In seven steps, I am going to show you how you can become financially free.
- Keep your spending in check and learn to use the 50 30 20 rule. It’s easy to overspend, especially with the convenience of online purchases and credit cards. It’s important to distinguish between what you need and what you want. The best way to do this is to create a budget that separates your essential expenses from your discretionary spending.
- Essential expenses include housing, utilities, food, transportation, insurance, and debt payments. These are the expenses that you need to pay in order to live your life.
- Discretionary spending includes entertainment, dining out, and vacations. These are the expenses that you can choose to spend money on, but you don’t have to.
A shortcut for budgeting is to use the 50 30 20 rule. This rule says that you should allocate 50% of your income to your essential expenses, 30% to your discretionary spending, and 20% to savings.
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- Make saving a priority. Saving money can be a challenge for some people, but there are a few things you can do to make it easier.
- Pay yourself first. This means setting up an automatic monthly transfer from your checking account to your savings account. This way, you won’t even see the money in your checking account, and you’ll be less likely to spend it.
- Set goals. What do you want to save for? A down payment on a house? A new car? A vacation? Having specific goals will help you stay motivated.
- Track your progress. Once you’ve set your goals, track your progress regularly. This will help you see how you’re doing and make adjustments as needed.
- Make it a habit. The more you save, the easier it will become. Make saving money a habit by setting up automatic transfers and tracking your progress regularly.
- Set aside an emergency fund. Take out a portion of your savings budget to build a separate emergency fund that can cover three to six months’ essential expenses. Unforeseen circumstances such as a loss of income due to the pandemic or sudden medical bills can catch you unaware and therefore it is important to set aside an emergency fund regardless of your age.
- Control debt. Credit cards can be a convenient way to pay for things, but they can also be a trap. If you’re not careful, you can easily end up in debt that’s difficult to get out of. It’s fine to use credit cards for convenience, but only if you don’t charge more than you can really afford and can pay off in full every month.
- Get insured. Health insurance is essential for everyone. If you get sick or injured, you don’t want to be stuck with a huge medical bill. There are a few different ways to get health insurance. You can get it through your job, or you can purchase an individual policy. In addition to health insurance, you should also have automobile insurance if you have a car. By having the right insurance coverage, you can protect yourself financially in case of an unexpected event.
- Start planning for your retirement now. Do not procrastinate saving for retirement. The sooner you get started, the less you’ll need to save. In your 20s, aim to save between 10-15 percent of your gross salary between what you and your employer are contributing. Wait until you’re in your 30s, and you’ll need to ramp that up to 15-20 percent.
- Invest. Investing can be a great way to grow your wealth over time, but it’s important to do your research and understand your goals, time horizon and risk tolerance before you get started. Once you’ve considered these factors, you can start to develop an investment strategy. There are a number of different investment options available, so it’s important to choose investments that are appropriate for your goals and risk tolerance.
If you’re not sure where to start, you can consider working with a financial advisor. A financial advisor can help you develop an investment strategy and choose appropriate investments.
It doesn’t take a lot of money to get started investing, especially if you use mutual funds, exchange traded funds, or fractional shares. You can also consider using a robo-advisor service, which can help you automate your investing and make adjustments to your portfolio as your goals and market conditions change.
Investing is a long-term game, so it’s important to stay patient and disciplined. Don’t panic if the market takes a downturn. Just keep investing and let your money grow over time.
If you take these steps now and remain mindful of your spending and saving habits, you will not only give yourself a good foundation, but you will also be well on your way to achieving lasting financial freedom.
I hope this video helps you in being one step closer to your financial goals.
Reference: https://www.schwab.com/learn/story/just-starting-out-take-these-seven-steps-toward-financial-independence
