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Wow — what does “Financial Freedom” mean? Does it mean I am independently wealthy? That I never need to work again? What, exactly, does it mean, and is it something I can — or want to — aim for?
To me, financial freedom means being debt-free, and being able to pay all my bills, every month. It COULD mean wealth, but not necessarily. Let’s face it, if I cannot pay all my bills today, I could not possibly accumulate or set aside funds for later! That means no credit card bills, no car payments, not even any house payments! With no debts, then it would be possible to accumulate wealth. (NOTE: The ability to accumulate wealth may depend on your age when you start and finish this process!)
Alright, then how does one become financially “free?” Good question. There are a number of good programs available to help one learn how to do so. Dave Ramsey has developed a course called “Financial Freedom University.” Crown Ministries has also developed a program to help. They are both based on sound principles.
If you are living single, the decision is all yours. If, however, you have a family, then the heads of the family have to make the decision TOGETHER to become debt-free. And the rest of the family WILL be involved as well, even if involuntarily, so it would help if they were on board. Sacrifices will have to be made in order to meet the goal of becoming financially free!
The first step is to set aside an emergency fund. Emergencies WILL happen, so it is imperative to be prepared. Without an emergency fund, when (not if) an emergency happens, you would be in trouble, so setting aside an emergency fund has to be the first priority in becoming debt-free! And when the emergency happens, re-build the emergency fund before continuing the process of paying off debts!
As I was building my emergency fund, I also kept track of everything that I spent over the course of a month. I found that to be helpful, because it became obvious where I was wasting money, and where it would be easy to cut back.
Though it is tedious and somewhat painful, it requires developing a budget. It will involve some diligent work to actually develop a sound and realistic budget. And it will probably have to be re-worked several times during the first several months.
Just developing a budget, however, will not get you out of debt. You want to end up being TOTALLY out of debt — owing nothing on credit cards, student loans, cars, even your home! And it is not something that will happen over night! So, that means a plan has to be developed, and sacrifices will have to be made in order to achieve that goal!
If you find that you have lots of money that has been misdirected while developing your budget, and you have plenty of money to pay off the debts quickly, then go for it! However, most people have to make significant sacrifices in order to pay off debts. The faster the debts can be paid off, the sooner those sacrifices can cease. Of course, if you continue those sacrifices a bit longer, the benefits of having extra money set aside can be a nice bonus!
In order to pay off debt, you may have to find an additional source of income. It could be something as simple as selling your no-longer-needed items for cash, and applying that cash toward your debts. It could be making and selling crafts. It could be doing some part-time work at a second job. You get the idea — extra income means the ability to pay off debts more quickly.
More than likely, you did not build up your debt in just a few months, so be prepared for the fact that it will probably take more than just a few months to pay them off! In other words, you have to be truly committed to getting out of debt, or you will lose steam and quit! You will then be somewhat better off, but if you do not complete the job, you will most likely go back into your old habits of spending money you don’t actually have available!
I cannot possibly teach all of the principles and techniques here that one can use to pay off debts, but one that I found extremely helpful was one that Dave Ramsey calls “The Debt Snowball.” What that describes is choosing the smallest debt that you owe, and paying it off as quickly as possible. As soon as that is paid off, the money you were using to pay that debt off is used to add to what you were paying on the next-smallest — and therefore the second one is paid off more quickly — and so on and so on, until all of the debts are paid!
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One of the things that is highly recommended during this process is that you destroy all of your credit cards. Make a ceremony out of it! That will help with NOT using them — and remember, don’t accept any new ones, either! I have gotten along fine with only a debit card for several years now without any problem! Even traveling internationally, my debit card has served me well.
One technique that a lot of people have used successfully to stay within their budget is called the “envelope system.” Once you have developed a budget, so you know exactly what your income is, and what you have to spend in each budget category, place the appropriate amount of money in each envelope labeled for that category. But once the money runs out from one envelope, it is important NOT to “borrow” from another envelope! So, beans and rice (or some equivalent of cheap eating that your family can tolerate) may become your staple diet for a long period of time, until debts are paid off!
There are many more things that could — and perhaps should — be said on this subject. If this has helped you at all, please refer to the resources I mentioned above to get more help, or you can contact me by leaving a comment. I will respond privately if that seems most appropriate. And thank you for reading my blog!