Most people live on a paycheck to paycheck with literally no money in savings with a lot of credit card debt. And it is seemingly impossible for them to break the bonds of debt and achieve financial freedom. Listed below are some practical steps obtained by studying the habits of financially successful people which will help you attain financial freedom.
To attain financial freedom, you need to follow some basic steps:
The process of breaking the cycle of living paycheck to paycheck requires a complete plan and strategy including these simple steps:
Budgeting is the most essential step to attain financial independence because if you have a habit of consistently spending more than what you earn, you will never be able to get ahead financially.
It is the time to get serious. Overspending has led you to debt. Sit back and make a budget on your monthly income but not on your expenses. Budgeting helps you to prioritize your spending appropriately.
Cut on your credit card, use only cash
Keeping a credit card in your wallet will make you use it. So it is better to cut it off. Try to not use it anymore.
Try saving $1000 fast
Try to save at least $1000 which will be your starter emergency account. Whatever obligations you have in life, try not to touch this money and keep it aside in a savings account. This emergency account should not be a fun account and you should never use it for something which is not vital for your day-day life.
Start contributing to your 401(k)
Start contributing to your 401k to maximize your employer match and take full advantage of the free money that your employer provides you.
Pay off debts
Now that you have an emergency account of $1000 and have also contributed to your 401(k) account, now is the time to tackle your debt. Create a list of your debts including car loans, education loans and credit card loans. Look for different methods to limit your expenses and fuel that savings to repay your debts.
Start saving for retirement
Once all of your debts are paid off, you need to increase your emergency savings to around 3-6 moths of expenses. If your monthly salary is fairly secure, then try saving at least 3 months of expenses. In case your monthly income fluctuates, then try saving 6 moths of expenses. Keep this money safe and secure in either a savings account or a money market account. Increase your savings gradually. This will not only help you get tax benefits but will help you achieve financial freedom to have a safe and secure future.