Guide to Personal Financial Freedom

Planning

The first step on the path to financial freedom is setting goals with specific time frames. Create a personal financial plan and a budget to reach your goals. Some goals will be immediate; others must have a future date. Both types require that you examine your income and your earning capacity, then figure out how to use your income to reach your goals.

Budgeting

To develop a budget, record all of your spending for each month. Include housing, utilities, food at home and outside, clothing (purchases and cleaning), transportation, debts, insurance, entertainment, furniture and household furnishings. List personal care and beauty products, along with miscellaneous expenses like pet care. Calculate how much you spend monthly and annually in each category.

  • Choose to Save: calculate and compare interest rates and costs.
  • Wesabe: budgeting help and tips.
  • Budget Tracker: online budget tracker.
  • Excel templates: Microsoft Excel budget spreadsheets.

Thrift

If your income is only enough to meet your current expenses, you need a plan to reduce expenses or ways to increase your earnings. Saving money is less difficult than increasing income for most people. The least painful way to save money for financial goals is to develop habits that increase your cash flow bottom line instead of reducing it.

Look at the biggest recurring expenses for most people: housing and utilities, food, and clothing. Reduce or eliminate one budget item in these categories for three months. If you eat out three times a week, reduce that to once a month for just three months. If you are spending $100.00 per month on entertainment, replace one paid expenditure with one free one every week until you cut your outflow by half or more, depending on your goals. Watch for sales on recurring expense items and delay your purchases until the price is right.

  • Six Steps to Six-Figure Savings: learn how to develop savings habits.
  • 66 Ways to Save Money: painless savings.
  • Cheapest Days to Buy Certain Items: sales and bargains by day.
  • Bankrate tips: some expenses that you should avoid cutting.
  • Dollar Stretcher: weekly money saving tips newsletter.

Retirement

Investing a portion of your savings is a great way to reach financial goals more quickly and to accumulate funds for retirement. It is also important to know how much income you can expect from Social Security. Before you jump into the investment arena, do some research and develop a plan that gives you a good rate of return with the least risk of loss.

  • Investopedia: learn investing basics.
  • Top 10 Ways to Prepare for Retirement: planning for retirement at any age.
  • Financial Planning and Retirement: financial planning before and after retirement.

A person that starts saving for retirement at age 25 could accumulate a million dollars by age 65. One of the keys to making investing work for you is to reinvest your earnings along with the amount that you have set aside. This way, your earnings increase without requiring a larger portion of your budget.