Financial Advisor in Raleigh NC: Financial Freedom

Ironically, financial freedom revolves around the concept of control—specifically, having control over one's own finances. An effective definition of financial freedom, therefore, is having sufficient residual income that enables you to lead the desired life, free from concerns about bill payments or unexpected expenses.

In essence, financial freedom is not solely about accumulating wealth and amassing a fortune. Rather, it centers on gaining authority over both your current financial situation and your future financial prospects.

Where Are You Presently?

Embarking on the journey to financial freedom begins with a crucial step: understanding your current financial standing. This entails gaining a clear understanding of your existing debt, accumulated savings, monthly expenses, income, and other relevant factors.

In simpler terms, it is essential to be familiar with your personal financial statement, which includes accurate information about your income, expenses, assets, and liabilities. Armed with these figures, you can proceed to the second step of your financial freedom endeavor, which involves defining your goals.

Define Your Goals

What drives your need for money? It could be various reasons such as paying off an education loan, starting a business, traveling, organizing weddings for your children, securing your retirement, and more. Once you have sufficient funds, these are the aspirations you aim to fulfill.

Therefore, money serves as a means to accomplish your financial objectives. However, without documenting your goals, your money lacks direction, and you may struggle to utilize it optimally. Take a moment to grab a piece of paper and jot down your top five goals for the next 1, 5, 10, and 20 years. By doing so, you provide purpose to your money and gain clarity on how to best allocate it.

Track Your Spending

A crucial aspect of achieving financial freedom is monitoring your expenditures. There are several methods to accomplish this, such as using a notebook or an Excel spreadsheet. Tracking your expenses holds significant importance on the path to financial freedom as it promotes accountability.

It also sheds light on unnecessary expenditures that may stem from impulsive purchases. Impulse buying, in essence, represents a loss of control and can hinder your progress toward financial freedom.

Therefore, it is crucial to maintain control by diligently tracking your spending habits.

Pay Yourself First

The concept of "Pay Yourself First" entails allocating a specific amount of money to your savings or investment account before addressing other financial obligations such as bills, discretionary expenses, and rent.

Implementing this practice has proven beneficial for many individuals in their pursuit of financial freedom. The underlying reason for its effectiveness lies in the fact that it compels us to explore alternative methods to limit our expenses.

For instance, if the remaining funds for allowable expenses prove insufficient, it prompts us to take additional action. This may involve making small adjustments to our lifestyle to reduce current expenses or seeking additional sources of income through side hustles. In either case, by prioritizing paying yourself first, you ensure that you consistently set money aside to invest in yourself and your financial future.

Spend Less

Spending less does not imply sacrificing your current lifestyle or living a minimalistic life. Instead, achieving financial freedom involves adopting smart spending habits, which can be accomplished through various creative approaches. Some common techniques include learning to prepare delicious meals at home to reduce dining-out expenses and setting up automatic debits to avoid late fees on credit cards.

Even the simple act of delaying the purchase of a non-essential item by a few days can significantly reduce impulsive buying tendencies, bringing you closer to financial freedom.

Pay Off Your Debt

Eliminating a substantial debt has multiple positive impacts on achieving financial freedom. First, it provides you with more available cash flow for future financial endeavors. Secondly, it strengthens your credit rating, opening doors to better financial opportunities. Most importantly, paying off a loan relieves an immense burden from your shoulders.

There are two primary approaches to debt repayment. The first is the snowball method, which involves paying off the smallest debt first, gaining a sense of accomplishment, and then progressing to larger debts. The second method is the avalanche approach, where you prioritize paying off debts with the highest interest rates first, subsequently tackling lower-interest debts.

Both methods are effective, and the choice between them depends on your specific circumstances. However, it is undeniable that eliminating debt is a critical factor in attaining financial freedom.

Always Keep Your Career Moving Forward

One of the most efficient paths to achieving financial freedom is by increasing your income while maintaining or controlling your spending levels. This necessitates a continual focus on advancing your career or business.

For instance, actively acquiring new and valuable skills and enhancing your value to your employer can accelerate the trajectory of your career and subsequently increase your income. If you are self-employed, it involves implementing growth strategies to propel your business to the next level.

If you have been relying on chance for career progression, now is an opportune moment to evaluate how to expedite the process. By doing so, you can elevate your income and bring yourself closer to the goal of financial freedom.

Create Additional Sources of Income 

For those striving for financial freedom, relying solely on a 9-to-5 job may not suffice. It becomes necessary to explore income sources beyond traditional employment. In fact, financial experts often recommend aiming for at least five streams of income.

If you already have a 9-to-5 job, congratulations—you have one stream of income. Now, the goal is to identify four more.

Additional income can be generated through two approaches. The first is active income, where you trade your time for money. This approach has the advantage of quick implementation, but it is limited by the number of hours in a day, which cannot exceed 24. Side jobs like freelance writing, driving for Uber, or designing logos on platforms like Fiverr.com fall under this category.

On the other hand, passive income involves setting up systems that generate income in an automated manner. This includes selling digital content such as e-books and courses, becoming an affiliate marketer, or investing in stocks.

Evaluate which approach suits you best and take small steps towards establishing a second income stream. It's about finding what works for you and progressively building towards financial independence.

Invest

The last step towards achieving financial freedom revolves around investing.

First, it is essential to invest as much as possible and as early as possible, leveraging the power of compounding to your advantage. Additionally, strive to increase your investments each year at a rate higher than your income growth.

Another crucial aspect is to aim for an asset allocation of 50-60% in equities, striving to achieve this allocation swiftly. As a general guideline, maintain a 60-40 split between equity and non-equity assets, although you can adjust this ratio based on your risk tolerance. Lastly, review your portfolio annually and remember to rebalance it as necessary.

Bottom Line

It’s important to note that achieving financial freedom is a journey, not a destination, and it may take time and effort to reach your goals. But with careful planning, disciplined saving and investing, and a willingness to make sacrifices in the short-term, you can achieve financial freedom and live the life you’ve always dreamed of.

Sources:

https://www.etmoney.com/learn/mutual-funds/9-steps-to-achieve-financial-freedom/

https://www.moneyfit.org/financial-freedom-means/

Disclosures:

This site may contain links to articles or other information that may be on a third-party website. Advisory Services Network, LLC is not responsible for and does not control, adopt, or endorse any content contained on any third-party website.

This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

Rebalancing investing involves risk including loss of principal.  No investment strategy, such as rebalancing, can guarantee a profit or protect against loss.  Rebalancing investments may cause investors to incur transaction costs and, when rebalancing a non-retirement account, taxable events will be created that may increase your tax liability.