Achieving financial freedom is a goal for many, but it often feels out of reach. However, with careful planning and commitment, you can take actionable steps toward securing your financial future. Here are nine essential steps to help you achieve financial independence.

What is financial freedom?

Financial freedom means different things to different people. For some, it’s the ability to stop working altogether, while for others, it’s about being debt-free.

According to Bankrate’s Financial Success Survey, 19 percent of Americans view having enough money to quit their jobs as a sign of financial success, while 41 percent believe living without debt is the key to achieving this goal.

“Financial freedom means having enough wealth to live without actively working for your basic needs,” explains Dennis Shirshikov, head of growth at gosummer.com and a finance professor at the City University of New York. “It allows you to afford the lifestyle you desire for yourself and your family.”

“Achieving financial freedom enables you to make choices that aren’t solely driven by financial limitations,” Shirshikov adds. “You can pursue passions, hobbies, or even consider career changes without worrying about the financial consequences.”

What is the FIRE movement?

The Financial Independence, Retire Early (FIRE) movement is a lifestyle and financial strategy focused on achieving financial independence and retiring at an early age. The objective is to save and invest enough to create a sustainable income stream, allowing individuals to retire significantly earlier than the traditional retirement age.

FIRE gained popularity following the release of Your Money or Your Life by Vicki Robin and Joe Dominguez. The movement encourages individuals to evaluate every purchase by considering how many hours of work are needed to afford it.

Typically, FIRE followers aim to save between 50 to 70 percent of their annual income and plan to retire when their savings reach about 30 times their yearly expenses, which equates to roughly $1 million. Upon retirement, they withdraw a small percentage of their savings annually, generally around 3 to 4 percent, to cover living costs.

“One must live well below their means and adopt an aggressive asset allocation strategy,” says Steven Charlton, certified financial fiduciary and founder of Wisdom Financial. “The FIRE movement can lead to financial freedom by growing assets proportionately, enabling retirees to live off interest and dividends rather than their principal income.”

How to create financial freedom

Achieving financial freedom requires careful discipline and strategic planning. Here are some steps to help you reach this important goal.

Create financial goals

Creating financial goals is essential for achieving financial freedom. Start by setting specific, measurable, and time-bound (SMART) goals. Instead of simply aiming to save money, for instance, set a target to save $10,000 within a year.

Categorize your goals into short-term (within a year), medium-term (around five years), and long-term (over five years). This will help you determine the right savings and investment strategies for each goal. Your plan should include budgeting, building an emergency fund, saving for retirement, and paying down debt.

“One of the biggest mistakes in the pursuit of financial freedom is failing to plan,” says Mark Pierce, attorney and certified public accountant, and founder of Wyoming Trust and LLC Attorney. “Planning for the future is crucial in the journey toward financial freedom.”

Optimize your budget

Here are some effective ways to optimize your budget: track and analyze your expenses, identify cost-cutting opportunities, live below your means, and plan your meals. Start by keeping a detailed record of your spending habits, including even small purchases, to understand where your money is going.

Once you have a clearer picture of your spending, pinpoint areas where you can cut costs. Develop a budget that prioritizes essential expenses while limiting discretionary spending. For meal planning, create a shopping list based on your planned meals and stick to it to avoid impulse buys.

Chartered financial consultant Steve Azoury, owner of Azoury Financial, cautions against being too strict with your spending plan. An overly restrictive budget may lead to temptation and overspending.

“Financial freedom doesn’t have to be extreme,” says Azoury. “Many people struggle because of the temptations to buy and spend. It’s important to incorporate strategies for financial freedom without going to extremes, as seen in the FIRE movement, which can be unsustainable.”

Tackle debt

Start by taking an inventory of your debts to understand the total amount you owe. This will help you create a clear repayment plan.

“Reducing debt, especially high-interest debt like credit cards, is essential,” says Shirshikov. “Being over-leveraged can significantly impede your journey toward financial freedom.”

You can tackle debt using the debt avalanche method, which focuses on paying off high-interest debts first, or the debt snowball method, which involves paying off the smallest debts first for quick wins.

Additionally, aim to pay more than the minimum amount due and consider making multiple payments each month to reduce the principal faster. Look for small savings by cutting unnecessary expenses and redirect those funds toward your debt repayment.

Prioritize investing and saving

Start by listing all your financial goals and determining the amount needed for each. Rank these goals by importance, prioritizing essentials such as saving for retirement, paying off high-interest debt, and establishing an emergency fund. According to Bankrate’s Annual Emergency Savings Report, nearly 59 percent of U.S. adults feel uneasy about their emergency savings.

Begin investing based on the time horizon of your goals. For short-term goals, opt for low-risk investments like savings accounts or certificates of deposit (CDs). For medium-term goals, consider a balanced mix of bonds and stocks. For long-term goals, focus on investments with higher growth potential, such as stocks.

Set up automatic transfers from your paycheck to your savings and investment accounts to ensure consistent contributions. Regularly review your portfolio and rebalance it as needed to maintain your target allocation.

Increase your income

The fastest ways to boost your income include negotiating a raise with your current employer or looking for a job that offers higher pay. Starting a side hustle can also create an additional income stream, whether through freelance work, consulting, or launching a small business.

If your employer offers a 401(k), make sure to take advantage of their matching contributions, which is essentially free money. Be aware of the vesting schedule and ensure you contribute enough to receive the full match.

Choose the best savings accounts for your situation

Choosing the right savings account depends on your financial goals, flexibility needs, and how soon you need access to your funds. High-Yield Savings Accounts are excellent for emergency funds due to their competitive interest rates and easy, penalty-free access to cash. Currently, the highest rate available among monitored banks is 5.30 percent from BrioDirect.

Money Market Accounts (MMAs) are ideal for medium-term goals, offering higher yields than traditional savings accounts along with liquidity through check-writing privileges and debit cards. For long-term savings, Certificates of Deposit (CDs) are the best option, allowing you to lock in a higher interest rate by committing your funds for a fixed period. Additionally, Health Savings Accounts (HSAs) and retirement accounts like 401(k)s provide tax benefits and can be integral to your overall savings strategy.

Explore passive income ideas

Earning passive income can be a smart way to boost your cash flow with minimal ongoing effort. While it often requires an initial investment of time or money, the long-term benefits can be significant.

“Passive income is money generated with little to no effort, unlike active income, which includes salaries, wages, tips, or commissions earned through direct work,” explains Ryan Barone, Co-founder and CEO of RentRedi. “For instance, earning interest from a high-yield savings account is a form of passive income that requires no active involvement.”

Barone suggests that one of the best ways to generate passive income is by renting out property. He advises starting small and gradually expanding your efforts.

“You can begin by renting out extra space in your current home,” he says. “This practice, known as house hacking, typically involves renting out spare bedrooms. However, you can also rent out other areas like garages, attics, basements, yards, driveways, closets, or sheds for storage or parking.”

Analyze big-ticket purchases carefully

Deciding whether to buy a big-ticket item requires thoughtful planning. Consider the implications of major purchases, such as a home, a new car, or a wedding.

It’s wise to implement a waiting period to avoid impulse buying. This time can also be used to search for deals and discounts. Taking a step back will help you make a well-informed decision and ensure that your purchase aligns with your financial goals.

Keep learning about personal finance

Improving your financial literacy can empower you to manage, save, and invest your money more effectively. Subscribe to financial newsletters, listen to finance podcasts, read personal finance books, and follow experts on social media.

Additionally, consider consulting with a financial professional for personalized guidance. Being proactive in these areas can enhance your financial knowledge and lead to better financial decisions.

In Conclusion

Achieving financial freedom is attainable with thoughtful planning. It involves having sufficient savings and investments to support the lifestyle you desire without financial stress. By following the right steps, you can take control of your finances and attain financial independence.