How To Achieve Financial Freedom: A Guide To Ditching Debt

Financial freedom refers to the ability to cover all your expenses, build your savings and stay out of debt for the long term. However, with high levels of student loan debt, inflation, increasing reliance on credit cards and other financial hurdles all around, it’s normal to feel like getting out of debt is impossible.

Although achieving financial independence can be difficult, it’s possible. You just need to know where to start. Let’s take a look at what financial freedom truly means and the steps you can take to reach it.

What Financial Freedom Means

Financial freedom means having complete control over your financial situation, without relying on credit cards, personal loans and other types of financial assistance to cover your bills. Financial freedom might look different for everyone, but at its core, it means you can live comfortably within your means without extreme financial stress.

When you achieve financial freedom, you ideally won’t have to worry about debt keeping you from living your life or enjoying what you want to spend your time, money and energy on.

How To Reach Financial Freedom

Here are a few simple steps you’ll want to follow to move into financial freedom and be rid of debt once and for all.

1. Set Clear Goals

The best way to start along your financial freedom journey is by setting clear and actionable goals for your finances. Think about what you want to accomplish in the next month, 6 months, year and following years. Ideally, your goals should be a mix of easy-to-achieve milestones and ones you must work harder at. By incorporating easy-to-achieve goals into your financial-planning efforts, you’ll help yourself stay motivated to continue improving your finances.

Here are a few examples of actionable goals you may want to set:

• Pay credit cards, student loans, utilities and other bills on time each month
• Pay off a high-interest loan or credit card
• Create an emergency fund
• Save $100 each month
• Decrease spending on a specific item
• Start saving for a down payment on a house

Once you have your goals in mind, take the time to figure out the steps you’ll need to take to reach each one. Break these down into as many steps as you need to feel like you’re consistently moving forward and making improvements. As you start achieving your goals, you can set new goals to help you stay on course.

2. Track Your Spending

The key to getting out of debt lies in understanding where your money is going, and the best way to do that is to track your spending. Keep a record of each purchase you make throughout the month, no matter how large or small. This will give you an idea of how much you’re spending on necessities (food, housing, transportation, utilities and recurring debt payments) and how much you’re spending on luxuries or items you want, like dining out, movies, gym memberships, streaming services and other fun items.

While you won’t have to eliminate luxuries from your life, tracking your spending can give you insight into how much of your monthly income is going toward items you don’t truly need. This makes it easier to pare down and start saving money each month.

3. Create A Firm Budget

If you’re trying to get out of debt and build your savings, creating a budget will make it much easier. Your monthly budget should help you decide how much to spend on different purchases. When budgeting, you’ll want to factor in recurring expenses like insurance, housing, utilities and other necessities first. Total these up and make sure you have enough cash each month to cover those expenses. Then, think about how much money you want to allocate toward other expenses and savings.

Keep in mind that your budget should align with your short- and long-term financial goals. For example, if your primary goal is to pay off a credit card, you’ll want to build your budget around that. As you achieve your goals or your goals start to change, you can adjust your budget accordingly.

4. Focus On Paying Off Debt

Carrying debt each month is the easiest way to threaten your financial security. The longer you carry debt, the more interest you’ll pay. The more debt you have, the more it will negatively impact your credit score. By shifting your focus toward paying off the debt you already owe, you’ll get closer to true financial freedom.

You can use a few methods to pay off debt faster. They include:

• The snowball method: This approach encourages you to pay the smallest debt off first and then add the amount you paid on that debt each month to the next smallest debt’s monthly payment. You’ll do this, debt by debt, paying one off at a time. This helps you see progress faster and can make staying motivated easier.
• The high-interest method: This method encourages you to pay off the debt with the highest interest rate first. By doing this, you’ll save money in the long run.
• The debt consolidation method: When you consolidate your debt, you effectively roll multiple debt payments into a single monthly payment. This may help you get a lower interest rate on what you owe and make it easier for you to pay off debt faster.
• The more-than-the-minimum method: This method encourages you to make more than the minimum monthly payment on each debt you have until all debts are paid in full. You can decide how much extra you want to pay off based on your monthly income, savings and any other factors that impact your cash flow.

Regardless of the method you use, paying off your debt will help free up cash each month so you can focus on building your savings.

5. Start Saving

Building your savings is a great way to protect yourself from going deeper into debt or acquiring new debt once you pay off the debts you have. You can open a few types of savings accounts that’ll help you save money faster and more easily. These include:

• Standard savings accounts
• High-yield CD accounts
• Health savings accounts
• Flexible spending accounts

Start contributing to these accounts regularly. If you can, set up automatic deposits for each account and let your savings grow each month.

6. Find Ways To Boost Your Income

The more money you earn each month, the easier it is to pay down your debt and avoid going deeper into debt in the future. Start looking for ways to increase your income. Consider picking up a side hustle like driving for a rideshare company or walking dogs around your neighborhood. If you have a skill you can share with others, teach courses or create products you can sell for a profit. You may also be able to request a wage review at your work if it’s been a long time since your last raise.

7. Start Investing

Investing is a great way to build your wealth over time, and the sooner you can start, the sooner you can start seeing returns. The easiest place to begin is by opening a 401(k) with your employer or an IRA if you’re self-employed. You can watch how your money grows and fluctuates with the market and start learning how various conditions influence your account’s performance.

Once you’re comfortable with investing, you may want to start investing in the stock market or working with a financial advisor who can help you better grow your wealth.

8. Monitor Your Credit Score

Your credit score helps paint a picture of your financial health. When it’s high, it shows you’ve gotten rid of your excess debt, are making payments on time and are in otherwise good financial shape. When it’s low, it shows potential future lenders you struggle to repay what you owe.

Get in the habit of checking your credit score throughout the year. You can do this anytime through the Rocket Money^SM app. You’ll be able to check your credit score in real time and can even view your full credit report to make sure everything is accurate. or by visiting AnnualCreditReport.com once a year and requesting copies of your credit report from all three credit bureaus.

9. Live Below Your Means

The temptation to spend the money you earn as soon as it hits your bank account can be very real. Even if you’re able to do this, quick spending makes it harder to build your savings so you can maintain the financial independence you’ve worked so hard to achieve.

Instead of spending money on every luxury you can afford, try to live below your means. Living below your means involves spending less than you make each month. You can use the money you don’t spend to build your savings, grow your investments, cover unexpected expenses or help build a down payment fund to buy a house in the future.

As your income increases, you can increase the amount you spend each month if needed. More preferably, though, increase the amount of money you save each month. As long as you’re not spending your entire paycheck, you’ll continue to live below your means and will be able to worry about money far less.

The Benefits Of Achieving Financial Freedom

Achieving financial freedom has many benefits beyond just getting out of debt. Here are a few positive side effects you might experience once you reach independence.

• Less stress: When you’re financially free, you’ll spend less time worrying about money and likely be less stressed in other areas of your life as a result.
• Increased risk tolerance: Without debt and with a steadily increasing savings account, you’ll be better able to manage risks like switching jobs, following your passions, taking on additional responsibilities, and other similar tasks.
• Improved confidence: Getting out of debt and improving your finances takes work and determination. Once you reach this milestone, you’ll have the confidence that comes from knowing you can dramatically improve your finances for the long term.

Reaching financial freedom may seem difficult, but the rewards make it well worth the effort.

The Bottom Line

Becoming financially independent and permanently debt-free is one of the best ways to gain control over your future. However, achieving that debt-free lifestyle takes work. As long as you take steps like the ones outlined above and consistently review your finances each month, you’ll be on your way to taking control of your money once and for all.