Almost everybody wants to reach this level in their financial life: financial freedom. We cannot misunderstand financial independence and financial freedom. The first, basically occurs when your financial income is enough so that you don’t need a job to support yourself
However, the second one is the autonomy achieved in the financial area. As a result, it is possible to make financial decisions with more peace of mind, such as whether or not to buy something or go to that location, for example. In this text you can see how to reach the second one. This text is just informative and is not a suggestion or a recommendation.
1. Organize the finances
The first step is to organize yourself financially. List your sources of income, your fixed and variable expenses in a spreadsheet, to have a monthly control and, when possible, to start investing.
It is crucial to be able to identify the source of the expenditures in order to determine what may be reduced, changed, or reformed. To make an investment plan work, the investor must be able to make consistent investments (as an emergency fund) in order to improve his profit margin.
This first step is undoubtedly essential if the financial freedom is where you want to get. Not knowing how much it is spent, where it is spent, how much money is getting in and etc, is absolutely alarming. In fact, financial disorganization is the opposite of financial freedom.
2. Eliminate the Debts
Not everyone can pay off their obligations in a short period of time. However, it is crucial to have a strategy in place so that as you pay them off, you can direct the funds spent there to make investments.
To get out of debt, it is possible to follow some helpful hints, such as requesting a renegotiation of the due amount with the banking institution. If the credit cards get in the way to financial freedom and control you instead of you controling them, you know that you can cut the credit cards out of your life.
During this process, it is crucial to grasp the true magnitude of the debt, the negotiating terms, and, most importantly, to refuse any offers. If the bank’s terms (especially the interest rate) are not acceptable, you can transfer your loan to another financial institution.
3. Invest in an emergency fund
It must be owned by everyone. Create an emergency fund in case you need money urgently. It is a method of not jeopardizing other investments and keeping a reserve on hand at all times.
According to experts, this reserve should be at least 5 or 6 times your monthly spending. Furthermore, this money must be allocated to liquid assets with immediate access and insurance. This part of the process it is extremely essential to financial freedom.
4. Portfolio of investment well done
Creating a healthy investment portfolio is crucial to financial freedom because it allows you to optimize your return capability. You also reduce the danger of concentration. A good rule of thumb for a well-balanced portfolio is to never put all of your money into a single product or service.
There are a world of options available here, ranging from bonds to equities. A smart investor, regardless of profile, understands the many forms of investments and which ones are most suited to their objectives. Learn how to create a diverse portfolio by clicking here.
5. Be in full control of finances
After you’ve accomplished all of the previous stages, it’s important that you have total control over your funds. This involves understanding how much revenue you have, how much money you spend each month, and beginning to calculate the income and earnings that your investment portfolio may create for you.
Following the previous steps will be useless to your financial freedom if you do not have total control of what happens in the financial field of your life.
6. Invest in education
Throughout this process, financial education must always be present. Knowledge, in this case, is money, and it impacts from the small investor to the large investment fund. With educated investors making intelligent decisions, the market will grow more and more.
Start today your financial freedom!
Translated and adapted by Billpay