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Creating Financial Freedom

Financial freedom is most commonly defined as the point at which your assets (stocks, bonds, real estate, etc.) produce enough income to cover your baseline expenses. Do you have any long-term financial goals that motivate you? Anything that gets you out of bed each morning and get you closer to your dream life? From a young age, most of us are trained to get an education, get a job, and continue along that path for 40+ years until retirement or death. And that is the classical life cycle in America. After all, peak earning years come late, and Social Security isn’t available until you reach your 60s.

But there is a real problem with this line of thinking. It assumes we should all follow the same linear path from elementary school until death. It implies that we should spend the majority of lives at work. What I’m describing is financial freedom, or the ability to make life decisions without worrying about financial constraints. It’s the ability to quit the job you despise without worrying about your next paycheck. As you work towards your goals this year, you may have already run into some challenges. Well, congratulations! This is part of the valuable, learning process in achieving your financial freedom but this is only the beginning of your journey to financial freedom.

1. Control your spending:
Spending, especially for indulgences, doesn’t lift depression. It’s no secret that a key factor in achieving financial freedom is spending less money than you make. But even if you already do that, there’s usually room for improvement. We tend to equate out-of-control spending with big purchases, but often it’s the little things that’ll put you in debt. You should use cash rather than credit cards. One famous experiment found that people were willing to pay almost 80% more for a baseball ticket when using a credit card instead of cash. If you use cash most of the time you can realize that you can spend your whole paycheck in one day. If you have a habit of getting into trouble with credit cards, hide your credit cards and keep them in a safe place in your home, not in your wallet. If you need to keep a card for emergencies, that’s okay. Just don’t carry it around with you. If you’re often tempted to use it, keeping your card “out of sight and out of mind” might help. It’s easy to spend online when you have your card information stored in an account – just click and buy. The best way to break this habit is to simply delete your card from the account.

That way, when you’re tempted to spend, you’ll be forced to spend the time to dig out your card – and really think about why you’re spending this money. Sometimes being forced to take that extra step is all it takes to convince yourself you don’t need the item after all.

Find ways to remind yourself what’s really happening when you pay with a card or click the confirm purchase button online. You might start to notice for a minute or two but after a day or week you forget about it till you get your credit card bill. If you’re paying a lot of interest on your credit cards, it’s important to know that you do have some power as long as you’ve been making your payments. Not only do you have the right to negotiate your current interest rate with your credit card issuer, but you have the right to transfer balance to an entirely different card as well.

2. Save money:
The flip side of spending less is saving more. There’s no trick to saving money. It’s really a simple matter of spending less than you make and setting money aside. Be sure to budget your savings, just like you would any other expense. Think of your savings as money you pay yourself. This money can then be used for large purchases or to cover an unexpected expense – those life emergencies that inevitably catch us off-guard. Avoiding instant gratification is one of the most important 30 day wait to decide on a purchase is an excellent way to implement that rule. Often, after a month has passed, you’ll find that the urge to buy has passed as well, and you’ll have saved yourself some money simply by waiting. If you’re on the fence about a purchase anyway, waiting a while can give you a better perspective on whether it’s truly worth the money. Chances are, you won’t have the self-discipline to set aside a portion of your paycheck every month for savings. So, make your savings contributions automatic. Banks often offer free services that will transfer a fixed amount of money from your checking to your savings account every month.

3. Cook meal at home:
Cooking your own meals gives you better control of what you spend on food and, as a bonus, better control of your portions and caloric intake. So, it’s a healthy choice all around. In addition to a slimmer waistline and smaller budget, you may find it’s fun to cook. If you’re married, share the meal prep duties, and if you have kids get them involved, too. Countless families have discovered the joy of cooking and sharing meals together at home when it’s done as a team. Going out to eat or “out on the town” has a way of completely destroying both your food budget and your entertainment budget in one fell swoop. And no matter what, it is always cheaper to stay in with friends and come up with your own entertainment.

Instead of hitting the town, host a fun pitch-in dinner with your friends. Play cards, sit around a fire pit, or watch movies with your guests. You’ll all save money – and have a blast. Meal planning is important for several reasons. One, if you bring a list to the store, you will likely spend less money; doing so will also help you avoid purchasing items that won’t fit into your weekly plan, and you will then waste less food. Also, if you determine which meals you are making then, you can then figure out which items you can save by buying in bulk, how you can use leftovers in your other meals, and also how much you need of each item.

You don’t have to make the same meals over and over in order to save money but using some of the same key items can save you big. If you plan your meals around items that you can purchase cheaply in bulk, then you can save money. As long as you determine that buying in bulk is cheaper than buying smaller portions (be sure you check the price per pound or ounce), then you will cut your grocery bill as long as you are able to use all of the food before it expires.

4. Take a local vacation this year:
Without the cost of airfare, hotel rooms, and rental cars, you’ll have more money to spend on activities your whole family can enjoy. Wherever you are, other people are likely traveling long distances to see things near you. Decide upfront how much you’ll spend on your vacation. Get specific. Along with plane tickets (or gas, if you’re driving) and hotel prices, guesstimate costs for meals, souvenirs, and park or museum admissions, total it all up. If the number sends you into shock, cut back on costs now, until you feel comfortable with what you’re spending. If money is really tight, consider a couple of long weekend trips instead of one “dream” vacation this summer.

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