Financial freedom is something most American adults dream of constantly. Yet few people take the initiative and make the sacrifices necessary to become financially free. In fact, the average American is consumed by over $90,000 of debt.
Where does this debt come from? Typically, it’s a mixture of both practical and impractical expenses. For example, almost everyone needs a loan to buy a house or a car. However, things like credit cards, personal loans, and other financed purchases are rarely necessary.
However, as is most often the case, hindsight is 20/20. The question is, how can you gain financial independence if you’re already deeply in debt?
Not sure where to begin? That’s what we’re here for. Keep reading for everything you need to know about becoming financially free.
1. Cut Back On Your Monthly Expenses
First and foremost, take a good, hard look at your bank and credit card statements. Do you know where your money is going each month? Are you sure?
Most people are shocked to discover how much money they spend each month on frivolous expenses such as restaurants, commercial coffees, impulse buys, online shopping, etc. These expenses, while seemingly small, lead to a big problem – no money at the end of the month.
Here are some easy ways to reduce your spending each month:
- Make your meals at home, including lunches for work
- Don’t buy from commercial coffee houses, brew at home
- Cut back on expensive habits (smoking, drinking, gambling, etc.)
- Limit pampering costs (manicures, pedicures, massages, hair treatments, etc.)
- Cancel unnecessary subscriptions and memberships
- Limit yourself to one or two TV/movie streaming services
- And more
If you take an objective look at your spending habits, odds are you’ll find hundreds of dollars in your budget that can go toward paying off debt and gaining financial independence.
2. Downsize Your Life
If cutting down on your minor expenses each month doesn’t give you the boost you’re looking for toward financial freedom, there are more extreme measures you can take. For example, consider downgrading your car to an older model.
The average car payment for a new vehicle is $554. Why not exchange your new car for a model that’s a few years older to save hundreds of dollars a month?
Finally, you may even consider downsizing your house. Though this is a big change, it could also save you hundreds of dollars in monthly payments and thousands of dollars over time in interest.
3. Start a Side Hustle
In some cases, earning more money is the best way to improve your financial situation. Starting a side hustle sounds difficult, but it doesn’t have to be. There are several things you can do to bring in more income each month.
Here are some suggestions:
- Drive for Uber, Lyft, or Door Dash
- Walk dogs
- Take care of your neighbor’s yard or garden
- Find freelance gigs online
If you’re looking to make big life changes, some people find financial freedom by starting their own business. You can learn how to be your own boss and do what you love. Learn more here about creating a freelance business of your own.
4. Find Ways to Earn Quick Cash
Alternatively, earning more money each month doesn’t necessarily mean putting in more hours. Most of us are spread thin enough as it is. Instead, come up with creative ways to make some quick, easy cash.
For example, rent your car out to people on the weekends, or find a roommate to help pay your rent or mortgage. You can also donate blood plasma or sell your unwanted possessions online.
5. Implement a Debt Repayment Strategy
Next, understand that being financially free means learning how to pay off your debt. Because roughly 78% of American workers live paycheck to paycheck, this task can prove challenging. Fortunately, there are multiple strategies you can use to tackle your debt.
We recommend the debt snowball strategy. Each month, put every extra dollar you have toward your smallest debt. Once that debt is paid off, use all the extra money (including the money that was designated for the first debt) toward your next smallest debt. Continue the cycle.
As each debt is paid off, your “debt snowball” gets bigger, allowing you to commit larger amounts of money to debt repayment.
6. Consolidate Your Debt
In some cases, it’s beneficial to consolidate your debt. A consolidation loan absorbs multiple debts under a single payment and interest rate. This can make paying down debt much simpler and more manageable.
Typically, the consolidation loan absorbs your debts with the highest interest rates, such as credit cards, unsecured loans, etc. The biggest hurdle is getting approved for the loan.
7. Automate Savings and Investing
Another important tip for becoming financially free is ensuring you have money going to the right places. Aside from paying off debt, this also means putting money in your savings account and investing in your future.
Initially, while paying off debt, you should only prepare an emergency fund of about $1,000. After your debt is paid off, you can focus more on building up your savings account with automatic transfers.
However, the earlier you start investing, the better. We recommend starting a Roth IRA or other retirement account immediately, even if you’re only contributing $50 a month.
8. Set Goals for Yourself and Stay Consistent
Finally, as with any pursuit in life, you need to set goals for yourself. Financial freedom is not easy to obtain. Without goals, you’re likely to get distracted, fall out of good habits, and revert to bad spending patterns.
We recommend setting up practical and measurable short-term goals. Each goal should serve as a milestone to your overall goal of being financially free. Each successful milestone will motivate you to keep going, which will help ensure your consistency.
Write your goals down and post them somewhere you’re likely to see them every day.
Do You Want to Be Financially Free?
If you’re looking to become financially free, you may have a long journey ahead of you. But don’t let that discourage you. As you can see, there is a myriad of things you can do to reach your goals.
We believe in you and want to help as much as we can. Check out some of our other finance-related articles before you go for more valuable information and advice.