Financial freedom: what it is and how to achieve independence from money

Financial freedom refers to having sufficient personal wealth to live without working excessively to generate more income. Many people’s goal is to attain monetary freedom, as this would help them avoid experiencing unpleasant surprises. A financially independent person has no debt. On the contrary, they have a passive income and savings to cater for emergencies. In the long run, being economically free implies that a person will lead a lifestyle that makes them feel peaceful and secure about the future.

On the other hand, financial independence is the ability to take care of oneself without waiting for help from others. It refers to the state when one has enough savings and assets to cover living expenses and economic goals without depending on others' income or making a debt.

How does one achieve financial freedom?

Achieving financial freedom involves setting clear goals, managing finances effectively, and building wealth over time. Here are some key strategies for becoming financially independent.

Set life goals

Everybody dreams of becoming economically free. That is a wonderful dream. However, a dream without a plan is only a wish. On the path to financial freedom, an individual must establish economic goals—like clearing debt or preparing for retirement. Such aims give a person something to work on.

A good goal must be specific, measurable, achievable, and, above all, written down. Goals are essential because they allow one to track progress, which creates some aspiration and self-motivation.

Assume that you want to be debt-free, which is a good objective. However, outlining how to achieve this goal is not enough. First, you must set a timeline and write, for example, 'I want to pay off $10,000 worth of debt in 15 months'. A goal can include paying debts, saving through investments, or purchasing an asset. Remember the saying, 'A dream without a goal is just a desire'.

Make a monthly budget

A reasonable budget is essential for managing your money however you want. It will guarantee you can pay all your bills while ensuring your investments and other independent income are always up. Making a budget will clarify your goals and strengthen your resolve against impulsive spending, which often leads to bad debts.

The budget should be less than the income of any individual who wants to grow financially. This would help a person avoid the dangers of using credit cards and taking out high-interest consumer loans, which can limit their ability to build wealth. By being disciplined and committed to budgeting, you will protect your economic health.

Stay educated on financial issues

Individuals with any kind of investment, from real estate to stocks, bonds, or shares, must keep up-to-date on economic news. This enables them to adjust their investment portfolio when necessary, like cashing out a stock market investment before it goes into a considerable loss. Moreover, being informed economically can help you identify new investment opportunities.

When individuals become financially literate, they build a strong, essential foundation for money management. This helps them learn how to navigate economic challenges such as bad debts and unplanned spending while at the same time looking for new opportunities. The earlier a person becomes economically educated, the better off they will be in the long run—because education is the key to a successful future.

Create automatic savings

Generally, one popular piece of advice from financial experts when setting yourself up for financial success is to save for yourself before other expenses. Signing up for your employer's retirement plan and maxing out the matching contribution is a good idea if you can afford it.

At the same time, you could make a recurring deposit, which your employer makes, into your emergency fund, or you could start this deposit from your checking account. Another option is to consider automatic deposits to a brokerage as an Individual Retirement Account.

However, remember that the amount suggested for savings will depend on your unique situation, and the necessity of these savings may be subjective depending on the circumstances and goals.

Live below your means

Although it sounds challenging, having a mindset of living life to the fullest with less to master a simple way of life is not that difficult. By embracing simplicity in your lifestyle, you can achieve contentment. Many rich people, such as Warren Buffet, live below their financial status, which suggests that our economic behaviour is more a matter of habit than a consequence of income.

When you indulge in conscious spending, you may not stop at extremes, yet your choices allow you to maintain a firm financial status quo while ensuring long-term safety. Learning practical hacks to save money that help cut unnecessary costs while maintaining financial security is essential. Living below your means implies controlling your spending with the total income.

For example, ensure that your rent is not more than 30% of your salary, avoid impulse buying, cook meals at home instead of eating out frequently, buy quality over quantity to reduce frequent purchases, and so on. These minor adjustments can significantly impact your economic well-being.

Being frugal is not merely about spending less and saving more; it also means that—after making a necessary purchase—you take good care of what you own.

Invest for passive income

Passive income is the money that you earn without working. You can rent out property, buy dividend stocks, or invest in a high-yield savings account.

Most ways to earn passive income take an upfront investment of either time, money, or both. However, when you have made the initial investment, passive income can return you profit for many years. Most individuals who are stable financially have a passive income. Examples of passive income include dividend investing: as a dividend investor, you buy stocks that pay part of their earnings to shareholders as dividends.

Investing in dividend stocks can be a profitable idea for passive income. To choose your asset, you'll need to do some research upfront and monitor over time. That's it—no hustling or sales involved. Your brokerage account automatically receives your dividends.

Final thoughts

• Any individual can achieve financial freedom and live their desired lifestyle. Financial independence means you have enough income streams—or profit-generating assets—to cover your basic living expenses and any other discretionary spending you like without worrying about depleting the budget and resorting to loans.
• To assess whether you have achieved financial independence, you will want to make a complete budget that lists your expenses, not just the essentials, but also the more discretionary ones, such as eating out, shopping, etc.
• Compare the income from all sources, like investments, rental, and any part-time jobs, to your expenses. When your income exceeds your expenses, you might have achieved or are getting very close to financial freedom.
• Remember, money freedom is a journey that will take time to achieve stability. However, if you plan things carefully, save and invest wisely, and make some sacrifices, you can achieve financial independence and live the life of your dreams.