Retire at 30.
Quit your job and explore North America in an RV.
Go on that Instagrammable, picture-perfect vacation pretty much whenever you like.
The Internet has no shortage of stories about the rare few who have managed to save enough to experience true financial independence.
And then there’s the rest of us.
We’re inspired by (maybe even jealous of) those stories, but most Americans live paycheck-to-paycheck with little or nothing stashed away for emergencies or the future.
Independence versus freedom
“Financial independence” and “financial freedom” are two entirely different things, points out Emily Guy Birken, author of End Financial Stress Now: Immediate Steps You Can Take to Improve Your Financial Outlook.
“Financial independence is when you have enough resources that you don’t have to work if you don’t want to,” explains Guy Birken. “You might also call this being ‘independently wealthy.’ Financial freedom, on the other hand, is all about having the flexibility to handle money problems.”
Financial freedom is achievable for us all.
Here’s the good news: while very few people will achieve financial independence, everyone, no matter their income level, can achieve financial freedom. Here’s what you can do now to achieve financial freedom in the near future.
How to achieve financial freedom
To achieve financial freedom, here’s what you need:
A robust emergency fund. The more you have saved for emergencies, the better, but the recommended amount for an emergency fund is enough to live with no income for at least three to six months. The more you earn, the longer your prudent reserve should last. High earners should have one year’s expenses socked away.
Living expenses ahead by one month. When you have enough money at the end of the month to cover next month’s bills, you gain huge peace of mind and can avert a financial crisis. Get one month ahead of your expenses.
Zero debt. All debt leaves you beholden to a creditor and limits the choices you can make you’re your money. Being debt-free saves money – you aren’t paying interest charges to anyone. It gives you more options to travel, change jobs, take time off or follow a new, lower-paying career path. Zero debt also means you can fund your future now if you do earn money.
Retirement savings. Pay your future self on a regular schedule. The more you save, the sooner you’ll be able to comfortably stop earning income without a downgrade in lifestyle.
Financial freedom means you can weather life’s storms. Even “losing your job won’t be a calamity, but rather a manageable problem to solve,” says Guy Birken. “You’ll also feel more confident to take calculated risks, such as being an entrepreneur or going back to school.”
To achieve financial freedom, you need to spend less and save more. Here’s how.
Find the Root Causes of Your Unnecessary Spending
We often spend money emotionally, rather than rationally. For instance, you may spend when you’re depressed, anxious, bored, from fear of missing out or to please others.
“If you can figure out what your emotional triggers are for spending, you’ll be able to better recognize it when it happens,” says Guy Birken.
Start a journal and describe the circumstances whenever you spend money on something that isn’t essential or after you’ve made a purchase you regret. “By capturing your emotions and thoughts on paper, you’ll start to recognize a pattern,” says Guy Birken. This heightened self-awareness could help you avoid triggering situations and come up with non-financial coping strategies.
Go on a Spending Fast
Commit not to spending on anything except essentials for a set period of time. For starters, try a 21-day financial fast. That’s right, put a halt on spending. Make a pact to buy only buy what’s crucial to survival, such as food. No restaurants, no gifts, no clothing or shoe purchases.
As you might imagine, a financial fast is tough. Many of us are used to spending freely. A spending fast helps you make a true distinction between needs and wants. You’ll break careless spending patterns and learn to make conscious choices with the money you’ve got.
Do it for three weeks. That’s the amount of time it takes for new behaviors to sink in and become habits.
Put Your Emergency Fund Out of Reach
Make it hard to access your money. Put it in a different bank, perhaps an online bank that forces you to pause for a couple of business days before transferred money hits your regular checking account. “While you’ll be able to access your money in a true emergency, the lack of direct access can help protect you from your own worst impulses,” says Guy Birken.
Save “Bonus” Money
Save any extra money that comes your way, whether it’s in the form of a cash gift for your birthday or a work bonus. If you get paid biweekly, you’ll get an “extra” paycheck (three instead of the usual two) twice a year. Save those paychecks in your emergency fund or use it to pay down debt.
Make More Money
Can’t get a raise or promotion? No problem. Find a side job you can do in your off hours. Some side jobs have very low barriers to entry (anyone can jump in and do it). For instance, if you have a car and insurance, you can be a rideshare driver. If you have tools and skills, advertise furniture assembly on Craigslist. If you’ve got an education and a clean background, you could become a tutor.
Set Identity-Based Goals
Instead of setting a target date for your goals, think about what kind of person you want to be. Change your habits so that they align with that person, suggests Guy Birken. For instance, instead of deciding to pay off your credit card debt in say, two years, commit to being someone who sends an extra payment to your creditor every week, no matter how small the amount.
“Each week, you’ll reaffirm that you’re the sort of person who sends those extra payments. They’ll add up over time,” says Guy Birken, allowing you to achieve the financial goals naturally.
Anyone can reach financial freedom, no matter their financial situation. You just have to start.
