If at this moment you review your personal finances, could you affirm, with all certainty, that you enjoy the much desired financial freedom ? Reaching this state of economic health is not achieved overnight; it takes a lot of work and discipline .
If your answer to our question is “No”, then you are in the right place, because we are going to give you five basic guidelines that you must put into practice to achieve your financial independence.
Is financial freedom equal to not having to work?
No! And let’s see why. The financial freedom is understood as the ability of people to cover their expenses with income not directly dependent on the time required to produce them . They are known as passive income and the more you can cover your expenses with these, the more financial freedom you have.
On the other hand, financial freedom is also achieved when there is a correct and responsible handling of money . Being aware of what and how you use it will give you the power to plan your economy for the future, make better decisions and obtain greater profits. With this, we do not mean the degree of wealth, but the level of economic well-being that you can achieve.
Let’s see, then, those five guidelines to get it!
1. Diversify your income
Having more than one source of income is ideal to take care of personal or family financial stability , since the risks of running out of money and entering an economic crisis are considerably reduced. Imagine that, if one day you lost your job, you would have other means from which you receive enough income to meet the expenses. Here are some sources of income to consider.
- Keep your income active: we mean the income you get in exchange for something. It can be the provision of a service under billing or a work contract for 40 hours a week in exchange for a salary. This source of income ensures your survival , allowing you to pay the monthly bills. However, to achieve financial freedom you need to increase your ability to save .
- Generate passive income: They are those that do not depend on the time you dedicate or your physical presence, but require initial work and then pay off on their own . A good example is rentals or investments .
- Invest your money : remember that money is losing its value due to inflation. So, so that what you have today doesn’t dissolve tomorrow, investing is a great way to put your money to work . It will also become a solid financial cushion that will provide you with security.
2. Increase your savings
By diversifying your sources of income, you can also increase your ability to save , which is essential to achieve financial freedom . In this way, every month you will allocate a percentage of your income to build a good reserve of money that will allow you to face eventualities without affecting your financial stability and your goals.
To achieve this, we give you two key tips that you should take into account.
- Be clear about your total monthly expenses.vCreate a personal or family budget and update it whenever necessary.
- Choose the technique you will use to grow your savings .You can start by using a simple one and move on to a more complex one later. Don’t forget to be disciplined!
3. Manage your debts well
Poorly managed debt is one of the main reasons why it is impossible to achieve financial independence . Not having control over what is owed causes the personal economy to deteriorate and, even, that the household obligations remain uncovered.
Before deciding on a loan or buying with your credit card, you should take these points into account:
- Calculate your debt capacity : This way you will determine the maximum amount for which you can borrow without representing a financial pressure that you cannot control.
- Choose your amortization table wisely: the German and the French work differently, so it is essential that you know which one suits you according to your ability to pay.
As the saying goes, “you have to step up to where your legs go.” Knowing your debt capacity and choosing the amortization table that best suits your financial reality, you can take that step without representing a headache and the uncontrollable drain of your money.
4. Monitor your expenses
We are almost done! But we cannot let you go without explaining that constant monitoring of expenses is key so that you know exactly what you are using your money for . Remember that clear accounts help you keep your life and finances in order and, therefore, bring you closer to the financial freedom you have always dreamed of having.
5. Consider the cost of living
The cost of living refers to the total income and assets that a person or family must have to reach a certain level of well-being , in a country or city. To calculate it, the cost of the products and services that are part of what we know as the basic basket is taken. But why are we talking to you about this now? Simple! We will explain it to you below.
- To prepare the budget, you must take into account the products and services that are part of the basic basket. From there, you have to include other expenses according to your particular needs and those of your family.
- To set and meet financial goals, You must first know how much money you need to cover your basic expenses. This way you will be clear about how much you have left to grow your economy.