6 steps that will start you on the road to financial freedom
Have you ever looked at your colleagues and peers at work and wondered why their financial life is so much easier than yours? Despite what many of us have been told, the key to healthy finances is not always to earn more money, it’s to use what you have in a smarter way.
You’ll find articles over the internet that tell you that you can find financial freedom by buying less coffee and avocados. This advice is as ridiculous as it sounds. The best thing you can do to improve your finances is to change your financial mindset.
When you think about money and your financial goals differently you will find it hard to overspend. You will find yourself saving more and only spending when you can spend with purpose.
Today, we are going to talk you through a 6 step process to changing your financial mindset.
Step 1 – Review your finances
Before you can make any improvements to your financial situation you need to understand it inside out. So, we recommend that you start by taking a deep dive into your finances.
You may find it helpful to create your own display of your finances. Rewriting the information will help you to understand it more deeply and see it in a different light. We use a color-coded spreadsheet, but we also know people who keep a handwritten record as writing by hand helps them to think better.
As you are going through your finances, odd spending habits will start to jump out at you.
Step 2 – Set your short term and long term financial goals
It is with this step that the mindset change will start to really kick in. Take some time to think about the way you want to spend your money in the short and long term.
Your short-term goals may be to buy a domain for your website, buy a car, or replace your leaking shower with a rainfall showerhead.
Your long-term goals may include launching a business without taking out loans, paying off all your current loans, or buying a house.
Write these goals down and keep them where you will see them every day. You may want to keep one copy in your wallet and one copy where you do most of your online shopping.
Step 3 -Make a budget for the next 3 months
Pick one short-term goal and one long-term goal, and think about the progress you would like to make towards them in the next three months.
With these goals in mind, create a budget that allows you to put aside the money you need to. When reviewing your budget you probably noticed that there are a few things you are spending too much money on. There may be many different ways that you can save the money you need to.
Only budget for the next three months – you don’t want to take on too much at once.
Step 4- Start paying off your debts
For many of us, the biggest drain on our finances is paying off our monthly debt payments. Debt is a part of life, many of us have personal loans, student loans, car loans, and more.
If you want to have healthy finances in the long run then you need to make sure that paying your rent, household bills, and monthly debt payments are your priority.
If you have a lot of personal loans and making the individual monthly payments (and individual interest payments) is eating into your monthly budget then you should consider consolidating your debts.
You will be paying less interest every month. However, if you are comfortably able to pay that interest then you can put the money you are saving each month towards paying off your debts early.
Step 5 – Review your past 3 months
After the first three months on your budget, you should sit down and reflect on it. Ask yourself the following questions:
- What did you do well over the last three months?
- What can you do better next time?
- Did you reach your goals?
- What would you do differently next time?
Step 6 – Make a year-long budget
Based on your answers to the questions above, it’s time to make yourself a yearly budget.
Now is the time to look back at your short-term and long-term goals. Look at how much progress you have made and pick the ones you want to work on for the next quarter. Then with this in mind, you will want to build a yearly budget. Remember to review your progress every 1-3 months.
When you spend money keep your goals in mind and you will find it harder to spend frivolously.