Mistakes and How to Avoid them
- Grocery Budget Makeover Review: Did it Save Money?
- Grocery on a Budget: Easily Cut Your Bill in Half
6. Find financial resources for motivation.
Debt repayment can be a lonely road. Not everyone “gets” why you’re doing it, because there are folks out there who think having debt is normal. It’s a common mentality.
It’s important to surround yourself with people who get your goals and understand your need to achieve them. Even if no one close to you embraces the same financial lifestyle, you can still find a ton of great resources for support and to help with motivation:
- Find any accountability partner that you can check in with every week or month.
- Read personal finance blogs
- sign up for newsletters
- Listen to podcasts
- Read financial literacy books
- Hang a debt repayment printable where you can see it every day
Do something small every day to remind yourself of your goal. I’m honored for this site to be listed among the top Women of the Financial Movement. This article’s a great resource on finding personal finance bloggers that fit your specific situation.
You can also follow Debt Free Forties on:
Also, I highly recommend checking out as many different personal finance gurus as you can. Work on finding one who’s ideals align with your own, and follow them for inspiration and motivation. If you’re not sure where to start, here’s a list of 9 personal finance books that will change your life. Or, check out these great financial freedom quotes from some of my favorite financial authors.
7. Do monthly/quarterly/yearly check-ins and adjust as needed.
Now that you’ve got a budget and a game plan, make sure to do check-ins regularly to make sure you’re staying on track. It doesn’t have to be weekly, but I suggest making it monthly so you can review the previous month and course correct as needed for the next month. Budgets are living, breathing documents that need to be adjustable for every month.
Doing an end of year check-in is great as well. It’s a great time to not only see how different things went, but discuss additional goals for the upcoming year as well. Learn more about how we adjusted after our first year budgeting by reading 10 Surprising Lessons from Our First Year of Budgeting.
Once You’ve Hit your Goals, Don’t Stop!
Just because you’ve hit your financial freedom number doesn’t mean you get to stop! So many people (including myself!) make the mistake of letting off the gas once they’ve paid down their debt.
It’s important to continue to set additional financial goals, otherwise, too much money is just gone every month, every year, with nothing to show for it. The best way to give yourself peace of mind is to make sure to give those extra dollars a job every month!
Now that you know what is financial freedom, keep your finances and goals top of mind by immersing yourself in it. Not only will you rock that monthly budget, but your overall financial goals as well! And don’t forget to teach financial literacy to your kids as well!
Need even more help figuring out your particular situation? Leave your comments below or email me directly. I’d love to help!
A forty-ish web designer/developer by day, a budget & financial fanatic by night. I’m a mom, wife, avid reader, and DIY enthusiast who’s tracking our journey to debt freedom. Read More