Financial freedom can be difficult to obtain without the right habits and rules established. For those who live paycheck to paycheck, it can be challenging to plan for the future or enjoy life while living on limited funds.
To obtain financial freedom in 2017, there are a few important tips to follow that will prove to be effective.
Pay Off Debt
Debt is one of the main inhibitors of growing your wealth due to money that must be repaid in addition to interest, which can add up to thousands of dollars each year.
Make it a point to pay off your debt, which includes auto loans or credit cards that you use. Make it a goal to repay the account that has the lowest balance to gain momentum and stay motivated while paying the minimum balance on the other accounts that are open.
Automatic deductions that come out of your bank account each month can make it easy to repay certain credit cards or your school loan to ensure that you continue to make progress.
Save an Emergency Fund
An emergency fund is essential to having money available for unexpected costs that are needed throughout the year, which includes car repairs or medical expenses. Save an average of $1,000 to put towards the bills, which will make it easier to avoid using your credit cards and accumulating more debt.
It’s also important to save at least three to six months of income to ensure that you can continue to survive if you suffer from a job loss in the future. This will reduce the risk of losing your home or vehicle with payments that need to be made until you secure employment.
Create a Budget
Creating a budget is essential to obtaining financial freedom to ensure that you’re in control of each dollar that is in your possession.
Calculate your household income and make a list of each expense that you have to determine how much you’re spending on a regular basis. Money that is left over can be used towards a savings account, to repay debt or put towards your 401(k). It’s also important to reward yourself with fun money to ensure that you don’t feel deprived with your budget and can make a few purchases that are enjoyable.
Invest
Investing is one of the secrets to increasing your wealth and requires a bit of risk to increase your earnings each year. Invest in Roth accounts or IRAs when you want to save for retirement and grow your money at a slow and steady rate. It’s important to diversify your portfolio to reduce your risk of loss that occurs in poor economic conditions while investing in brands that you trust.
Avoid taking the money out for emergencies or to purchase a home, which will require that you pay an average of 25 percent of the money in taxes. Attempt to invest 15 percent of your household income into retirement.
Reduce Your Expenses
Make it a point to reduce the amount of money that you spend on purchases that are made throughout the month if they’re not necessary.
Consider cutting the cord on cable and brew your own coffee at home. You’ll also want to limit how much you eat out and consider shopping at secondhand stores to avoid paying full price for clothing or household goods that you may need for your family. Cutting coupons can also reduce the amount of money that you spend on groceries and toiletries, which are available in the newspaper.
Photo: CC 2.0 / Josef Grunig