Imagine having the money to live comfortably, take a dream vacation, pay for your child’s university education and maintain your mode of living during retirement. For many, achieving financial freedom may seem more like a pipe dream. But by adhering to a spending plan or budget, it is possible to eliminate debt, save for a rainy day and alleviate the stress you feel every month when you sit down to pay your obligations.
According to Bankrate.com Over Half of consumers track their spending against a monthly budget.
How to Achieve Financial Freedom
Budget: Spending Money on Purpose
To achieve financial freedom, you must create an intentional spending plan and stick with it. It may seem overwhelming but a spending plan is necessary in order to meet your short and long-term goals. Get a clear picture of your current financial situation:
- List all your fixed expenses, such as utilities, groceries and debt payments.
- List all your irregular expenses. These are due throughout the year, including taxes, car maintenance and vacations.
- Every other expense is discretionary spending. This includes shopping and your daily gourmet coffee run.
- A, B, C your expenses. A’s are needs. B’s are needs you can be more efficient with, like utilities or groceries. C’s are wants.
- Total your expenses and compare them to your net income. If your expenses total more than your income, then its time to reassess your spending habits and make cuts from your B’s and C”s.
Save: Paying Yourself First
- Make it automatic. Sign up for your bank’s automatic transfer program and move a percentage of your paycheck to your savings account each payday.
- Ask for discounts. For example, ask your insurance company about discounts that you may qualify for, which can lead to savings on your premium.
- Think before your buy. To resist impulse buys, wait 24 hours to buy an item. It may turn out that you do not need it after all.
If you have to finance it, you can’t afford it. The only exception to this rule are homes and cars. If you can’t pay for it on the spot, then you should wait to buy it until you have saved the cash. The first step in learning how to achieve financial freedom is to eliminate your debt.
Loans Most loan payments are calculated using compounding interest, which is the interest that is added to the principal of the loan each month that the balance is outstanding, causing you to pay interest on interest. Although it’s designed to work against you, it is possible to pay off the loan three or four times faster with minimal additional cost to you, just by knowing your “magic number”. Your “magic number” is the portion of your monthly payment that goes to pay the principal. To pay your loan off faster, double, triple or quadruple your principal, or “magic number” each month.
Tips to Help You Stick to Your Budget
- Set 90-day goals.
- Track daily and weekly expenses to know where your money is going.
- Ask for help. Enlist a friend or loved one to help you remain accountable to your budget.
- Focus on the win! Imagine how you’ll feel when you’ve paid off your debt and have achieved financial freedom.
- Use a small portion of the surplus to reward yourself.
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