I definitely dream of financial freedom. I would love to just have so much money that I don’t have to think about money ever again. Of course, that’s not going to be realistic for most of us. However, we can start small and then go step-by-step to increase how close we can get to financial freedom. A recent Forbes article laid out the 8 levels of financial freedom, which provide a good guide for setting personal finance goals.
Start By Earning More Than You Need
If you’re living paycheck to paycheck then the first step is to get out of that rut. Cut back drastically on spending. Do all that you can to increase income. If you can’t save money then you definitely can’t ever reach financial freedom.
Save Enough Money to Take a Work Break
Most people want financial freedom because they don’t want to work so much. When you’re in that paycheck-to-paycheck phase, it feels like you’ll never be able to stop working. Therefore, the next step is try to save enough money to give yourself a small taste of that life.
For example, create a savings account that will allow you to take a sabbatical from work. Even if you decide not to take it, having the money in that account will make you immediately feel like you have so much more financial freedom. Personally, I love my work, but when I feel like I have to do it just to get by then I start to resent it. That savings helps a lot.
Work Towards Small Luxuries and Extra Savings
Once you have enough in savings that you feel like you can breathe, it’s time to start thinking about your daily life. Financial freedom means that you’re able to buy the things that you want. Of course, I don’t think it’s useful to just splurge on a lot of unnecessary spending. However, I do think it’s good to recognize what small little luxuries will make your daily life better. The goal at this stage is to balance your income and spending so that you get to enjoy those luxuries regularly while still setting aside savings from every paycheck.
Financial Freedom: Money or Time
The Forbes article says that “freedom of time” is the next level. I actually think this is super important. I consider it to be one of the first steps, prioritizing it over a work sabbatical or those small luxuries. However, everyone has different needs and desires when it comes to financial freedom. For me, freedom of time means that even though I work a lot, I’m able to do so on my schedule. I’m also able to be location-independent. Those things make me feel like I have the freedom that I want.
Plan for Retirement
Once you are living comfortably, it’s definitely time to think about setting aside money for retirement. After all, that’s when you’re really going to need financial freedom. Forbes breaks this down into two levels. First, save enough for a decent basic retirement. Then, once you’ve achieved that, start saving for the type of retirement that you really want to have.
Of course, life happens, and we can’t always work through these steps in a linear fashion. Nevertheless, they provide a great guideline for some basic goal setting with financial freedom in mind.