Planning for financial freedom is the key to getting there.
Your financial plan has to consider both the future and the present. For the present, you need enough cash available to cover your current expenses. Your long-term financial plan should prepare you for retirement, your kids’ college education or a big dream purchase. Putting money every month toward your current budget and your long-term goals is the goals.
For most investors, the biggest challenge has been staying the course and focusing on long-term goals in the face of market fluctuations. And, it’s important for investors to avoid getting discouraged since saving and investing are a long-term journey.
Working toward your goals:
- Create a plan. Figure out how much you’ll need and set a target date to have that amount saved up, so you can create a savings plan with a specific monthly goal.
- Automate your savings and investing. Include your monthly savings and investing goals in your budget to hold yourself accountable today for the future you want tomorrow.
- Manage or eliminate your debt. Keeping your debt-to-income ratio low can help you get a better interest rate on both the home you have today and the home of your dreams. Furthermore, eliminating your debt gives you increased flexibility with your income to Dave and invest.
Another key to that financial freedom is building an emergency fund that can more than cover your expenses for 3–6 months if you needed it for life’s unexpected surprises like unforeseen major car repairs and medical bills that can derail your personal finances if you haven’t built up a buffer to cover them.
Essentially, you should:
- Build an emergency fund. Create and track your emergency fund in a separate account that you can access easily in case you need it.
- Make a budget. Create a budget that includes a monthly savings goal, and track your savings contributions to build that emergency fund quickly.
- Track your expenses. Watch your spending to make sure you’re staying within your budget, and check in on that budget regularly to find new places to save.
- Track your debt. Create a comprehensive list of all your loans and credit card accounts so you can see everything together. Free yourself from debt by paying your minimums and attacking one debt at a time with extra monthly payments.
- Include all your loan information. Keep track of the interest rate and monthly payment for each loan to help you create a solid debt-reduction plan.
- Plan and schedule your extra payments. Pay extra on the loan with the highest interest rate until that one is paid off, then roll those payments into the next loan to pay that off even faster.
A financial free retirement is one in which you can do the things you enjoy in life without worrying about money. For long-term goals like retirement, it is imperative to stay on track with your saving and investing no matter what comes your way.
Planning for a financially free retirement includes:
- Track your net worth and cash flow. Tracking your net worth and cash flow can help you stay focused on your long-term objectives, reducing stress by giving you the information you need along with concrete goals to strive for. “Net worth is what’s yours, really yours. First, add up the value of everything you own, then subtract the total amount of any debts that you have. What’s left is your net worth”, explains Investment adviser Robert LeFevre Jr., a certified public accountant and certified financial planner
- Consider your options. As you face decisions along the way, experiment with various scenarios to see how those decisions could affect your retirement.
- Make managing and tracking your finances a habit. By reviewing regularly your long-term financial plan, you’ll have the information you need to keep on track with your financial goals—no guessing needed.
Financial freedom means that you get to make life decisions without being overly stressed about the financial impact because you are prepared. You control your finances instead of being controlled by them.
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