7 Steps to Financial Freedom
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Financial freedom is the ultimate goal for many people. And while the exact definition of financial freedom might look a bit different for everyone, they all have one crucial thing in common: the feeling of being in control of your own life.
Over the past year, the desire for financial freedom has manifested itself across America. Millions of Americans are reprioritizing, and as many as 40% of Americans report considering leaving their jobs in the aftermath of the pandemic, in what people are referring to as the “YOLO economy” and the “great resignation.”
But these numbers beg one very important question: how do you achieve the financial freedom necessary to walk away from an unhappy job or design a life where you feel truly free?
In this article, we’ll share seven steps to help you achieve financial freedom. It doesn’t come easy, so it’s important to enjoy the journey.
Personal Capital’s newest Financial Hero Apolo Anton Ohno knows better than most people the importance of enjoying the process, and he’s provided a few words of wisdom for those starting this adventure.
Step 1: Know Where You’re Starting From
In order to start any journey, you have to know where you are now. And the journey to financial freedom requires you to take a close look at your finances today to identify what factors might be holding you back and what’s working on your side.
Things to pay attention to include:
Your current debt
Your annual income
Your annual expenses
Your savings
The balance of your investment accounts
Your net worth
One of the easiest ways to get the visibility you need to start your journey is by using Personal Capital’s financial dashboard. Financial tools like the net worth tracker, savings planner, budgeting tool, and more can help you gain a greater understanding of your financial picture.
Step 2: Set Specific Goals
To achieve financial freedom, you must first define what that really means to you. What do you want your money to do for you? Financial freedom or independence looks different for everyone. You have to set specific goals.
For you, financial freedom might mean early retirement. In that case, you’ll have to figure out the dollar amount that would allow you to leave the workforce and generate a sufficient income for the remainder of your life.
For others, financial freedom might mean the ability to walk away from an unhealthy or unhappy situation. In that case, it might simply mean a financial buffer of one to two years of expenses while you find a new job or start a new life.
Finally, financial freedom could simply be the ability to spend freely on the things that bring you joy. In that case, financial freedom might look more like a certain amount of annual income, which you can achieve through a combination of your earnings and investment income.
Once you have a specific goal in mind, you’ll have an easier time figuring out the path necessary to achieve it.
Step 3: Eliminate What’s Holding You Back
Chances are, there are a few things in your financial life that are holding you back from achieving the financial independence you desire. It’ll be a process, but one of the most important steps is to eliminate those roadblocks.
Some things that might be holding you back include:
Debt: Unfortunately, debt has become more burdensome than ever, with the average American carrying around $90,460 in debt. Paying off your debt — especially high-interest debt — will be one of the most important steps in initiating your journey.
Poor spending habits: Achieving financial freedom depends on understanding your spending needs, and keeping them in check. Start by identifying your triggers. Maybe you’re an emotional spender. Or perhaps you just don’t realize how much you spend because you don’t keep a budget. Work to understand your behavior, identify triggers, and then put strategies in place to avoid or overcome them.
A negative money mindset: just as resetting your mindset can contribute to success on a weightloss journey, your mindset can have a considerable impact on your finances. That internal dialogue that tells you that you can’t reach your financial goals might actually be preventing you from doing so. Easier said than done, but adopting a more positive money mindset is a necessary step in reaching your goal.
Step 4: Plan Your Investment Strategy
Financial freedom requires two distinct strategies: saving and investing.
Saving money is a critical step on your journey to financial freedom. It’s important that you save an emergency fund large enough to cover any surprise expenses and cover your bills if you find yourself unexpectedly out of work. Saving is also an effective strategy for short-term financial goals, meaning those within about five years.
But for long-term goals and true financial freedom, savings likely won’t be enough. For that, you’ll need to have a solid investment strategy in place.
When you invest, you aren’t just relying on the money you save to fund your future goals. Instead, you’re relying on compounding to help your money grow. In other words, the money you save begins to make money, and then that money also begins to make money.
Compounding is how people are able to retire millionaires without actually having saved $1 million. It’s also how many people are able to achieve goals like early retirement. Because life is dynamic, your investment strategy And as you get closer to your financial freedom dream, you can adjust your investment strategy to focus on income-producing assets that provide passive income as you live your best life.
Step 5: Track Your Progress
Once you have your goal in place and have started working toward it, it’s critical that you track your progress along the way. And Personal Capital’s financial tools can help you do just that.
“If you can’t measure it, it’s very difficult to gauge where you’re going,” Ohno said. “Once you have a Personal Capital Dashboard that you can view on a daily basis, you’ll realize your goals can be within your reach.”
Tools that can help you along your financial journey include:
Net worth tracker
Savings planner
Budgeting tool
Cash flow tracker
Retirement planner
Education planner
Investment checkup
Fee analyzer
Step 6: Enjoy the Journey
It’s easy to set a goal and immediately feel frustrated that you haven’t made progress yet. But financial freedom is a marathon, not a sprint. And for most people, it’s a goal that takes years — if not decades — to achieve.
If you only focus on the end result, the journey to financial freedom can feel daunting. And there are likely to be times when you feel like giving up. One of the best ways to prevent these feelings is to find ways to enjoy the process.
Ohno shared that he would go into business and investing goals as if they had to be reached within a year or they would be a failure. It can take a while to get out of that mindset, but once you do, the journey becomes more enjoyable.
“What I’ve found is that when I venture into something seeking the result over the process, that has always proven to be a failure. Every time. Unequivocally,” Ohno said. “I think none of us like to hear about what it’s going to take in between the four years. We like to focus on just that end goal and results.”
Step 7: Prioritize Financial Wellness
Financial wellness has less to do with your actual financial results and more to do with your relationship to money and the amount of stress you feel around your finances.
For many people, finances can be an emotionally challenging subject. This can be especially true for anyone who has previously struggled with money or gone through any kind of financial trauma.
One of the best ways to improve your financial wellness is to talk about it. Money is a source of shame for many people, and talking openly about it can help alleviate these feelings and help you realize there’s nothing to feel shame about.
“People have a hard time just talking about their salary, right? Let alone talking about financial wellness,” Ohno said. “It really starts with talking about it in a way that is healthy and open. When you can remove the emotion and instead focus on the mechanics, that’s where it gets exciting.”
Featured individual (“Financial Hero”) is a paid spokesperson and not a client of Personal Capital Advisors Corporation ("PCAC") and does not make any endorsements or recommendations about securities offerings or investment strategy. This content is for informational purposes only and does not constitute investment advice. In a separate referral arrangement between Personal Capital Corporation ("PCC") and Benzinga.com, Benzinga is paid between $70 and $150 for each person who uses Benzinga's webpage (www.Benzinga.com) to register with Personal Capital and links at least $100,000 in investable assets to Personal Capital's free financial dashboard. No fees or other amounts will be charged to investors by Benzinga or Personal Capital as a result of the referral arrangement. Investors that are referred to PCC and subsequently subscribe for investment advisory services provided by PCAC will not pay increased management fees or other similar compensation as a result of this arrangement.
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