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I can’t just blindly take a stab at this financial journey thing without a clearer plan on how to achieve it, right? I figured, I need to have a roadmap of some sort to reach it. So, today, I made my own financial freedom checklist so I can see the big picture a little bit clearer and know what steps to take.
I love checklists and I admit, I am one of those people who make a checklist for anything I want to make a progress in. If you have a big goal, checklists can help you break it down into smaller, more achievable goals or milestones. This is most especially true for goals that you can’t achieve overnight.
I hope this financial freedom checklist can help you set the ball rolling, check your progress and ultimately reach that goal.
Know Where You Stand Financially
It can be challenging to go anywhere if you don’t know where you are right now. Before you make any progress, you first need to know how you stand financially at this point in time. Know your net worth by listing down all your assets and liabilities. Subtract your liabilities from your assets and the figure you get will now become your net worth. If you’re at a negative, then you have more serious work to do. You’re running on a financial deficit.
But if you get a positive figure, then you’re off to a good start. Either way, you need to know your net worth so you can make a more concrete financial plan as you move forward in this journey.
Create A Budget
Your budget will dictate your cash flow and allow you to allocate the suitable amount for each of your expenses. A sound and realistic budget will prevent you from going into a financial deficit and steer clear of the paycheck-by-paycheck lifestyle. Your budget will guide you into properly prioritizing, allocating and using of your hard-earned cash as aligned to your financial goals.
Build Your Emergency Fund
Your emergency fund is going to be your first line of defense for any unexpected expense so that you’ll not ruin your budget, whip up your savings and get into deeper debt while fixing the issue. Some people start by building $1,000 for their emergency fund and then they put the rest of their money towards savings. Others are more comfortable building a heftier fund to cushion for bigger expected expenses, typically ranging from three to six months’ worth of expenses.
The bottom line is you need to build an emergency fund first so you get to stay on track despite the curve balls life throws at you.
By the way, I am currently working on this. Read this post on how I plan to save $3000 in 5 months.
Other Recommended Readings:
The Total Money Makeover By Dave Ramsey The Millionaire Next Door Dave Ramsey's Complete Guide to Money
Pay Off Your Debts
Even if you have already worked on the previous steps, it can be difficult to move forward if you’re indebted. Debts can slow down your progress in accumulating wealth because you’ll always feel like there’s a looming dark cloud over you.
Settle all your consumer debts first or at least crush the ones with the highest interest so you can begin investing for your future. Credit card bills, personal loans and other consumer debts need to exit the picture so you experience a less stressful financial life. As you move through the process and remove debt after another, you’ll see how much money and freedom you’ve been missing out and realize that debts have been holding you back from enjoying your income your own way.
Live Within Your Means
This is an old but proven trick from people who have achieved financial freedom themselves. Living within your means simply implies that you don’t spend more than what you earn. It’s even ideal if you can budget your income in such a way that there’s some surplus money for you to save and invest. You can live within your means by setting a budget, separating needs from wants and using your money in order of priority. It will take discipline and commitment to lead this kind of lifestyle, but it will also fast-track your progress towards financial freedom and helps you break free from the paycheck per paycheck lifestyle.
Related Post: How Minimalism Can Transform Your Life and Finances
Establish Your Career And Save For Retirement
Your job, career or business supplies you with income you need to achieve financial freedom. It is best to start assessing where you want to be in your career for the long term. It is important to see yourself growing in your chosen career path because your earnings also potentially grow along with it.
If not, evaluate yourself and career goals now to determine your next best move.
Along these lines, it is also essential to already shave away some money for your retirement. Most workplaces offer retirement employment match. Take advantage of it as it is practically free money towards your nest egg in the future. It is also great idea to start working out on your retirement fund apart from the employer match, in form of other investments like retirement savings, stocks and bonds.
Strategize Your Investments
You’ve also probably heard experts say “don’t put all your eggs in one basket.” At this step, you need to evaluate every single investment and plan out how you want them to work out for you in the long run. During this evaluation, you need to determine your tolerance risk for each investment vehicle. You’ll also need to gather pertinent info about each investment such as ROI, interest rates, maturity dates and other policy details. Plan to invest as soon as you can because the power of compounded interest over time will be in your favor.
Typically, employers provide insurance benefits to their employees. If you’re working full-time, you may already have some coverage for life, health and disability insurance. Still, it pays to look at your policy as your life circumstances change to ensure that you’re getting adequate coverage. Your insurance acts as an extra layer of cushion for life’s uncertainties. You don’t want to use them, but you’ll feel at peace knowing they’re there.
If you’re not satisfied with the coverage, it’s time to tap for extra coverage coming outside your workplace. Do make sure to get the right plan and coverage for your needs and do a regular evaluation to get the right protection at all times.
There’s one thing this checklist proves to us – you don’t have to be ultra rich to become financially free. However, you do need to work on the negatives and turn them into positives.
We need to work on improving our lives through careful evaluation of our options and making decisions that serve our best interests. This is a simple a strategy that we can follow to live a more meaningful and financially-free life. The key is to simplify your finances and bring them to manageable bits so you can take most of the control and stay on track during your financial freedom journey.
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