10 Steps to Financial Freedom
Financial freedom is one of the desires of most people, but unfortunately, not everyone may achieve it in their lifetime for several reasons. This is a hard pill to swallow, but it is the truth. Fear not, because if you're reading this, then you are on your way to achieving the freedom you desire.
Financial freedom is subjective, meaning what constitutes freedom for one person may not be for another, and that is okay, but one of the first things you must do is define what financial freedom means to you. That way, you have a goal in mind and you can work towards it. There are no right or wrong answers, so feel free to write whatever comes to mind.
For one person, financial freedom may be having a thousand dollars in their bank account; for another, it may be having a million; or even the freedom to buy whatever you desire without always having to check your account balance. Other common definitions of financial freedom include the ability to work when and where you want, having a nice nest egg to retire to, earning passively, etc. All of these can be achieved, but to work towards a goal, you must first define it.
Now that you've defined or described what financial freedom means to you, what are the steps to achieving it? Most of these steps are pretty straightforward, and if you can practice them all, you'll be well on your way to the financial freedom lane.
Write down a list of everything you spend on for three months.
This step is usually overlooked, but I consider it the foundation for earning financial freedom and building your financial dreams. If you're like most humans, who often wonder where their income went, then this step cannot be overemphasized.
After a month, take a look at your note. You'll find that there were items you didn't need to spend on that you did, consciously or unconsciously. Make sure to put those at the forefront of your mind so you don't make the same mistake again.
Secondly, take note of the costs you can cut down on, e.g. If you're buying an item for 100 dollars, can you get another that does the work for less? Or if you buy that item five times every week, can you afford to buy it just three or twice? Look out for these and take advantage of them. On this journey, every penny counts.
Write out all your debts.
This is some hard work, but it is a job that will get you to where you want to be. It can be difficult to confront this, but it's best to get it out of the way. Write them all down, then rearrange them according to this order.
Those with the closest deadline
Those with the highest interest rates
Others
You want to clear up your debts following this order, then work your way through the rest.
Taking a loan is not necessarily a bad thing, but why are you doing it? If it is for a business venture that you have properly researched or for critical health issues, then go right ahead. My blessings are with you but desist from taking loans to meet societal standards. Always ask yourself: Is this an asset or a liability? If it is a liability, throw that idea right out of the window. Always remember to research the repayment agreements before diving in.
Draw up a budget.
From the list you wrote above, you can already tell where most of your income is going. Some of them are needs; others are wants. The next step is to draw up a monthly budget with this in mind. Pick out the things from your list that are needed, e.g., food, shelter, transportation, and, to an extent, clothing. To an extent, because you don't need to buy clothes every day, we are not looking at walking naked either. By taking note of what you spend on for three months, you have an idea of what you spend on transportation for a month. Now budget for that, and do the same for food and all your other needs. Make sure to add a percentage for savings or debt repayment to your budget. If you have debt hanging around your neck, the wise decision would be to get that cleared up, and then subsequently add a percentage for savings.
Draw up a budget of 2.0.
Confused? Stick with me; you will get it soon. You'll want to divide your income in this manner; it is still a part of budgeting, but I highly recommend it.
Divide your income into percentages, as said before, but here is a better example.
40% Financial freedom or investing
20% Necessities
10% long-term savings or emergencies
10% Give
10% Education
10% Play
Feel free to rework the percentages as you please and according to your needs. The above breakdown covers almost every area of our lives. If there is an area that doesn't fit into the category above, adjust the sharing to suit you. You'll want to have a budget for eating out, going out with friends, having fun, etc., so you don't dip your fingers into other areas, and that's what play is for. The rest, I believe, are self-explanatory. I would like to go a step further with this and break down the 20% into necessities.
Here is how I typically go about it: Remember, it is not set in stone. You can tweak it as you wish.
20% Rent
20% Food
20% Transportation
10% Wardrobe
10% Hair
10% Utilities
10% Others
This way, you have a guide on how your income should be spent. It may be difficult, especially if you're new to budgeting, but grit your teeth and stay on course, and you'll get there. It gets easier, plus, when you find that you're ready for almost anything financially, you will thank yourself for it later.
Save on high-interest platforms or accounts.
Now that we have our budget all sorted out, you need somewhere to save the money, but you don't just want to save it and wait for the appointed spending day. You want the money to grow by all means, so the next step is to save the money in accounts or platforms where you'll earn high interest on them. There are numerous of them available but remember to always conduct your research first. The internet is your best friend; use it.
Automate your savings.
If you guessed this would be on the list, give yourself a tap on the back. You must eliminate the option of saving or not from your hands. One sure way of achieving this is to automate your savings. Talk to your financial agency about this so that when money enters your primary account, it can be distributed accordingly. With this, before you give into the temptation that always arises when there is a huge sum of money in your account, the split has already been done, and you know what you're working with per category.
Invest, invest, invest.
Gaining financial freedom would most likely not come from the money you earn monthly; you'll need to grow your money, and what better way is there than investing? I haven't found a better way yet. I know investing can be daunting, but living itself is daunting. There are no guarantees for anything; the best you can do is try your best and prepare yourself for the days ahead.
The key to investing is to conduct proper research. Read books, listen to podcasts on investing, talk to those who have experience in that field, e.g., a financial advisor, and take the plunge. As a beginner, ETFs are a good safety net to consider. Treat your money like a close friend; don't send it on an errand where it will get lost. So, gain financial literacy.
If you're in Africa, you might want to check out the Bamboo app; it is a good way to start investing without much hassle.
Passive Income.
I know you've heard this a thousand times, and there is a reason why. It is because it works. You want to get your money and your time working around the clock while you sleep, eat, and generally live your life. Admittedly, passive income is not passive at the beginning, but the idea is that you do the work, and it keeps bringing in cash for you with little or no maintenance. So what are some passive income ideas you can look into? Dividend stocks, starting a YouTube channel, starting a blog, a membership-paid platform, writing a book, etc.—there are numerous ways. Look for one that works for you, do the work, and get paid in your sleep!
Spend less than you earn.
Keep this in the back of your mind. Even when your finances get better, always and always spend less than you earn. Remember that you don't need to keep up with anyone; you're living your life for yourself and yourself alone. Say no to whatever you cannot afford to buy at the moment so you don't find yourself in a vicious circle of debt and financial distress. Stick to your budget, and whenever the money allocated for any category is depleted, discipline yourself to wait until the next month.
Financial illiteracy is not an option.
Just as was written above, financial illiteracy is not an option. Learn, learn, learn, and keep learning. The world is constantly changing, and opportunities keep springing up in different directions. The only way to keep winning is to stay abreast of what works and what doesn't any longer. Knowledge is abundant; keep chasing knowledge—not only financial knowledge but career advancement—and you'll be sure to keep winning. Read books, listen to audiobooks and podcasts, go to classes, etc.
In conclusion, don't look at this list and think it's over before it even begins. Everything here is doable; it may take a while, but you will get there. All you need is consistency, belief, and tenacity to make your life better. You are not destined for poverty, lack, and struggle; you build your destiny. Just do the work, and you'll get there.
