Globally, many generations, including Gen X, millennials, and Gen Z, are going through a financial crisis due to a lack of financial knowledge, inflation, pandemic, etc. Individuals struggle to free themselves from the constraints of financial burdens and achieve long-term financial freedom.
How people define financial freedom varies. Simply put, it can be defined as having sufficient cash flow, investments, and savings that allow one to control their finances and lifestyle. To achieve financial freedom, saving money is one of the practices you must implement daily.
If you are struggling to achieve financial freedom, this article will help you set financial goals, create a budget, and provide tips to save money effectively.
Setting financial goals
Financial planning is required at every stage of your life, and one of the actions you take while planning involves identifying financial goals. Setting financial goals keeps you motivated and directed toward reaching financial success. When you have goals listed, it helps you to understand what you want to work on and allows you to track your spending and prioritize expenses accordingly.
You can divide your financial goals into short-term (e.g., paying debt, creating a budget, purchasing a vehicle), intermediate-term (e.g., education, wedding, buying a house), and long-term goals (e.g., retirement, business).
To set realistic and achievable financial goals, here are four effective tips you need to implement:
Apply SMART goals structure
SMART stands for specific, measurable, attainable, relevant, and time-bound. When you set financial goals, be specific about what you want to achieve. Focus on setting relevant and achievable goals rather than the ones you only dream of. Track the progression of your goals. And always keep a deadline for your financial goals.
Make your goals unique to you
People tend to compare their lives and think of what others are buying, how much they spend, and save money. Comparing yourself to others hinders your capability to identify financial goals. Therefore, focus on what you desire and create your own goals accordingly.
List down your financial goals
One of the best ways to begin setting realistic goals is to list them on paper or use an application. Doing so maintains your motivation, gives you a sense of responsibility to work toward the task, and assists you in tracking your progress frequently.
Explore your circumstances
After thinking of various financial goals, you might reach a dead end and struggle to take the next step. Explore your current situation, including income, expenses, and savings to prevent this uncertainty.
Categorize your goals according to their importance as a “need,” “want,” or “critical.” For instance, saving for medical expenses can be labeled as critical, while purchasing a car, despite having a functional one, may be labeled as a want.
After setting financial goals, budgeting is one of the crucial steps to managing your finances. Creating a budget prevents you from spending your money carelessly. Through a budget, you can track your monthly progress and prevent yourself from falling into debt.
Whether you have a short, intermediate, or long-term goal, budgeting acts as a key to saving for retirement and emergencies. When creating a budget, here is a step-by-step process you can follow:
Step 1: Estimate your net income
Focus on the net income rather than your total salary to avoid falling into the trap of overspending. Net income is your salary after subtracting taxes and other deductions (health insurance, retirement plan, etc.). If you are self-employed or working as a contractor and freelancer, keep track of your contracts and payments to manage your spending according to varying income.
Step 2: Track and categorize your spending
Next, explore where your money is being spent and figure out the spots where it would be convenient for you to save money. Categorize your spending into fixed (such as rent and utility bills) and variable expenses (such as leisure, groceries, and medicines).
This step will help you to identify where you can cut your expenses. Remember to track it on a paper, spreadsheet, or application.
Step 3: Adjust your spending
One of the effective ways to adjust your spending is to apply the 50-30-20 rule. This rule implies that you spent 50%, 30%, and 20% on needs, wants, and savings, respectively. However, these percentages can vary for every individual based on their income, financial goals, and living costs. If you are unable to cut your spending from variable expenses, weigh your options from fixed expenses like finding a home or car insurance at a better cost.
Step 4: Review your budget frequently
Your budget may change with your expenses, pay, and goals. Despite any reason, it is suggested to build a habit of regularly tracking the budget. After creating a budget, review it weekly or biweekly to look for areas where you can save more or ensure you are on track.
Step 5: Stick with the budget
The hardest part of budgeting is to stick with it. Categorizing your expenses may be an easy, but modifying your spending habits is quite demanding. Listed below are tips that can help you to stick with your budget:
- Plan your meals, make a list of groceries, and stick to it.
- Watch out for your social calendar while creating a monthly budget.
- Practice saying ‘no’ or ‘not now’ according to the budget’s capacity, hence holding yourself from impulse buying.
- Use your cash or debit card to make purchases while ditching credit cards.
- Collaborate with someone, whether your spouse or coach, that can encourage and dissuade you regarding your expenses and budget.
- Use and pin an application on your mobile device for easy access.
Saving money is significant to achieve financial freedom and security. Despite understanding the importance of saving money, people tend to maintain negative spending habits.
If you are tight with your finances, you may experience the stress of paying bills and rent. It may keep you awake at night and disrupt your peace.
However, saving money reduces your financial worries and helps you to increase your wealth. It may keep you awake at night and disrupt your peace.
Savings refrain you from taking loans to pay off debt. It provides you the opportunity to quit your job or find new employment. Moreover, saving money at an early age can support you with the cost of education and planning a wedding.
It is important to start saving money for retirement; this ensures that you can support yourself or your family after you retire, live a comfortable life, and deal with unexpected expenses and emergencies.
Savings may also act as a backup to secure your future when you take a risk in business or pursue a passion.
Here are effective and simple ways to save money:
- Develop a spreadsheet, keep a pocket-sized notepad, or a budgeting app to track your every penny.
- Engage in thrift shopping or buy used items (e.g., appliances, clothes, or furniture).
- Consider renting rather than buying tools (e.g., tiller, hardwood-flooring tools) that are used occasionally.
- Make a habit of using reusable products; for instance, use metal or reusable plastic and insulated containers to store food and drinks.
- Install energy-efficient devices or appliances, such as smart LED light bulbs, and thermostats, for saving up on utility bills.
- Watch entertainment channels online and cut expenses on cable packages. Cancel or pause various entertainment subscriptions that you rarely use.
- Take advantage of a retirement plan, for example, 401(K) offered by your employer.
- Use coupons and cash-back applications while purchasing to enhance your savings.
Ways for boosting your savings
If you are struggling to add money to your savings account, implement these strategies to help you increase your savings:
- Cut or reduce unnecessary expenses, such as grocery and entertainment spending, housing and car cost, etc.
- Do a side hustle with your full-time job or talk to your employer for a raise or further opportunities that can increase your income.
- Set up an automatic transfer to send a specific amount of money from your every paycheck to savings.
- If it’s still challenging for you, find a financial planner to support you in reaching financial freedom.
The meaning of financial freedom differs for every individual, depending on their lifestyle and quality of life. However, everyone desires to free themselves from financial concerns, and the best way to begin this is at an early age.
Since financial planning is a long process, you must be patient to reach freedom. Analyze your finances and set financial goals accordingly. Take budgeting into consideration through a step-by-step approach and implement tips for saving money to help you achieve financial freedom.
If you would like to see more resources on savings, check out the Personal Science Labs. The lab uses the research of the Institute for Life Management Science to produce courses, certifications, podcasts, videos, and other tools. Visit the Personal Science Labs today.
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