It’s the American dream – financial freedom. For some, that dream is an emergency savings and retirement fund. For others, it’s a house and a steady income with no debts. Whatever it means for you, you want it and can’t imagine not working toward it.
For many Americans, breaking the bonds of debt to achieve that goal is seemingly impossible, no matter how many “how to” articles they read. If you have time for one more article, make it this one.
We studied the habits of the financially successful and came up with 14 practical tips toward attaining financial freedom.
1. Say this, “Enough is enough!”
If you’ve read any of those books written by top financial advisors you probably know that each of them had a moment when they said, “That’s it, I’m done.” That moment might have been brought about by being laid off from work, or maybe when they’d suffered just one more financial letdown. Sound familiar? Whatever the catalyst, each of them came to a point in their life when realized it was time to make a change.
That’s your first step, and don’t put it off. Make a commitment to change and do it now. Make today the day you took back your financial future.
2. Take off your rose-colored glasses.
Take a good, hard look at yourself – at your spending habits, at your credit history, and at how much debt you’ve accrued. Sit down and survey the damage. Are you living above your means? Are you living paycheck-to-paycheck? Most of us are. That’s why we’re always reaching for the credit cards. Suze Orman, an internationally-acclaimed financial expert has been quoted as saying, “The only way you will ever permanently take control of your financial life is to dig deep and fix the root problem.”
So get out a big ol’ shovel and start digging. Figure out just how much you’re overspending each month and why. Are you overspending on necessities and need extra income? Or do you frequently splurge or have a shopping addiction? Doing this will teach you a lot about your habits.
3. Set real, achievable financial goals.
It’s not enough to simply say, “I want to change.” You need to come up with a game plan and a due date. Tell yourself you’re going to pay off a credit card in six months. Completely nix the amount you overspend within two months. Set a goal to reduce your spending by 10, 15, or 20% by the end of the year. Whatever your financial goal is, write it down in big black marker, stick it up on a wall, and do it. There are some fantastic money management apps out there to help you say on the right track.
4. Cut your spending by half.
Okay, maybe not half. But if you’re in debt because of bad spending habits, this is very doable.
Say you’ve found that you overspend each week on takeout meals, while grocery shopping weekly and throwing out rotten food bi-weekly. Your pantry also happens to be full of staple items. The easy solution would be to stop eating out and learn to cook. But the issue isn’t about having the ability, it’s about having the time and a plan in place. If you challenged your household to only eat from your pantry and fridge for, say, a week out of each month, you would immediately start saving.
Cutting your spending can be the simple act of changing your habits and lifestyle. Instead of being the family that orders in all week, shops all weekend, and lives on credit, be that other family. The one that tries out cool, healthy recipes and cooks together each night, and enjoys the outdoors on the weekend.
5. Build an emergency fund now.
Building a rainy day fund isn’t impossible, especially when you consider how much you pay to creditors when carrying a balance. What if you lost your job? Or a natural disaster destroys your home, or you get sick. The credit card company isn’t going to help you, they’ll just change you more interest and make your situation worse.
Anything can happen and not having a reserve, especially if you overspend each month, is no one’s fault but your own. Start with a simple goal of saving $1000, then work up from there. If you’re really struggling, start by saving up enough for an extra month’s light bill. Anything at all is better than nothing.
6. Learn something new to increase your financial IQ.
So often we neglect our own needs. In our daily hustle and bustle, we forget to improve ourselves. Don’t get in a rut, continue your financial education. Take the time to sit down once a week and review your finances. This might mean going through the dreaded task of balancing your checkbook, or downloading a money management app like Check.But it’s important to study the ebb and flow of you finances and how it all works.
Visit your local library and check out books on how to save money, or on how to improve your personal finances. Look into classes at your local college or community center; there’s almost always someone offering a class about money or saving. We’ve published several good articles on the subject including: How To Make Clever Money Decisions by Improving Your Financial IQ
7. Follow at least 5 financial blogs or chat streams.
Most financial blogs are downright inspirational. Stories about getting out of debt, paying off student loans, how their couponing saved them thousands per year. Other blogs dive into financial jargon, industry tricks and current events. A quick way to find some financial gurus to follow is to participate in Twitter chats like #creditchat, #WBchat, and #MCchat. Take the time to follow a variety of blogs from our list of 100 top personal finance blogs and participate in discussions. There are always opportunities to learn!
8. Make the most of your talents.
Most of us have a God-given gift that we keep to ourselves. It might be that you’re good at putting together outfits for people, doing intense research, or writing about bird migration. You’d be surprised at the kinds of things people will pay for. If you’ve got the skill, monetize it.
Most people need something – it’s up to you to find out what they need and then sell them you. A great place to start is Fiverr.
9. Give yourself enough time to reach your goals.
Rome wasn’t built in a day. You’re not going to pay off all your credit cards in a year. While that’s certainly possible, don’t stress out if you can’t do it. The most important thing is the effort you put into achieving the goal, and the good habits you gain while doing it. Set realistic goals and then meet them. That’s the important part – sticking to your goals.
10. Fail well by learning from your mistakes.
We all can’t be perfect. It’s a fact of life that sooner or later, we’re going to fail. When that happens pick yourself up and brush yourself off and ask yourself, “What did I learn from that?”
Related article: Why Failing is Good.
“When you take risks you learn that there will be times when you succeed and there will be times when you fail, and both are equally important.” – Ellen Degeneres
What did you learn from cheating on your spending limit last week? Maybe that you need to take a different route home to avoid temptation, or learn to meal plan to avoid fast food.
11. Understand that achieving financial security is a process.
Some months you’ll reach your goals, and some months your radiator will spring a leak and your emergency fund is back to $0. It will stress you out, but understand that it’s all part of the process. No matter what anyone says, there’s not a secret formula for success that works for everyone, every time.
We stress the importance of focusing on the effort you put into reaching your goals, not the failures along the way. You might be shy of meeting your $1000 savings goal by Christmas, but no one can fault you for how much work you put into getting to $900.
12. Plan for retirement as early as possible.
It’s not enough to get yourself out of debt, you have to plan for the future. It’s easy to pretend that you don’t need to worry about retirement yet just so you don’t have to figure out how to set up the account. Traditional IRAs, Roth IRAs, 401Ks… These accounts aren’t as scary as they sound and if you can set one up through your employer, it’s easy. There’s a reason why so many articles say to max out your retirement accounts each year. Not only are the tax benefits substantial, if you’re young you can make some serious gains on compound interest.
Consider that $10,000 appreciating 8% a year for 20 years will be worth over $46,600. If you manage to get a 10% growth rate, now we’re talking almost $67,275. The more you can contribute today, the longer it has to grow and the more you’ll end up with. – Betterment
That’s basically free money just for starting early. If your employer has a contribution matching program, you’ll be in excellent shape by the time you’re ready for retirement.
13. Stay positive through hard times.
This one’s easy. Some days it might be tempting to give up on your goals, throw in the towel, and sink back into bad habits. Don’t. Keep the faith. You’ll get there. Just be patient.
14. Help others reach their own goals.
There’s no mantra more important than “pay yourself first.” But once you’ve got a good financial footing, give back. What if someone helped you reach your first $100 savings goal? Or a debt buddy kept you on track?
The final lesson and probably the most important. Suze Orman calls it “Recognizing True Wealth.” Call it whatever you like, but the simple truth is financial freedom means being able to help others. Maybe set up a trust fund for you kids. Donate to the local food shelter. Maybe mentor someone who’s in need of your financial expertise.
Whatever you do, remember your end goal is financial independence, and the know-how to stay that way.