Living under the weight of financial stress is exhausting. It’s also alarmingly common—according to the Federal Reserve, the share of adults who said they were worse off financially than they were the year before increased from 20% in 2021 to 35% in 2022.

Financial freedom is not just about having a ton of money in the bank; it’s about the peace of mind that comes from feeling secure and in control of your financial future. Achieving financial freedom may seem like a daunting task, but with the right plan, it can be within reach. You just have to take it one step at a time.

10 Steps to Start Your Journey Toward Financial Freedom

1. Assess Your Current Financial Situation
2. Set Clear Financial Goals
3. Build an Emergency Fund
4. Develop a Debt Payoff Plan
5. Invest in Your Future
6. Live Below Your Means
7. Increase Your Income
8. Protect Your Wealth
9. Protect Your Health
10. Live a Little

1. Assess Your Current Financial Situation

When it comes to achieving financial health, it’s important to start by assessing your current financial situation. This means taking a careful look at your income, expenses, debts, and savings. By doing this, you’ll gain a better understanding of where you stand and identify areas for improvement. 

Calculate Your Net Worth

Calculating your net worth is an essential step in taking charge of your financial literacy. To do this, first tally up all of your assets, including cash, savings, investments, and property. Next, subtract all of your liabilities, like credit card debt, mortgage, and student loans. The result is your net worth.

Understanding your net worth gives you a clear picture of your financial standing at the moment—like a checkpoint in time—and can help you set realistic expectations. It’s not a one-and-done deal; as your financial situation changes, you should also recalculate your net worth (maybe you paid off a large debt or took on new liabilities, for example). Knowing your net worth is strategic. It will guide you in making smarter financial decisions, planning for the future, and understanding whether you’re on track to hit your financial goals. 

Evaluate Your Income

At any point, you should have a solid understanding of exactly how much money is coming into your household. You’ll need this figure in order to make a budget and set realistic financial goals in both the short- and long-term. 

If you’re dependent on a single source of income, you need to determine if that income stream is sustainable, sufficient for your unique circumstances, and poised to grow over time. 

Diversifying your income—like with a part-time job or side hustle—can be an effective way to expedite the journey to financial freedom, protecting you from instability or unforeseen circumstances (like a layoff). It’s also important that you continuously assess your income situation over time to ensure financial security down the road.

Create a Budget You Can Stick To

On the journey to financial freedom, your budget is your roadmap. It’s a must-have for staying on target and spending within your means.

It’s a myth that budgeting is difficult. All you need is a simple spreadsheet or notebook to track the money coming into your household vs. the expenses going out. After calculating your monthly income, you’ll want to break your spending buckets down into:

• Essential categories like rent, mortgage, utilities, groceries, transportation, insurance, and debt 
• Non-essential categories like entertainment, dining out, subscriptions, and memberships
• Savings goals like emergency fund, retirement savings, and vacation fund

For each of these expenses, allocate a certain dollar amount for the month and try to consistently hit those goals. This will keep you on track, highlight any areas where you can (or should) cut back, and discourage impulse buying. As your financial circumstances evolve—a new job, a new baby, a new expense, etc.—you’ll need to update your budget to account for the change.

2. Set Clear Financial Goals

Achieving financial freedom happens in stages. Remember; this is going to be a marathon, not a sprint. By clearly defining your short- and long-term financial goals, whether it’s saving for a down payment on a house, paying off debt, or achieving FIRE, you can start forming a plan to make these things a reality. 

Short-Term Goals (1-2 Years)

Short-term financial goals usually involve immediate priorities or milestones that can be achieved somewhat quickly (ie; not decades from now). For example, if you’re struggling with a large amount of high-interest credit card debt, paying that down should be one of your top priorities for the near future. Letting that debt balloon is actively causing you financial harm as time goes on.

Other short-term goals might include saving up for a bigger-than-usual expense, like a vacation, or building your emergency fund to cover life’s unexpected hiccups. It can also be something as simple as increasing your retirement contributions by a certain percentage to better secure your future.

It’s important to set targets that are realistic and measurable. If you aren’t actually able to make progress on your short-term goals, it can quickly knock the wind out of your sails and discourage you from sticking to the plan. 

Medium-Term Goals (3-5 Years)

Medium-term financial goals have less urgency than short-term goals, and they may require a little extra time and effort to achieve.

Maybe you’d like to buy a house in the next five years, and you need to start saving for a down payment. Maybe you would like to make a serious dent in your student loan debt. Maybe your car only has a few good years left in it before it needs to be replaced. All of these things fit the bill as a medium-term financial goal.

Where you put your money is just as important as how you save it. For a medium-term goal, consider opening up a high-yield savings account, money market account, or certificate of deposit (CD), where APYs can exceed 5.00%. (By comparison, the national average APY for regular savings accounts is a mere 0.46% as of this writing.) Note that if you put your money in a CD, you may face penalties for withdrawing funds before the term ends. 

Long-Term Goals (6-10 Years and Beyond)

Long-term financial goals look ahead to encompass the big picture. They tend to involve major life milestones that require a lot of planning, fine-tuning, and dedication. 

While putting an exact timeframe on a long-term financial goal is almost impossible (and everyone’s circumstances are different), some common examples include aggressively saving for retirement, socking away money for a child’s college education, or becoming debt-free. For your larger goals, it may be worth talking to a financial advisor who can help guide you down the path to success.

3. Build an Emergency Fund

Building an emergency fund is an essential step in securing your financial freedom and beating financial stress. Whether it’s unexpected expenses or a sudden job loss, life happens—and having a safety net can help you weather any financial storm that comes your way. 

Figure Out How Much You Need for Emergencies

The first step in building an emergency fund is figuring out how much money you actually need. Most experts recommend saving at least three to six months’ worth of living expenses for this purpose. So, if you take your current monthly expenses and multiply them by three to six, you’ll have a ballpark savings goal to aim for. For example, if your total monthly expenses amount to $2,000, then your emergency fund should ideally range from $6,000 to $12,000.

Keep in mind that no two people have the same circumstances. If, for example, there is someone in your household with health issues, or you or your spouse have a high-paying job that would be difficult to replace, you may want to overshoot that three-to-six-month ballpark. 

Open a High-Yield Savings or Money Market Account

As stated earlier, opening a high-yield savings or money market account can provide a significantly higher APY than the standard savings account—up to 5.00% or higher. By parking your emergency fund here and taking advantage of these higher rates, you can maximize your savings strategy and watch your money grow even faster.

When choosing an account, look for options with no or low monthly fees and a low minimum balance requirement to ensure that you save as much as possible. Make sure the financial institution is FDIC-insured (or NCUA-insured if it’s a credit union) so your funds are protected. Some accounts may offer additional perks like sign-up bonuses or loyalty rewards, but you should prioritize the core features that align with your savings goals.

Set Up Automatic Transfers to Your Emergency Fund

Once you have the details of your emergency fund figured out, consider setting up automatic transfers to actually fund it. Recurring transfers from your checking account to your emergency fund, such as every month or every paycheck, make the process convenient and low-effort. It’s a smart way to eliminate roadblocks and circumvent temptations that might hinder your financial progress.

4. Develop a Debt Payoff Plan

A key step in achieving financial freedom is getting out of debt. While it can be overwhelming to think about, debt payoff doesn’t have to be scary. It can be broken down into measurable, manageable mini-steps that you can tackle one at a time. 

Organize Your Debt

Start by organizing and actually understanding your debt. Make a list of all credit cards, loans, and any other outstanding balances you have. Note how much you owe, the interest rates, and the minimum monthly payments for each debt. This will give you a clear overview of your financial obligations, all in one place.

Seeing all of your debts outlined like this also gives you a better idea of how much you can afford to allocate towards repayment every month. 

Pay More Than the Minimums

Effectively tackling debt often means paying more than the monthly minimum balance. This is because paying only the minimum accrues more interest over time, resulting in a larger overall repayment amount—and a cycle of debt that can be hard to break.

Look for wiggle room in your budget and allocate as much extra money as possible toward paying off your debt. This may require sacrifices in other areas of spending, like cutting back on non-essentials or finding ways to boost your income. Remind yourself that this is temporary; the sacrifice means the debt will be paid off faster, giving you one less thing to worry about.

Create a Debt Repayment Plan

You can also consider a strategic debt repayment plan. Debt repayment plans often fall into one of two approaches; the debt avalanche method or the debt snowball method.

With the snowball method, you pay off the smallest debt first while making minimum monthly payments on the others. Once the smallest debt is paid off, you then roll the amount you were paying into the next smallest debt, creating a “snowball” effect. This method is all amount motivation. While it doesn’t prioritize high-interest debt, seeing debts fully paid off—even small ones—can be incredibly encouraging and helps build momentum to keep going.

The avalanche method, on the other hand, focuses on paying off the debt with the highest interest rate first. While not as mentally motivating, this method will save you the most money on interest in the long run.

5. Invest in Your Future

When it comes to long-term financial stability, investing is a key step in building wealth. Whether it’s through stocks, mutual funds, retirement accounts, or other vehicles, investing in your future is one of the single most important aspects of financial planning. 

Educate Yourself on Investment Options

Lack of know-how is one of the most common roadblocks that keeps people from investing. The various options, regulations, and terminology can be overwhelming for beginners and it may deter them from starting altogether. But, you need to overcome this obstacle in order to maximize your wealth and achieve financial freedom.

Take some time to educate yourself on what investment options are available to you. There are plenty of beginner-friendly, free resources online that cover the basics of stocks, bonds, mutual funds, real estate, retirement accounts, and more. The more you learn, the more you’ll develop an idea of what strategy best aligns with your financial goals and risk tolerance. If you’re still feeling lost, you might consider consulting with a financial advisor.

Choose an Investment Platform

When you’re ready to start investing, there are several platforms you can pick from. Brokerage firms, like Fidelity, Charles Schwab, or TD Ameritrade, offer a wide range of investment products and services for both novice and experienced investors. These platforms allow you to buy and sell stocks, bonds, mutual funds, and exchange-traded funds (ETFs) with varying levels of risk. 

If you’re brand new to investing or you prefer a hands-off approach, a robo-advisor like Betterment or Wealthfront may be a good fit. These platforms use algorithms to build and manage a diversified portfolio based on your risk tolerance and financial goals.

For those who prefer personalized guidance, working one-on-one with a financial advisor may be the best avenue. They can provide valuable expertise and tailored investment strategies that best suit your situation.

Regularly Review Your Portfolio

Even though investing requires playing the long game, that doesn’t mean you shouldn’t check in once in a while. Market conditions and economic factors are constantly changing, and it’s important that you’re able to adapt to these changes. By staying informed about the performance of your investments, you can take advantage of growth opportunities and minimize potential losses.

Try to review your investment portfolio at least once a year to make sure you’re on track. A regular review lets you assess the performance of your investments, re-evaluate your goals and risk tolerance, and make adjustments to stay on course. If you’re working with a financial advisor, you may wish to set up an annual sit-down meeting to discuss this together. They can help you identify any underperforming assets, high fees, or unnecessary risks. 

6. Live Below Your Means

Living below your means is a key principle that can expedite your journey to financial independence. By spending less than you earn, you can avoid debt, build a substantial savings, and create a more secure financial future.

Downsize Your Lifestyle

Living below your means often requires you to downsize your lifestyle and embrace minimalism. This could mean a variety of things, like living in a smaller house or apartment to reduce living expenses. Or, you could opt for a less expensive car—or scale down to a one-car household—to significantly cut down on the cost of gas and maintenance, or to get rid of a car payment altogether.

Downsizing can happen on a smaller scale, too. Look at expenses like utilities and food costs. Being more mindful of how much energy and water you’re using can lead to lower bills, while meal planning, bulk buying, and cooking at home can slash your food budget. 

Eliminate Unnecessary Expenses

Part of downsizing is cutting out the little unnecessary expenses that add up over time. Non-essential splurges like takeout, entertainment, and impulse buys can wreck your budget if they happen regularly. By prioritizing your needs over your wants, you can cut back in these areas and free up more money to put towards a retirement plan, getting rid of debt, or building your emergency fund.

These can be small changes that feel insignificant in the moment, but over time, this effort will help you take greater control of your finances. You don’t have to deny yourself of things you want 100% of the time—it’s about making smarter, more deliberate choices and creating better money habits.

Use Cash Instead of Credit

Yes, credit has its time and place, and it’s necessary for building a strong credit history. But for those struggling with debt repayment or working toward financial freedom, sometimes cash is better. By using cash, you never have to pay interest on your purchases. You’ll avoid the high rates that can quickly accumulate and put you in a cycle of debt. 

Paying with cash is also more tangible. In other words, you “feel” the loss of money more profoundly than when you swipe a card. This can push you to put extra thought into purchases—especially impulse buys—and question exactly how necessary they really are. For those with a habit of overspending on credit cards, this can be an effective strategy to break the cycle.

Ultimately, using cash instead of credit can help you build a foundation of financial responsibility and avoid the costly pitfalls of high-interest consumer debt.

7. Increase Your Income

Boosting your income will help you out with every other step on the road to financial independence. You’ll be able to pay off debt faster, pour more into savings, and invest more in your future. It’ll also reduce stress and strain, giving you more room in your budget and more peace of mind.

Look for a Higher-Paying Job

A higher-paying job will ultimately help you reach financial independence faster—potentially much faster. Before you start job hunting, make sure your resume is up to date with your certifications, skills, and measurable achievements. If you have a professional website or LinkedIn presence, make sure that’s updated, as well. 

It’s often advised to tailor your resume to each job you apply for, highlighting the relevant experience and skills that best position you for the role you want. Then, consider reaching out to your professional network for leads. You can also search online job boards, go to career fairs, and even work with a recruiter in your field.

Ask for a Raise

If you can’t find a higher-paying job, asking your current employer for a raise can be the next best move. The best way to ask for a raise is to first prepare a case for why you deserve one. 

Outline your key achievements, added responsibilities, and any positive impact you’ve made since your last rate increase. Schedule a meeting with your employer to discuss the raise, and be prepared to negotiate. You should also be open to feedback and be ready to discuss the market value for similar positions in your field. It’s essential to approach the conversation with a positive attitude and remain respectful, even if the answer is no. 

Freelance and self-employed individuals aren’t excluded here. You can “give yourself” a raise by increasing your rates, especially if you haven’t in a while. Don’t just pick a random number; research current industry standards and factor in your experience, skills, and quality of work. Be prepared to communicate this value to clients who might inquire about the increase. 

Start a Business

Starting a business might sound intimidating, but it can be a highly effective strategy in achieving financial freedom. Being a business owner gives you the potential to generate unlimited income (possibly even passive income) and build a valuable asset for the future. It’s also an avenue for you to escape the 9-to-5 grind, pursue something you’re actually passionate about, and become your own boss.

Another great thing about starting a business is that it doesn’t have to be expensive. Many successful businesses start out as simple, home-based ventures that gradually scale over the course of years. Consider starting a vendining machine business or starting a cleaning business, for example. By starting small and taking it one step at a time, you can minimize your initial investment, take on less risk, and give yourself space to learn, adapt, and grow.

8. Protect Your Wealth

After doing all of this work to build wealth, you’d be remiss in not protecting it—not only for yourself but for your loved ones, too. Protecting your wealth is a key step in establishing financial security and making sure you’re equipped to weather whatever life throws your way.

Talk to a Financial Advisor

One of the most effective ways to protect your wealth is to work with a financial advisor. Financial advisors typically offer a range of services, including retirement planning, investment management, tax planning, estate planning, and more. They work with clients to identify their financial goals and develop actionable, customized plans to help them achieve those goals.

A financial advisor will cost money, and they can be compensated in a few different ways. Some advisors charge a fee based on a percentage of assets under management, while others may charge an hourly or flat fee. Some advisors may also earn commissions from the sale of certain financial products.

To find a good financial advisor, it’s important to do your research. Look for advisors who are qualified and experienced, such as those with a Certified Financial Planner (CFP) designation. Ask your friends and family members for recommendations, and carefully read any online reviews. It’s also important to meet with your potential advisor in person to get a better feel for their approach and philosophy, which should closely align with your goals.

Insure Your Assets

Insuring your assets is another key component of protecting your wealth. Whether it’s your house, your business, or even your life, having insurance in place offers financial security and peace of mind in case the worst happens.

While the expense of insurance may seem unnecessary (after all, the “worst” may never happen), the potential financial loss from not having adequate coverage can far outweigh the cost of premiums. Without insurance, the impact of a significant loss can be devastating to your finances.

By having insurance in place, you are protecting your assets from unforeseen events and providing a safety net for you and your family’s financial future. It is a worthwhile investment in safeguarding your hard-earned wealth and ensuring financial stability in the face of unexpected events.

Have the Hard Conversations About Estate Planning

Estate planning involves the careful preparation of one’s assets and properties for distribution upon their passing. It’s not a fun task, but it’s a critical step in making sure that your wealth is protected and your final wishes are carried out.

Estate planning discussions might include wills, trusts, powers of attorney, beneficiary designations, and healthcare directives. It’s important to have open and honest conversations with family members, potential beneficiaries, and appointed representatives to avoid conflicts in the future. Talking about these things with all involved parties helps ensure your wishes are clear and understood.

These conversations also help to address any concerns or questions that may come up, presenting an opportunity to quash potential issues upfront.

9. Protect Your Health

You might not realize it, but taking care of your health is actually a crucial step in the journey toward financial independence. Maintaining good health can help you save costs on medical bills, insurance premiums, and missed work due to illness. And while good health is not always within your control, there are things you can do to tip the scales in your favor.

Stay Active

According to the World Health Organization (WHO), physical activity is beneficial for nearly every function of the human body. Conversely, physical inactivity is one of the leading mortality factors for noncommunicable diseases like heart disease, cancer, and type-2 diabetes. Inactive people face a 20% to 30% increased risk of death versus sufficiently active people.

Exercises like jogging, biking, swimming, and strength training help in improving cardiovascular health, building strength, and maintaining a healthy weight. Meanwhile, activities like yoga can improve flexibility and balance, and even reduce stress. 

Incorporating activity into daily life can also be helpful. Consider taking the stairs instead of the elevator, parking a little farther away, or going for a walk during your lunch break. Setting realistic goals for yourself is important, and finding activities that you actually enjoy and can stick with will make it much easier to stay consistent.

Get Enough Sleep

Getting enough sleep can be a challenge—especially in the bustle of adulthood—but it’s important. The National Sleep Foundation says that adults should aim for a minimum of seven hours of sleep each night, while children and teens should aim for even more. Adequate sleep is essential for multiple reasons.

Physiologically, sleep is essential for the body’s repair and regeneration processes. It supports immune function, aids in the repair of heart and blood vessels, and is crucial for growth and stress regulation. Mentally, sleep is vital for cognitive functions like learning, memory consolidation, emotional regulation, and decision-making.

What happens if you’re chronically sleep-deprived? It’s been linked to a variety of health issues including obesity, diabetes, heart disease, and mental health disorders like depression and anxiety. If your sleep habits aren’t currently in good standing, this may be your “wake-up” call.

Stay on Top of Your Check-Ups

An ounce of prevention is worth a pound of cure. If you’re able to regularly see a healthcare provider, it’s important to stay on top of your routine check-ups. Whether it’s an annual physical, a dental cleaning, or an age-based screening, these routine appointments help track changes in your health, detect potential issues early, and provide necessary interventions to stop the development of serious illness.

Early detection and intervention can lead to better outcomes for many health conditions, not to mention lower healthcare costs in the long run.

10. Live a Little

On the journey to financial freedom, you know how crucial it is to prioritize saving and investing—but it’s also important to enjoy life and live in the present. While it’s great to work towards long-term financial goals, you’ve got to find balance by allowing yourself to indulge in experiences and moments that bring you joy. 

Spend Money on Experiences

Spending money on experiences—rather than things—has been linked to increased happiness and overall satisfaction. When we invest in experiences like travel, concerts, or activities with loved ones, we’re left with cherished memories that make us smile long after the experience has ended. By contrast, the initial thrill of buying a new thing often fades as quickly as it comes on.

Experiences also have the potential to bring people closer together and foster deeper connections, which can contribute to increased well-being. And, the anticipation of an upcoming experience can bring joy and excitement, providing long-lasting happiness, optimism, and a sense of fulfillment.

Start a New Hobby

Starting a new hobby can bring so many benefits to your life. It can help reduce stress, boost your creativity, and even provide opportunities to meet new people. Whether it’s gardening, painting, playing a musical instrument, or something else, exploring your interests can lead to a fulfilling, relaxing, and rewarding experience.

There are many different ways for you to explore a new hobby. One way is to join a local club or community group related to your interest. There, you can connect with others and find a support network for learning and growth. Another option is to take a class or workshop, either in-person or online, to hone your skills. There are also plenty of resources available online—paid and free—like YouTube videos, forums, and social media groups where you can get started and connect with like-minded hobbyists.

Make Self-Care a Priority

Self-care can look like a lot of different things. It can be going for a walk, hitting the gym, eating healthy, and going to the doctor. It can also be meditating, going to therapy, and taking a rest day. Ultimately, if you’re caring for your physical, mental, and emotional well-being, you’re engaging in self-care.

We’ve established by now that taking care of ourselves has a positive impact on our financial health as well as physical. Furthermore, self-care can enhance our overall quality of life, which may be priceless. When we feel physically, mentally, and emotionally well, we are better equipped to live a successful, stable, and sustainable life.

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