There are several fundamental causes of financial stress. These include living paycheck to paycheck, accumulating excess debt, and having insufficient savings for emergencies or retirement. Worrying about these and other money-related matters can lead to sleepless nights, stress and anxiety, strained relationships, and decreased productivity at work.
The good news? The path to financial independence is a tangible reality with the right approach. In this Ameris Bank blog article, we explain what financial freedom is and how it can be achieved.
What is Financial Freedom?
Financial freedom is a phrase that takes on many meanings. If you asked a group of people what financial freedom means, you would probably get various answers. For some people, financial freedom means they have enough money to cover their monthly financial obligations and make discretionary purchases such as nice dinners or clothing. For other people, financial freedom means they have minimal debt and many months' worth of living expenses in their bank savings or checking account.
Next, business owners may view financial freedom differently depending on their unique financial situation. For some, financial freedom might mean having enough working capital to expand or introduce new products or services. For other business owners, financial freedom might mean saving enough money to sell their company and retire early.
While financial freedom in personal life and business can be viewed differently, its broad definition is simple. At its core, financial freedom means having enough money to live comfortably, allowing you to make personal or business decisions without the pressure of financial worries or stress.
Key pillars of financial freedom
Most individuals and business owners strive to have enough money, investments, and savings to achieve a state of financial independence and provide peace of mind. However, this is often easier said than done. That said, by focusing on these pillars and consistently applying them, you'll be well on your way to securing a prosperous financial future.
Evaluate your current financial situation
Before embarking on the road to financial freedom, you need to assess your current financial situation. Start by evaluating your income streams, including your salary, investments, and income from side jobs, if applicable. If you run a business, look at your company's cash flow, expenses, revenue, and profits.
Having a good understanding of your current financial situation will give you a clear picture of how much money is coming in, whether you work at a company or are a business owner.
Set clear and realistic financial goals
Setting clear and realistic financial goals is the cornerstone of building a stable and secure future. By defining your goals, you create a roadmap that guides your money management decisions and helps you focus on what matters most. Your goals can be categorized as short-term (up to one year), medium-term (one to three years), and long-term (more than three years).
An example of a short-term personal goal is to pay off the balance on a credit card, while repaying the balance on a business line of credit is an example of a short-term business goal. Saving for retirement or covering the cost of your child's education are examples of long-term goals for both individuals and business owners.
Manage and reduce your debt
Excess debt can make it difficult for individuals and business owners to pay their bills and meet other financial obligations. It can also lead to defaults and negatively impact personal and business credit scores. To prevent this from happening, be proactive and look for ways to reduce your debt.
You can start by first identifying the debts with the highest interest rates and focus on paying them off. By reducing high-interest debt, you can save money on interest payments in the long run. Next, cut down on your spending. This could involve eliminating non-essential expenses or finding cheaper alternatives for necessary items.
Negotiating with creditors is another option to consider. Contact your creditors to see if you can negotiate lower interest rates or better repayment terms. Many creditors will work with you to find a solution. Lastly, consider debt consolidation: If you have multiple debts, consolidate them into a single loan with a lower interest rate. Doing so can make it easier to manage your payments and reduce the overall interest you pay.
Grow your savings account
We all need to save money for unexpected expenses (e.g., home repair, car repair, healthcare) and the future (e.g., college tuition, vacation, retirement). But as you know, it can be challenging to budget for savings and set aside money on a regular basis.
To save money the right way, set specific savings goals that can be attained. It would help if you trimmed your spending by dining out less, canceling unused subscriptions, and avoiding expensive purchases. If you own a business, create a comprehensive budget for all expenses and income streams. This will help you identify areas where you can cut costs without compromising quality.
Finally, one easy way to save money is to automate your savings. Set up automatic transfers from your checking account to your savings account (or business account if you run a company). This way, you'll put money aside before you even have a chance to spend it, and you can watch it grow.
Keep an eye on your credit score
Keeping a close eye on your credit score is not just a good habit; it's a crucial step in maintaining your financial health. Regularly monitoring your credit score gives you valuable insights into your creditworthiness. A good credit score can open doors to favorable interest rates and terms on personal, business, and home loans, while a poor score can limit your options.
If you notice any inaccuracies, inconsistencies, or signs of unauthorized activity on your credit report, you must immediately address them. This may involve contacting one of the credit bureaus, providing supporting documentation, and following up to ensure that the necessary corrections are made. Being proactive about addressing these issues can help protect your financial reputation and ensure that your credit report accurately reflects your credit history.
Finally, checking your business and personal credit scores is a good idea if you are a business owner, as both impact your borrowing ability.
Make smart investments
Smart investing can help build lasting wealth, and it's never too early to start. Some investment strategies to consider are high-interest savings accounts, certificates of deposit (CDs), stocks, mutual funds, and bonds. By diversifying your portfolio and embracing a patient, long-term approach, you can harness the power of compound interest to grow your wealth.
Before investing, you should thoroughly discuss your goals with an experienced banker or financial advisor. Their expertise can provide valuable insights and help you make informed decisions that align with your financial objectives and budget.
By implementing the strategies and principles we've discussed, you're taking the first steps toward financial freedom. Embrace this journey confidently, knowing countless other individuals and business owners have walked this path before you and succeeded.
Published June 2024
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.