How to Manage Your Money to Reach Financial Freedom

Financial freedom is being at a state where you’re in a comfortable space for taking full ownership of your finances. This means having a steady cash flow coming in, not struggling with debt and building a strong savings account. Depending on your current financial health, it may seem impossible, but regardless of where your finances are currently at, reaching financial freedom is still achievable for anyone.

With the right plan of action in place and some self-discipline, you can fulfill the financial help to reach your monetary and personal goals. Below is our guide on managing your money to reach financial freedom. 

Create a Budget 

Creating a budget is the first step to creating a healthy relationship with your finances. Create a spreadsheet outlining your income and monthly expenses. Start with necessities such as groceries, housing, insurance and basic utilities. Once you’ve added those expenses, you should then think about how much you’re willing to budget for savings.

A good rule of thumb is saving 10 percent of your income and the best way to stick to that is to schedule automated savings, which we will jump into later. After establishing your necessary expenses and setting aside some income for savings, you will be ready to determine the remaining amount you’ll have left for additional spending.

If you have accrued any debt, this will influence how much you can allocate for savings and additional spending. If you have accrued debt, you’ll need to create a separate financial plan for paying off your debt and incorporate this into your budget. 

There are two primary methods for paying off debt, the snowball method and the avalanche method. Spend some time researching each method to find the debt repayment plan that works best for you.

Learning how to create and stick to a budget is a valuable lifelong skill. It will serve you in many areas like retirement and family planning.

Make budgeting applicable to all areas of your life. Don’t reserve budgeting for the day-to-day of life but apply it to big purchases and big life events as well. As you start applying a budget mentality to all areas of your life, you’ll start to increase the amount and areas that you are able to save form.

Pay off Credit Cards 

Small debt can accrue quickly if your interest rate is high. Even if you start with a small amount, you’ll pay a significant amount more in the long run due to interest rates.

Credit cards should only be used if you are able to pay off the balance each and every month. If you don’t pay the entire balance regularly, high-interest credit cards can do some serious damage. If you need some additional capital and you absolutely have to open a line of credit, make sure to find the best possible options. Many lenders offer 18 months 0% APR for new accounts if you have a good credit score.

Paying off your debt should be your first priority if you want to reach financial freedom. Having a strategy down to pay off your credit cards will help avoid debt from getting too out of hand.

Lacking a successful strategy for paying off credit cards can potentially lead to bankruptcy and life-long credit damage. It’s important to figure out how you’ll tackle your credit card debt early on. Maintaining a healthy credit score is an important factor of your financial well-being and can influence a person’s ability to grow their assets.

Automated Savings 

Never forget to pay yourself first by setting up an automated saving transfer. Schedule an automated transaction from your checking to your savings account each pay period.

It’s best to have it scheduled the day you receive your paycheck so that you never feel tempted to tap into it. A savings account is good to build up for emergencies or other sudden expenses you may need to use in the future. 

If you are really tempted with your savings account, consider opening a new account with a local credit union and keeping your savings in this account. It will help keep this money separate from your main finances. Additionally, credit unions tend to offer high-interest rates on a savings account than traditional banks.

Try and take a set it and forget it approach with your savings account. This will also help you feel increased satisfaction when you occasionally check the balance and see how much you’ve accrued.

Maintain Your Financial Health 

Keeping your financial health in good condition is crucial to achieving financial freedom. Check your credit score often and make sure there aren’t any discrepancies. Mishaps happen, whether they are clerical errors or incorrect missed payments.

It’s always better to stay on top of all your finances and consistently check your credit score so it doesn’t interfere with your everyday life. 

Another way to maintain your financial health is to reevaluate your rent to income ratio. Are you living below your means to the best of your ability? Attempt to find the most affordable option when it comes to your housing.

You could be living a little further outside of the city or in a different neighborhood remaining in the same type of house or apartment at a cheaper cost. Moving can be a stressful experience, so consider hiring a third-party service to help you with the process. Just make sure that the cost of the service justifies the amount of time and stress you will save.

Track Your Spending

Keep clear records of your purchase to stay aware of your spending habits. Writing everything down will help you form a better idea of your situation and how to further improve your finances. Consider using an app to help you track your spending and stick to a budget.

Learning how to manage your money is critical towards financial freedom. Clean up your finances and be strict on yourself. Remind yourself of your goals so you don’t lose track of your spending habits.

Create a strategy that you can consistently stick to. Save as much as you can, become extremely organized, and research before you invest your time and money. Become an expert in your financial situation and take an active part in your journey towards reaching financial independence.

When you start feeling discouraged about your financial well-being and ability to execute on crushing financial goals, consider how much you’ll thank yourself in retirement.