Where Are You On the Path to Financial Freedom?

Financial freedom isn’t something that you just sort of “get” at some point. Most of us have to work for it. And, the beginning of a New Year, when many of us set financial goals, is a good time to evaluate where we are the path to financial freedom. Here are 5 steps that can help you reach financial freedom:

1. Live within your means. This is the first step on the path to financial freedom. You can’t start paying down debt and building up savings until you are spending less than you earn. The very first thing you have to do is stop accumulating debt, and then eliminate expenses until you are living on less than you make. If possible, try to get by on no more than 80% of your income (70% to 75% is better).
2. Make sure you are adequately insured. Go through your policies and make sure you have adequate health, life, auto, home and other insurance. You want to be protected against the unexpected. If you need to adjust coverage, you can do so, now that you are living within your means.
3. Start paying down debt. Once you are spending less than you earn, and protected to some degree against financial catastrophe (there is no way to be completely safe, of course), you have the ability to start moving further down the path to financial freedom. One of the best ways to do this is to start paying down debt. Imagine how much more you will have when you are no longer paying interest.
4. Build up your cash reserves. You can actually start doing this while you are paying down debt. You should have a short-term emergency fund, and a long-term cash reserve that you can call on for unexpected expenses, possible job loss or some other financial problem. Using a high-yield savings account or CD laddering for this keeps things relatively liquid, and ensures that you will earn a return on your money.
5. Prepare for the future. Finally, you need to start securing your future. Retirement accounts and carefully thought-out investment decisions, as well as multiple income streams (some of them passive), can help you shore up for the future — as well as the present.

Of course, maintaining financial freedom requires that you continue apply the above principles in your life. Here are some resources to help you get going on the path to financial freedom in 2009:

Personal Dividends offers a review of money management software that can help you get things in order.

At the All Business Personal Finance Corner, you can read about a debt reduction planning tool to help you tackle your debt. Also Mrs. Micah provides the steps to starting and managing a debt snowball.

Bible Money Matters offers some insight into why goals are important. And, at Free From Broke, you can learn a great system for helping you actually achieve your financial goals.

As far as tips for the New Year are concerned, My Two Dollars has some great budgeting tips, and Stock Trading To Go focuses on 20 personal finance tips for 2009.

I also really enjoyed a post from Gather Little By Little about getting rid of old stuff now that you have all sorts of new stuff from the holidays. I think this applies to old financial habits as well (except you don’t donate those to charity).

And, finally, if you don’t know where to begin, both Cash Money Life and Money Under Thirty offer some great ideas for simple, achievable 2009 financial goals.

Do you have any tips for achieving financial freedom?