Would you like to achieve financial freedom? Everyone I’ve ever talked to says they would. The reality is that most people are in so much debt that this freedom feels almost impossible. It doesn’t have to be that way!
Debt has become an accepted, and even expected, way of life in America. Unfortunately, this way of life causes many Americans to live paycheck-to-paycheck, just one small financial emergency away from financial ruin. Debt causes stress: emotionally and physically. It also creates stress and tension in our relationships. Money issues continue to be the number one reason for divorce. And finally, debt keeps us from experiencing financial freedom.
But this doesn’t have to be your way of life forever. There is hope and there is a way out.
With a solid plan and diligence you can get yourself out of the bondage of debt to enjoy a debt-free life and achieve financial freedom!
Begin taking these steps today to get started down the road to financial freedom.
The first step is understanding your current financial situation. You need to take time and gather all pertinent financial information.
Begin by listing all of your assets. This is everything you own that has value. Your house of course, but also your checking and savings accounts. Don’t forget to include any investment and retirement accounts – like IRAs or 401ks. Those are definitely assets – important ones in fact!
Then list all of your debt obligations. For example list all credit cards, car payments, student loans and even mortgages. At first this may feel overwhelming, but this is the first step in taking control of your financial situation. Oftentimes it is the not-knowing that creates more stress than taking the time to actually look at the numbers.
The difference in these two numbers – assets minus debt – is your net worth. It’s the best number to track pertaining to your financial fitness.
Now that you have a clear picture of your current situation you can get to work on getting out of debt.
According to a 2017 Bankrate.com survey, a whopping 63% of Americans do not have enough cash saved to cover a $500 unexpected expense. That could mean anything from having to replace a kitchen appliance, a washing machine or even a flat tire. These minor issues can push most Americans into a full financial crisis.
Having an emergency fund will keep you from racking up additional debt. So when the unexpected happens you can pay cash and not create a situation where you are getting into further debt.
The initial goal is to save a minimum of $500 as quickly as possible. Do whatever is necessary – sell stuff around the house if you have to, but get that emergency fund going ASAP. Your next goal will be to reach $1000 then ultimately build a fully-funded emergency fund of 3-6 months worth of living expenses, but for now let’s begin with $500.
This money should be kept in a separate savings account and only be used in an emergency. AllyBank is a good option is currently pays 1.15% interest on savings accounts. When something happens and you need to draw from the account you should replenish the account as soon as possible.
An emergency fund is way more important than many people realize. It’s definitely a key early step in the process of working to achieve financial freedom.
A well devised and consistently followed budget will help you save money, pay off your debts and eventually build wealth.
The key here will be to be patient. Creating a well crafted budget will take time and practice. It may even take several months to get a really good working budget.
Once you have the budget set up you must follow the budget. While there should be some flexibility you should be checking in with it often making sure that you are not overspending.
There are many online apps that can help track your spending like YNAB, EveryDollar and Mint. My husband and I are huge fans of Quicken – we’ve been using it for years and highly recommend it. Of course there is nothing wrong with good old-fashioned paper and pencil or even using a great Excel spreadsheet.
Regardless of what you use to track your spending just be sure to track – giving a name to every dollar you spend.
It’s hard to achieve financial freedom with debt hanging on like an anchor, dragging you down.
The debt snowball is how you are going to begin to chip away at your debt. This is a proven method to reducing debt – here are the basic steps:
- List all of your debts from smallest to largest.
- Pay the minimum required on all debts except the smallest.
- Make as big of a payment as you can on the smallest debt.
- Once the smallest debt is paid off then put all of that money toward the next debt.
- Continue until all of your debts are paid off.
A lot of people feel starting with the larger debt makes more sense since often times it is costing you the most in interest. However, the point to using the debt snowball method is to build momentum… you will begin to see and feel like real progress is being made much sooner. Otherwise starting with the larger debts can begin to feel like you’ll never get out from under it. Trust me. This approach works. You’ll be celebrating each small victory which will then lead to huge debt payoff. Then you’ll be thanking me!
Dave Ramsey’s Total Money Makeover
Make More Money
Want to get out of debt faster? Then you may want to find ways to bring in extra money. There are literally hundreds of ways to bring in extra income. You can have a garage sale, sell stuff on eBay or Craigslist, deliver pizzas or newspapers. You could even become a driver for Uber.
Perhaps it not just about making some additional money by taking on more work, perhaps you need to consider a new career that will help your overall financial situation. While debt is often taken on as a result of overspending, sometimes your income level just isn’t enough. If you feel that is you then check out this great post on 7 tips to improve your career situation.
Regardless if it is just taking on a short-term job like delivering pizzas or creating a one-time money making opportunity like having a garage sale. Generating additional income is the best way to get out of debt faster and to help you achieve financial freedom.
Save More Money
There are also a lot of ways to save on lifestyle items so you have more money to throw at the debt. Here are 9 easy ways to save $1,000 or more over the next year.
Or perhaps you should even consider down-sizing. That’s what we did. We sold our dream home, paid off our mortgage and then paid cash for a much smaller home. That is how we became debt-free.
Then whatever money you make use it toward your debt snowball – this will increase your momentum and help you get out of debt much faster.
This seems obvious, but I’m going to list it anyway.
Stay out of debt
Seems obvious to you too, right? But you’d be surprised how many people will fall right back into their old spending habits and find themselves right back where they started – in debt. In order for any real change to happen then spending habits and behaviors must change. That may mean literally cutting up credit cards so that they will never be used again or having an accountability partner. Do whatever you need to do to keep from overspending and getting back into debt do it.
Because without any debt you can now begin to focus on building wealth. Start saving money for retirement and if you have kids start saving towards college. This is an exciting time because once you are debt-free you will realize you have options.
Ready to achieve financial freedom?
These steps that I have outlined above will work. If you apply them and work hard you can get out of debt and achieve financial freedom.
Have you recently paid off any debts that you’d like to share? If so, we’d love to hear from you – just comment below.