Mykeehis ) 3) Mastering Personal Finance: How to Reach Financial Freedom

 Mastering Personal Finance: How to Reach Financial Freedom

Financial freedom—having enough savings, investments, and cash on hand to afford the lifestyle you want for yourself and your family— is an important goal for many people. It also means growing a nest egg that will allow you to retire or pursue any career you want—without being driven by the need to earn a certain amount each year.

Unfortunately, too many people fall far short of financial freedom. Even without occasional financial emergencies, escalating debt due to overspending is a constant burden that keeps them from reaching their goals. When a major crisis—such as a hurricane, an earthquake, or a pandemic—completely disrupts all plans, additional holes in safety nets are revealed.

Trouble happens to nearly everyone, but these 12 habits can put you on the right path.

1: Set Life Goals

What is financial freedom to you? Everyone has a general desire for it, but that's too vague a goal. You need to get specific about amounts and deadlines. The more specific your goals, the higher the likelihood of achieving them.

What your lifestyle requires

How much you should have in your bank account to make that possible

What age is the deadline to save that amount

Next, count backward from your deadline age to your current age and establish financial mileposts at regular intervals between the two dates. Write all amounts and deadlines down carefully and put the goal sheet at the front of your financial binder.

2: Make a Monthly Budget

Making a monthly household budget—and sticking to it—is the best way to guarantee that all bills are paid and savings are on track. It’s also a regular routine that reinforces your goals and bolsters resolve against the temptation to splurge.

3: Pay off Credit Cards in Full

Credit cards and other high-interest consumer loans are toxic to wealth-building. Make it a point to pay off the full balance each month. Student loans, mortgages, and similar loans typically have much lower interest rates; paying them off is not an emergency. However, paying these lower-interest loans on time is still important—and on-time payments will build a good credit rating.

4: Create Automatic Savings

Pay yourself first. Enroll in your employer’s retirement plan and make full use of any matching contribution benefit, which is essentially free money. It’s also wise to have an automatic withdrawal into an emergency fund, which can be tapped for unexpected expenses, as well as an automatic contribution to a brokerage account or something similar.

Ideally, the money for the emergency fund and the retirement fund should be pulled out of your account the same day you receive your paycheck, so it never even touches your hands.

Keep in mind that the recommended amount to save in an emergency fund depends on your individual circumstances. Also, tax-advantaged retirement accounts come with rules that make it difficult to get your hands on your cash should you suddenly need it, so that account should not be your only emergency fund.

5: Start Investing Now

Bad stock markets—known as bear markets—can make people question the wisdom of investing, but historically there has been no better way to grow your money. The magic of compound interest alone will grow your money exponentially, but you do need a lot of time to achieve meaningful growth.

However, remember that—for everyone except professional investors—it would be a mistake to attempt the kind of stock picking made famous by billionaires like Warren Buffett. Instead, open an online brokerage account that makes it easy for you to learn how to invest, create a manageable portfolio, and make weekly or monthly contributions to it automatically. We’ve ranked the best online brokers for beginners to help you get started.

6: Watch Your Credit Score

Your credit score is a very important number that determines the interest rate you are offered when buying a new car or refinancing a home. It also impacts the amount you pay for a range other essentials, from car insurance to life insurance premiums.

The reason credit scores have so much weight is that someone with reckless financial habits is considered likely to be reckless in other areas of life, such as not looking after their health—or even driving and drinking.

7: Negotiate for Goods and Services

Many Americans are hesitant to negotiate for goods and services, because they're afraid that it makes them seem cheap. Conquer this fear and you could save thousands each year. Small businesses, in particular, tend to be open to negotiation, so buying in bulk or positioning yourself as a repeat customer can open the door to good discounts.

8: Stay Educated on Financial Issues

Review relevant changes in tax law to ensure that all adjustments and deductions are maximized each year. Keep up with financial news and developments in the stock market and do not hesitate to adjust your investment portfolio accordingly. Knowledge is also the best defense against fraudsters who prey on unsophisticated investors to turn a quick buck.

9: Maintain Your Property

Taking good care of property makes everything from cars and lawnmowers to shoes and clothes last longer. The cost of maintenance is a fraction of the cost of replacement, so it’s an investment not to be missed.

10: Live Below Your Means

Mastering a frugal lifestyle means developing a mindset focused on living a good life with less—and it's easier than you think. In fact, before rising to affluence, many wealthy individuals developed the habit of living below their means.

This isn’t a challenge to adopt a minimalist lifestyle. It simply means learning to distinguish between the things you need and the things you want—and then making small adjustments that drive big gains for your financial health.

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