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Financial Freedom: Understanding Your Income

By Adam Torkildson. Originally published at ValueWalk.

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What Is Financial Freedom? 

Most of us out there dream of being financially free, although for many of us it seems it will only ever be a dream. With economical worries, the aim to be financially free becomes even more difficult, and so you have to really try and strive your hardest to reach this goal.  

Financial freedom, at its core, simply means having enough savings, investments, and cash to be able to afford the life that we dream of for ourselves and for our family. 

Growing savings that allow us to retire comfortably, and pursue the career we desire without having to be driven by the simplest need to financially survive day to day. 

In the most basic of descriptions, financial freedom is when our money works for us, not when we work for it. 

There are plenty of sites out there that will talk about financial freedom and help educate you on how you can reach your goal to be financially free. Sites online are filled with all the tips and tricks on how to get where you want to be. 

However, today we are going to explain what financial freedom is, and the absolute key point in reaching this goal. 

How Do You Achieve Financial Freedom?

For most of us, this is a goal. So many of us live paycheck to paycheck, or even just struggle to save enough to make it really count. 

Achieving financial freedom means to have enough to be able to have the stability you need to find true peace and happiness in your life without being driven by how much you need to make to get by. 

A majority of us fail to reach this place, so many are influenced by increasing debts, emergencies, spending, and in some cases, income to economical cost inequalities. We Don’t like to admit it, but these things are all there, preventing us from achieving happiness.

So how do you get there when the cards keep set against you? Sometimes it is hard, and your solo income from a job may not be enough to completely achieve it, however, you can do things that will allow you to get a bit closer to your dream. 

The main thing you need to understand is your income. When we say there are some inequalities we are talking about income versus the cost of living. 

If you had an income of $1500 per month, and your rent and utilities equated to $1100 per month, let alone food and insurance, you will struggle. This is just basic math.

However, this does not mean that you cannot make changes. Budgeting and making cuts can really help, saving and cutting out unnecessary expenses can also help. But you cannot do any of this without understanding how your income influences you. 

We have to sit down and look at our income, understand the amount we receive, and educate ourselves on where it all goes. 

Understanding our income is the key point to better budgeting, saving, and investing, which we can use to eventually reach financial freedom. 

If you look at your income, and it is not enough to eventually help you reach your goals, then you can look into how to change this, a new job, finding cheaper rent, insurance plans, or utility providers. 

Sure, this can mean big changes, but if this is the future you want for yourself, fight for it. Go and chase your dreams! 

What Does It Mean?

To make a point of what financial freedom means to you, it means the ability to choose a career you love without having to worry about how much you are making all the time. To be able to take trips each year without straining your finances, and experience your dreams.

To pay for the things you want, to pursue hobbies you always dreamed of. The ability to be able to help others generously, and give to charity, and to be able to retire early. 

Financial freedom gives you options, you do not need to worry if you can afford the basic necessary items to live comfortably in your own home, or if you can help a single mom with groceries. 

It sounds ridiculous to most, and completely unachievable, but it is possible. You just need to know how. 

How To Reach Financial Freedom.

So, what are the need to know specifics to reach this goal ? Well, let’s start off simple. Self-evaluation…

Set Life Goals.

Setting life goals means defining what financial freedom means for you. When you want to reach this goal, what your lifestyle would look like, and how much you would need. 

The more specific you are about your goals, the better your chances are at reaching them.

Take a step back and design milestones, maybe at each year and make goal sheets at every milestone point. 

Be pedantic, be fussy and specific, and highlight how you can reach these goals. Brainstorm, and start thinking about the how’s, why’s, and when’s. 

Start Budgeting.

Budgeting is a big part of reaching this point. You want to start off by designing a household budget, and ensure you, and anyone else involved sticks to it. This will help you to make sure all your bills and debts are on track. 

Design a routine, much like you might design a kid’s chore sheet, and make sure you reinforce your goals. Perhaps give yourself a treat if you reach all your goals in a month, as motivation to increase your efforts. 

Budgeting does not mean you cannot buy things you want, it means prioritizing and understanding how you prioritize your spending properly. 

It defines how you run your life and the targets you set to reach your milestones. You can spend money on fun things still, you can even work this into your budget, perhaps adding a leisure spending section to your budget to ensure that you are on track and having fun.

Having a budget doesn’t need to be restrictive and a burden like many of us would assume. 

Pay Off Debts & Credit Cards.

Paying off your debts is key. You are not going to be able to reach financial freedom if you are consistently paying off all your loans and credit cards, especially if they have high interest rates. 

Credit cards and high-interest loans are a killer for building wealth. So, you should make it a priority to pay off the full balance required each month. 

Understand Your Income.

Understanding your income is what we spoke about earlier. Understand it and work with it on a budget. 

Know your savings as well as you know your income too, even if your income does not allow for vast amounts of savings, remember that you can craft a difference for yourself by just putting a few dollars aside each month. Little is better than nothing. 

Create Balance. 

Creating balance, balancing is a part of budgeting. Balancing your money can be tricky at first, but balance is not just financial, it is an aspect of life. 

You shouldn’t have a $300 monthly grocery list when you do not need to, balance is about understanding your lifestyle, and how it impacts your finances. 

You need to self-reflect and see where your weak points are and work past them to be better at saving and managing money. Balance your accounts and put your money in places where it will be most beneficial to have it. 

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