Your path to becoming financially free and great

So you decided to be financially free. That is a great decision. Constantly having to worry about money is bad for your health and your wallet. Living in constant fear of creditors or collection calls is a nightmare you can avoid.

But how do you start? Life is expensive, especially if you have children or previous debt. Sometimes it may seem impossible to get out of your current situation. However, if you live in a free (or relatively free) country and are willing to make some sacrifices (sorry, nothing is free these days), you can significantly improve your financial status in the very near future.

Step 1 – Get out of debt

If you have debt (except for a mortgage you pay on time), you must first get rid of it. Debt is like an investment going against you, which means the more time passes, the less money you have. Being in debt is a emergency, and should be treated as such. Your time and resources should be dedicated to getting out of debt: paying more than the minimum payments (which are mostly interest payments), negotiating for more money, and most importantly, staying out of debt. If you find yourself in a hole, stop digging.

If you need help, consider contacting debt relief specialists who will create a personalized plan that will help you put the days of debt behind you. Even without them, there are several methods to get out of debt quickly (prioritizing by interest rate or total money owed). Just pick one that works for you and stick with it. Discipline is key here. When you are debt free, no creditor has power over you.

Step 2: Stop Incurring More Debt

When you’re debt free keep it up! Only buy what you can afford right now. Do you use a credit card? Pay it in full each month. Do not let more debts enter your life, since they only work against you. Make sure that your expenses are less than your income and do not postpone any payment. Interest in them can be deadly.

More importantly, don’t take out loans for everyday expenses. Loans should only be taken to purchase assets that will increase in value or help you generate more income (such as thoughtful business loans). Personal loans can drain your debts and you should avoid them at all costs. If you want something, save for it. Don’t borrow now and work for years to pay it off. Remember: in debt, interest plays against you.

Step 3: Create emergency reserves

Once you owe nothing, you can start working for yourself instead of others. Calculate how much you spend each month on average and start saving to get a sum that lasts six months. For example, if you spend $3,000 each month, you need to save at least $18,000 in your emergency reserves. These reserves must be kept in a savings account or any investment that does not diminish in value and can be cashed out almost immediately.

Use these reserves only for emergencies, if you get laid off or have a big necessary expense that cannot be paid from your regular checking account. This money is not for travel, buying a boat, or buying jewelry. Its sole purpose is to save you in case of an emergency.

Can’t save? That is not true

If you think “there is no way I can save such sums of money”, you are wrong. Since you have no debt, you already have an income equal to or greater than your expenses. Now you can (and should) go both ways: increase your income and decrease your expenses. This way you will save money much faster.

First, see how you can get more money from your job. Ask for a raise, take an extra job if possible. Negotiate hard and you will get what you want (of course, don’t burn bridges. You still need a job). If you are willing to take some risk, start a side business. Everyone has something to sell, and today it’s easier than ever to sell online. There are also many companies that allow you to work from home (for example, some telemarketing jobs), so you can take advantage of that time as well. Of course, leave some time for yourself.

Second, every time you spend money, no matter how small or large, write it down. At the end of each month, take a look at your list of expenses and think about what was unnecessary. It can be hard to reduce your standard of living, but it’s always smart to live below your means. When you want more, increase your means.

Look at your home and auto insurance policies and see if you can save anything. You may be able to get the same coverage for less, which can save you a fortune in the long run.

Step 4 – Get your credit in order

If you were in debt, your credit score is probably very low. This is a situation that you have to solve, since a large part of our financial life depends on that score. It can keep you from renting a house or make you pay too much for an emergency loan or mortgage (that is, HIGHLY recommended for NEVER take an emergency loan, but when reserves are depleted and you run out of options, it can be a temporary solution).

Improving your score is a tough task, but since you’re debt-free, you should be able to pay off your credit cards. entirely each month. You can also try some credit repair services if you think they can help you. Most of them have a free consultation, so use it before committing.

Step 5: save and invest

This is where freedom begins. You were in debt, which are investments that work against you. Now you will finally have investments working by your. Each month take what you saved and put it in an investment account. Don’t go crazy: invest in stocks, bonds, real estate and other investments that understand. After investing, just forget it’s there. It is not destined to grow ten times in a year. But over time, as you invest more and reap the benefits of compound interest, this amount will increase. The more you save each month, the faster you will achieve financial freedom.

Step 6 – Financial Freedom

This is your goal. Being financially free means, at least for us, that you don’t have to go to work to maintain your current standard of living. In other words, your passive income (income not generated by being an employee but “passively” – dividends, rent, etc.) is greater than your expenses. This is what financial freedom is all about: choices. In this case, you don’t have to work, but you can choose to work (for even more income). You become the owner of your own time, your greatest and irreplaceable asset. That is the true meaning of freedom.

Of course, the term “passive income” is misleading. Nothing is ever passive. All those investments need to be managed carefully, which also takes time. However, it takes much less time than working eight or nine hours a day. The rest of your time can be spent improving your health, being with your family, or reading books. It’s up to you. You choose.

This list is very general, but it describes the general idea quite well. Achieving the final step is not easy. It takes time and discipline to get to that point (and if you’re having trouble cutting back, a great income). But even partial financial freedom is better than financial slavery or debt.