While the phrase financial freedom has different connotations for different people, for a majority of individuals, freedom from debt gives them financial independence in the real sense.
When your assets and investments make money for you while you sleep, that’s when you are truly free to do the things you always wanted.
Here are five mistakes that become real obstacles in your path to attain financial freedom:
No clear financial goals
Like most desired objectives in life, financial emancipation is difficult to attain without proper planning and a precise roadmap. Creating a clear time frame is the critical first step towards achieving financial freedom. Are you aiming to retire by 62, or are you willing to put off your retirement by a few years to fulfill your dream to travel the world?
The rate at which you start earning or saving now would depend on questions like these and many more. Therefore, set clear financial goals and follow them up with a systematic action plan.
Failure to manage debt
Compound interest on your carried-over credit card balance and other loans can prove to be a major hindrance on your path to attaining financial independence.
One of your top priorities should be to create an aggressive strategy to pay off your consumer debt as quickly as possible so that you can make your money work for yourself and not your creditors.
Utilize debt management strategies like debt snowball or debt avalanche, both highly practical methods to reduce credit card debt.
In the snowball method, you start by paying off the credit card that has the smallest outstanding balance, as you work your way up to pay off the card with the biggest balance.
The debt avalanche method starts with paying the card that charges the highest interest, working towards the card with the lowest rate of interest.
Poor saving discipline
Start with identifying your current rate of savings, and how much you actually need to save, to achieve your next major financial milestone.
Use online retirement calculators to help you determine how much you exactly need to save under various scenarios, using realistic projections.
A disciplined approach, such as automating your savings, can help make the task easier. You can start building a nest egg by setting up regular automatic transfers into your savings account from your checking account.
Lack of investing focus
You must start investing, both systematically and intelligently, in order to enable your hard-earned money to start working for your future financial freedom.
If not done already, you should consider opening an IRA, 401(k) or Roth IRA and setting up automatic payments coinciding with your paycheck. Begin small and work your way up to investing 15 percent of your earnings, at the same time reducing your debt so that you can free up more money to invest.
Another common mistake in your quest to attain financial freedom is to not invest in yourself.
Take classes in your spare time to update your skills, or learn new ones. Work toward earning accreditation and certifications to improve your credibility, as well as credentials in your chosen field.
Spending for instant gratification
You must start by understanding the distinction between your needs and wants, and begin appreciating the difference between what is sufficient and what you can afford.
If you continue to live beyond your means by succumbing to peer pressure or trying to keep up with the Joneses, you may never be able to cultivate the discipline required to save enough to achieve financial freedom.
Learn to be content with a modest living space and a decent car, as long as you stay focused on your ultimate financial goals.
Resisting the urge to be extravagant today by splurging on a bigger home, a faster car, or a fancier gadget can pave the way for a financially independent tomorrow.