The First Step Everyone Takes Before Achieving Financial Freedom
Written by
Laura Bogart
Edited by
Joe Evans
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Maybe it’s the ability to walk into a car dealership and know you don’t have to grit your teeth through a credit check. Perhaps it’s the knowledge that your emergency fund can help carry you through a large and sudden expense. It might even be the ability to make a dream vacation a reality for you and your family. Everyone has their own definition of enjoying financial freedom.
Regardless of your financial destination, everyone’s journey starts in the same place – with a first step. While becoming more financially independent looks different for everyone, GOBankingRates talked to several financial experts to get some insights into how to begin the process.
Figure Out What Financial Freedom Looks Like
Every time you pay your student loans, you might hear an internal clock ticking, counting down the time until you’re finally done. Or you daydream about owning your first home. You might not know it, but you’re already on your way to financial freedom.
For Paul Carlson, CPA and managing partner at Law Firm Velocity, clearly defining what financial freedom means to you is the best way to start. Ask yourself if your goal is to be debt-free or have a specific amount in your retirement fund. Whether you’re craving home ownership or earning passive income that allows you to enjoy a higher standard of living, you have to have an endpoint to plan towards.
Having short, medium and long-term goals helps you start creating an action plan. But like any good map toward a final destination, your plan should account for your current financial landscape.
“Conduct an honest assessment of your current financial position to get a clear understanding of your income, assets and expenses,” said Carlson. “This will give you a starting point to calculate exactly what you’ll need to reach your goals, and help you to identify where to cut costs, change habits, or make your money work smarter.”
Carlson suggests using this information to create a budget and show discipline in sticking to it. Resources like budgeting apps can help make the day-to-day of managing your finances easier.
Tackle Your High-Interest Debt
On the pathway to financial freedom, high-interest debt is the stone in the road, threatening to trip you up.
Puja Sohi, CEO and co-founder at Core Family Office, encourages you to prioritize paying off high-interest debt like credit cards or personal loans early on. High-interest debt accumulates quickly and can easily send you off course.
While making your monthly credit card payment isn’t as fun as imagining your next new car, it puts you in a good place financially. Sohi suggests implementing a debt repayment plan or potentially consolidating debts to accelerate the process of paying everything off. You can also look into negotiating lower interest rates.
Educate Yourself About Finance
Knowing the ins and outs of personal finance will help you prove the old adage true: Knowledge is power. Sohi recommends learning about personal finance, investing, and wealth management to make smart and confident decisions that serve your goals.
“Stay informed about economic trends, financial markets and investment strategies through books, articles, podcasts, seminars or online resources,” she said. “Financial literacy empowers you to make informed decisions and adapt to changing circumstances.”
Partner With a Financial Planner
Many people undertaking any kind of journey will need a guide – and a journey toward financial freedom is no exception.
Turning to a certified financial planner (CFP) can help you better understand the routes you’ll need to take to achieve your money goals. When you sit down with a CFP, you can work together to develop a personal vision of financial freedom and get customized insights on how to reach it.
Aamir M. Chalisa, an MBA, LUTCF, MDRT, an expert contributor and reviewer for Annuity.org, suggests visiting a CFP to “discuss and evaluate all financial instruments, such as bank accounts, CDs, annuities and stocks, to build a balanced portfolio.” He added that a CFP can help you set reasonable monthly savings goals.
Crucially, talking to a CFP can help take the fear and stigma out of finance. According to Melissa Murphy Pavone, CFP, CDFA, director – of investments for the Westhampton Beach office of Oppenheimer & Co., Inc., “a CFP can provide guidance tailored to your financial goals and risk tolerance, helping you navigate the complexities of the market and help answer the million-dollar question: How much do I need to save to be financially free?”
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