Taking the right steps towards financial freedom is vital to achieve a comfortable life by becoming more independent. One of the most important steps leading to financial freedom and hope is to avoid debt.
In this guide, I will share with you some of the most important tips that are helping me towards the path of financial freedom.
How can avoiding debt lead you to financial freedom and hope?
Avoiding debt is not a trivial step in the journey towards financial freedom. It’s not just about being debt-free; it’s about creating a life where your finances don’t control you, but you control them. Here are some steps to help you on this path:
1. Forgive yourself for past financial mistakes Start by forgiving yourself for any past financial missteps. You can of course not modify the past but you can improve the present and the future with your decisions. This emotional step is crucial as it helps lift the burden of guilt and allows you to move forward with a positive mindset.
For example, if you bought an expensive car when not having the budget to buy it, instead of thinking all the time about having done that mistake, you can think how not to repeat that and focus on paying the debt to have a good feeling of not owning money.
2. Focus on High-Interest debt first Prioritize paying off high-interest debts, such as credit card balances, as they cost you more in the long run. Let's say you have a low-interest debt on a high value such as 2% on 1000€ and you need to pay that monthly, and you have as well a high-interest debt of about 15% on a lower value of 100€. Despite the absolute value of the lower monthly fee is lower in the case of 100€ it's much worth it in the long run, which means, you will end up paying less on debt.
Once the high-interest debts are cleared, you can then focus on single-digit interest debts like student loans.
3. Create a budget
A budget is your financial roadmap and is crucial to control what you have available, how it is spent, and especially how much you can save per week or month. It helps you track your spending, identify areas where you can cut back, and allocate funds towards debt repayment, savings, and investments.
The idea behind Budgeting is to have a concrete idea of your spending to avoid needing credit. If you organize yourself well, and without having emergencies, you can know how much money you have left to spend on each category and then use that for the things you need. For example, deciding to spend 250€ in Groceries per month or 50€ on clothes, you can check how much have you already spent that month and how much can you still spend until the end of the month.
But how do I create a budget?
There are many ways to create a budget. My wife does that with pen and paper, while I have developed an App for both of us that track all the expenses we have and put them in different categories so that you can visualize it.
I've called it "Budgetwise" and I will soon put the code available so that everyone can use it. Maybe I will put it in Google Play at some point as well ^^
4. Build an emergency fund An emergency fund acts as a financial buffer that can keep you afloat in a time of need without having to take on more debt.
If you have previously needed to take a debt, you know the feeling of not having enough to buy something that you need (or want).
In that case, it's vital to have some money aside, so that you don't need to ask for money to other entities and ending up paying much more.
That's why it's important to set aside some money for this situations. If you're saving for something specific like a car or a house, then it's important to fulfill the goal to try to buy the assets or at least the entry of the assets without using credit.
However, if you're currently free of debt it's still important to set about 3 to 6 times of your salary saved up to a separate account for possible emergencies. This savings don't need to be anywhere without generating income but can be in a safe and flexible place while generating a fix income, while allowing you to withdraw them within a couple of days at no cost or low cost.
For example, I have a big part of my flexible savings invested in stable coins that are staked and producing rewards but I can withdraw at any time without having to pay extra fees (this gives me between 8 and 12% APY, which are rewarded daily).
I’ve been using more than 10 Crypto exchanges since I started being my own bank in 2015 and I would recommend the following for having the lowest fees, the highest earning rewards when staking as well as many financial products associated to them (I’ve added an affiliate link for each of them, which will give you from 10 USD, 25 USD or 10% of all my commissions once you sign up)
Nexo, YouHodler, Binance or Crypto.com
However, if you don't want to use Crypto, this is also possible nowadays in many of the online banks such as Revolut, which offers about 4% on keeping your euros to a flexible account. Here you can also create your account while helping me get an affiliation reward using this link of Revolut.
5. Increase your income Look for ways to boost your income, whether it’s through a higher-paying job, a side hustle, or passive income streams. More income means more capacity to pay off debt and invest in your future. Investing is one of the best ways to achieve an increase of income that keeps with the increasing cost of life, since it usually keeps up with inflation when averaging over time. However, in order to invest enough to be able to have a noticeable increase in income, you of course need to have a decent income so that you can set some part of your salary aside. There are many ways of having side hustles nowadays thanks to the online world. Apart from the normal source of income you can for example:
Pet sit and dog caring or dog walking
Freelancing
Tech setup services
Senior sitting
Babysitting and child care
Teaching languages online, such as via Italki or babel
Self-publishing Ebooks
Online courses and coaching
YouTube Channel
Influencer Marketing
Renting out a property or a car
Translating online
Write a Blog (which is what I'm trying to do ;)) And many others! I might write a future article on most rewarding side hustles for 2024 :) let me know if you would like that in the comments below.
6. Invest in financial education Knowledge is power. Educate yourself about personal finance, investment strategies, and financial planning to make informed decisions that align with your financial freedom goals. In my case, I've been doing this, first as a hobby, but currently I read loads, since I've realized that knowing how other people invest give nice insights on strategies.
Some of in my opinion the best finance books of the 21st century that I would recommend to anyone starting in this topic are the following. You can also check a summary of these books and my main financial tips form all of them here
The psychology of money, by Morgan Housel
Rich Dad Poor Dad, by Robert T. Kiyosaki
The millionaire next door, by Thomas J. Stanley
7. Automate savings and investments Set up automatic transfers to your savings and investment accounts. This ensures you’re consistently building your wealth over time.
This is especially useful if you do it at the beginning of the month, or even as part of your payslip. This will allow you to not spend the money that you want to invest and therefore fulfill your goals.
Of course, you will have to adapt yourself in order to survive during the month without having to withdraw the invested money. However, I would recommend to keep a little bit of the money in flexible assets that give you lower returns but which you can eventually withdraw when there's an emergency.
As mentioned before, I have a big part of my flexible savings invested in stable coins that are staked and producing rewards but I can withdraw at any time without having to pay extra fees (this gives me between 8 and 12% APY, which are rewarded daily).
8. Live Below Your Means Adopt a lifestyle that is sustainable on your income without relying on credit. This might mean making some sacrifices now, but it will lead to greater financial security in the future.
I'm not talking about living eating only white rice the rest of your life in a 10m2 apartment.
You can live a normal life but you should be aware how much money is left in your account for each category in your life. This is very related to the Budgeting concept. Let's say you have decided to spend a maximum of 300€ per month in food and you're 1 week before ending the month and considering wether to go to a restaurant but you have already spent 250€ of these 300€. Of course, you can take the money from other categories on your budget and use that, however, since going out for dinner is a luxury, you can just cook a couple of more days and save enough so that you're still living below your means.
9. Set Clear Financial Goals Define what financial freedom means to you and set specific, measurable, achievable, relevant, and time-bound goals to guide your journey.
For every person, financial freedom might mean something different. For some people it just means having enough to live comfortably and knowing that you can get to the end of the month having enough food for your family, for others it means being able to buy most of the stuff they want, and for others it means having enough money so that you don't need to work anymore.
Whatever your financial freedom concept is, the idea is to go towards a goal. The majority of the books I mentioned before recommend having such goal, since it keeps you motivated to achieve it. Especially, when such goal is related to time, because you will try to make it to your own realistic deadline.
10. Stay Informed and Flexible Keep up-to-date with financial news and be prepared to adjust your financial plan as necessary. In this ever-changing world, things change fast and sometimes drastically. For this, it's important to stay informed. For example, when a crisis is coming or inflation is predicted to get high, you can adapt your financial decisions to protect your money in your investments or try to invest in the deep of the crisis to achieve higher returns.
The road to financial freedom isn’t always straight, and flexibility can help you navigate any bumps along the way.
Conclusion
By following these steps, you can create a strong foundation for financial freedom. Remember, it’s not just about avoiding debt; it’s about building a future filled with hope and possibilities.
Thank you for reading and let me know your feelings about this article in the comments below
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