Financial Freedom: Building Wealth to Boost Well-being

No matter how you define financial freedom, there are some fundamental steps to mapping a path to the opportunities it can offer.

The Path to Financial Freedom

1. Define Your Goals

What is your vision of a successful life? Defining your goals as specifically as possible helps you begin to establish priorities and distinguish between needs and wants. Once you have clearly identified your priorities, you can start thinking about what types of financial trade-offs or lifestyle compromises you’re willing to make to achieve your version of success, on your own terms.

2. Set a Budget

Living on a budget may sound limiting, but in reality, a budget is a valuable tool for helping you do the things you really want by showing you how much money you will need to do them. Start by calculating your income and tracking your current expenses. Then, separate your needs from your wants in the context of your overall goals. Once you set your budget, the most important thing is to stick to it, monitor how you’re doing and then adjust if necessary.

3. Make a Habit of Saving

Saving early, automatically, and often is the cornerstone of an effective wealth creation strategy as it allows you to take advantage of the power of compound interest. Prioritize saving over optional expenses and make automatic deposits to your savings, investment or retirement account, if your company enables you to do so. In addition, contributing to a flexible spending account, health savings account, retirement plan, or education savings account enables you to take advantage of tax benefits. You can also trim spending by changing your habits—for example, bringing, instead of buying, lunch or unsubscribing from retailer email lists to avoid the temptation to buy things you don’t really need. 

4. Align Your Investment Strategy With Your Goals

If you’re thinking about investing, you’ll want to formulate an investment strategy that helps you achieve your goals. Begin by figuring out how much you’ll need (your target), when you’ll need it (your time frame) and how much risk you can live with (your risk tolerance). These inputs help to define your asset allocation—the mix of asset classes (stocks, bonds, cash equivalents, and other investments) in your portfolio. Since different asset classes tend to behave differently under different market conditions, the goal is to find the mix of investments that has the highest probability of helping you reach your goals.

5. Establish Good Credit

Don’t underestimate the value of a high credit score. Your credit score is how people assess the level of financial risk associated with giving you a loan or conducting any kind of business with you, including renting an apartment or buying a cell phone. To improve your credit score, pay your bills on time, borrow (but don’t over-borrow) and monitor your credit reports from each of the three main credit score suppliers—Equifax, Experian, and TransUnion—on a regular basis.

Getting Started

No matter how old you are or where you are in life, the future you envision begins with a comprehensive plan. Consider speaking with a Financial Advisor who cares about you and your unique definition of financial freedom.