Obtaining financial freedom starts with building habits for success. You can’t exactly get to where you’re going by engaging in the same bad habits you’ve held onto for the last few years, which have only resulted in a downward financial spiral. If you want to get out of debt, start building wealth, and regain control of your finances, start with these three habits that will result in financial freedom.
Once you have established these habits as vital components of your financial decisions, you’ll feel much better knowing you’ve got a firm grip on your financial situation. Keep reading to learn steps to financial success. It’s time to take back your wallet!
1. Stop Spending Money on Things You Don’t Need
Let’s face it; we live in an overly-materialistic society. Our social standing isn’t often measured by our character or the things we’ve accomplished, by rather by which iPhone we have, what brand our shoes are, or how big and expensive our houses and vehicles are. Is this really a fair measurement of a person’s worth? That’s a discussion for another day; but what we will be discussing are those things you keep spending most of your paycheck on.
We’ve been taught that stuff is what will bring us happiness. The media, ads, billboards, social media, everything is built around brand recognition. Americans spent over $14 trillion dollars in the fourth quarter of 2019 (holiday season; coincidence?) up significantly from past decades. Now more than ever, things are what make us who we are. Or do they?
At the end of the day, the most expensive iPhone on the shelf doesn’t make you a better, more respectable person. It doesn’t bring you closer to your friends and family or build meaningful relationships, and it most certainly isn’t getting you closer to financial freedom.
The first step toward taking control of your finances is curbing your spending, especially on things you don’t need. And, while this might be a newsflash for some, you actually don’t need the latest phone.
It’s true! You can still be happy, successful, and well-liked by your peers without an iPhone. As a bonus, you’ll be anywhere from $600-$1,400 richer by skipping the purchase altogether.
Most of us confuse what we want with what we actually need. If there’s money left over at the end of the month, we usually “treat” ourselves with some splurging, but is this really doing anything for our wallets or our lives? Why not invest the excess in a sustainable future instead?
2. Reduce Your Debt
It’s no secret that reducing your debt is a step toward financial freedom, but it doesn’t seem like many people understand just how important that really is. The less debt you have, the more money you have to save and invest, and the more secure you’ll be overall. You won’t have bills upon bills piling into your inbox at the end of every month, and you’ll be able to start saving for emergencies. Those reasons alone should be enough to persuade anyone to reduce their debt, but just in case you’re not swayed, here are a few more:
- Reduce stress
- Set an example for your children
- Bump up your credit score
- Secure your finances
- Plan for the future
- Spend money on things you need
- Take vacations when you want to
- Put money into retirement
- Stop the collection calls (this should be the best motivator, honestly)
- Reduce the risk of foreclosure, repossession, etc.
- Self-esteem boost
- Lower blood pressure
- Fewer relationship issues (if your finances are tied together)
There are hundreds of ways to tackle debt, but a favorite among consumers is the snowball method. You start with your lowest debts first, paying them off entirely, then working your way up to your larger debts. This gives you small boosts of confidence along the way while slowly reducing your overall debt. Once you finally reach those larger debts, you’ll have more capital to put towards them and a boosted confidence level to tackle them with. It’s a win-win!
3. Create An Emergency Fund
If you’ve ever been caught in a financial bind without the cash to bail you out, you know exactly what kind of stress you’re under trying to come up with the cash quickly. You probably had to resort to using a high-interest credit card, a loan from a family member or friend, or worse; a payday loan. Whatever the case, you now understand the importance of having an emergency fund for when things go awry, and if there’s anything that life has taught me, it’s that things can go awry at any given moment. An emergency fund helps cover sudden expenses and is designed to keep you afloat when you’re out of a job. Whether it’s due to illness or other medical reasons, or you’re simply laid off, you need to be able to handle your monthly bills if you’re out of work.
An emergency fund should be anywhere from 3-6 months’ worth of expenses, but it’s ok to only have a few thousand dollars in it. Even just $500 can help get you by during a slow month or short paycheck.