3 Ways to Work Your Way Towards Financial Freedom
The Fourth of July is one of the most celebrated holidays in America. Over time this holiday has become synonymous with inspiring freedom. Going along with the theme of being free, this month’s blog topic focuses on a similar theme: how to achieve financial freedom!
Below are three steps that you can take towards financial freedom!
Step 1: List Your Debts and Choose A Strategy to Pay Them Down
Oftentimes, this can be the hardest step for most people because it requires you to come face to face with your debt. While it can be scary to look at how much debt you’ve accumulated over the years, this step is the most necessary because it allows you to quantify your debt into a single figure and gives you a realistic idea of what you’re up against.
Now that you’ve come face to face with your debt, you can create a strategy to pay off your credit cards, student loans, and vehicles little by little. There are several strategies you can follow, and we will highlight two of the most popular strategies for paying down debt.
The first method is called the debt-snowball. For this method you’ll need to list your debts from smallest to the largest amount regardless of interest rates. Then you’ll pay the minimum on every debt except the smallest one, where you’ll pay as much as you can until it’s paid off. Once the smallest debt is paid off, roll that payment over to the next debt and repeat until you’ve made all your payments.
Another popular method is called the debt avalanche. This method tends to save people money in the long run because it requires putting your extra money towards the debt with the highest interest rate and working your way down. However, it tends to be less motivating than the snowball method since it will take longer to start crossing off your debts.
Step 2: Budget Your Expenses, Track Habits
Now that you know how much debt you’re working with, you can begin to budget your expenses! This step is key to success because you’ll need to organize your income and expenses to know exactly how much you’ll have left each month to pay down your debts.
Once you’ve done this for a couple of months, you‘ll get an accurate idea of your average spending habits and see where you can cut down costs. Do you really need to buy Starbucks every day? Probably not. Instead, begin focusing on cutting down your habits and making your money last longer!
We’re not saying to stop spending your money and enjoying life. However, cutting down on impulsive buys, budgeting, and make smarter financial decisions will only benefit you in the long run!
Step 3: Increase Savings and Have an Emergency Fund. Aim to Save $1000. Then Work Your Way to Saving Up for 3-6 Months of Expenses
Great news, you’ve got a plan to eliminate your debt and have minimized your unnecessary spending by sticking to a budget, the last step you need to take is to start saving your extra money!
2020 showed us that anything can happen and that life itself is very unexpected, so to prepare for the unexpected, make sure to save money for those events that you can’t see coming.
To do this, start by dedicating a percentage of your paycheck to your savings. Begin with smaller amounts like saving for $100, $250 then $500. The initial amount isn’t as important as the principle of gradual savings. Once you get enough for $1000, start setting a goal to have 3 months of expenses saved up then gradually work your way to 6 months.
By instilling these principles and being disciplined with your financial habits, you’ll be able to start saving money and work towards being debt-free!