4 Steps to Financial Freedom

While just about everyone dreams of financial freedom, not everyone achieves it. In fact, it’s been estimated that consumer debt in the US reached an unprecedented $14 trillion in the second quarter of 2019. According to the same study, the average American household has over $8,000 in unsecured credit card debt; and it seems to be rising with each passing year. Whether you’re drowning in debt, or just want to create a stable financial future for you and your family, here are four of the most important steps to take for obtaining financial freedom.

1. Have a Plan and Set Goals

As with any pursuit, creating a plan and setting goals is a crucial piece of the puzzle, providing a roadmap to follow when you lose direction or things get tough. That being said, if you hold significant debt, planning can seem a bit overwhelming at first. Mountains of debt feel like an incredible weight, and tackling them can seem nearly impossible when you’re looking at the mountain from the bottom up.

One method that’s recommended is the snowball method. This is a simple concept at its core; you simply start with your smallest debt and work your way up from smallest to largest. Here, you’ll be able to set short-term goals to begin chipping away at smaller debts to get them out of the way. Once you’ve reduced your debt a bit, you’ll get a feeling of satisfaction and confidence that you can use to start eliminating those larger debts that you’ve been stuck under for so long.

Financial planning can be achieved by creating a plan yourself on paper or on the computer, or by using the myriad of resources available online. There are finance websites, self-help debt-relief websites and articles, and so much more. You can also explore financial freedom with T. Harv Eker, an influential motivational speaker with plenty of advice on getting out from under debt and living a financially secure lifestyle.

Having a plan is crucial to your success. Don’t jump into your finances without knowing what you’re working with, what your idea of financial freedom looks like, and what you need to do to get there; otherwise, you’ll end up lost, demoralized, and overwhelmed before you ever get started.

2. Eliminate Bad Debt

Once you’ve crafted your plan, it’s time to take a look at what kind of debt you have. There are generally two kinds: “bad debt” and “good debt”. Bad debt are things like credit cards, store lines of credit, and even car loans. This is debt that you acquire to purchase items that generally don’t retain or lose significant value over the course of time. New cars are an especially bad investment since the car begins losing value immediately after you drive it off of the lot! Credit cards are another form of bad debt, but there are two sides to this coin. Where on the one hand, credit cards can easily get out of control and start racking up serious interest charges, you can also use them responsibly to improve your credit history and score. The keyword here is responsibly. Using credit cards to purchase things you can’t afford is the best way to become buried in debt quickly.

When using credit cards, it’s best to keep your usage under about one-third of the total credit available to you. That means if you have a $1,500 credit card, you shouldn’t ever spend more than $500 of it. Not only does this look good on a credit report, but it also helps you keep the card under control. $500 is infinitely easier to pay off than $1,500! Plus, creditors like to see that you’re not maxing out cards; it just doesn’t look good from a lending standpoint.

Bad debt can act as a ball and chain around your ankles. If you leave it unaddressed, it can negatively impact your credit score and keep you chained to financial slavery for the rest of your life. Break the chains, pay down bad debts, and take back control of your financial life.

3. Create Passive Income

Passive income is the absolute key to financial freedom. What is passive income, you say? Passive income is income that accumulates while you’re not working. For instance, if you run a successful website, you’re generating income even when you’re not logged on! If you’re a landlord, you’re constantly generating passive income with your rental properties. Passive income can act as a supplement to your active income source, but the real power of passive income is that it can potentially support your entire lifestyle.

Generating passive income Requires upfront effort, sometimes for years before a real profit is made, but it’s well worth the effort. In fact, some of the top financial advisors in the world list generating passive income as the #1 way to gain financial freedom, no matter where you are in life.

4. Master Self-Discipline

In order to reduce your bad debt, reach your goals, and keep yourself from acquiring more debt, you’ll need to master the art of self-discipline. Some of the most successful people in the world are masters of this incredible skill, and it shows in their everyday lives. Discipline keeps you from making those pesky impulse purchases with your credit card or skipping the workout when you’re trying to lose weight.

Self-discipline will drive you to new financial heights as you learn to curb your spending and reduce the debt you’ve accumulated. It will require sacrifice, but anything worthwhile requires nothing less than your full effort and more than a bit of sacrifice. You may not get the new guitar you wanted this month, but your self-discipline helped you avoid an impulse buy and instead put $1,000 towards your outstanding debts. That’s the way to financial freedom.