Financial freedom is a state where you no longer have to worry about financial problems. This condition is of course the dream of many people. However, can financial freedom be achieved at a young age?
For those of you who are now in your late 20s, you must be starting to realize that working and making money to meet your needs is actually difficult.
Considering that all this time you need to be supported by your family and after graduation you have to work and be completely independent, it feels like achieving financial freedom is still far from a dream.
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However, nothing is impossible. Here, KitaLulus will provide tips on achieving financial freedom that you can follow. Let’s see!
What is Financial Freedom ?
Financial freedom or financial freedom is a trend that is becoming a hot topic of conversation for all generations. The reason is, by being financially independent, you don’t have to worry about running out of wallets and accounts when you want to buy any needs.
However, achieving financial freedom is not easy, especially for those of you who are part of the sandwich generation . You have to fulfill not only personal needs, but also family needs.
But don’t worry, there must be a way to achieve financial freedom. With the right mindset and education, it will be easy for you to manage your finances effectively so that you can focus more on reaching the point of financial freedom to fulfill your personal and family needs without worrying.
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Level Financial Freedom
Financial freedom actually has several levels depending on the conditions achieved by each individual. Here are 7 levels of financial freedom that need to be understood.
1. Adequate Financial Knowledge
The first level is achieving a clear understanding of the current financial condition. Knowing and being able to record the financial situation is important. This includes the amount of money owned, debt
It is important to know and record your financial situation, including the amount of money you have, debts that must be paid, and financial goals you want to achieve.
2. Able to Support Yourself
At this stage, a person can survive independently without help from parents. Even though you may still need to borrow money to meet your daily needs, the important thing is to be able to support your own life.
3. Room to Breathe
If at the previous level you still need to borrow money, at this level some money can still be left over even though you have met your daily needs. The money can be allocated to savings, investments, or retirement funds.
This level is determined not only by increased income. Someone with a high salary may not necessarily be able to set aside money to save or invest.
4. Stability
The next level of financial freedom is stability. At this stage, a person is not too worried if he loses his job. Individuals who achieve financial stability generally have sufficient savings and an emergency fund for the next six months.
5. Flexibility
This stage allows a person to live a more flexible life. Those who reach this level have sufficient emergency funds for the next two years.
Not only can they afford sudden layoffs, but can even decide to quit work and take a year off if they so desire.
6. Financial Independence
Many people say that they want to be financially independent. However, what exactly is the definition? Financial independence occurs when a person can finance his life only from investment results, for example income from property rental.
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Other income, such as from regular jobs, can be used for purposes other than basic needs.
7. Abundant Wealth
Someone who reaches a level of financial independence still sometimes has to ensure that their investment portfolio is safe for retirement.
However, for those at the stage of great wealth, there is no such worry anymore. They have more than they need and money is not an essential need in their daily life.
How to Achieve Financial Freedom
No need to be confused about how to achieve financial freedom at a young age. KitaLulus has summarized some tips that you can do. Here’s an explanation.
1. Know Your Financial Condition
The first way to achieve financial freedom is to understand how your actual financial condition is. In this way, you will know what steps to take to achieve financial freedom.
It’s like, without you having a body health check-up to find out what illness you are suffering from, you won’t know how to treat it. Well, so does the financial condition. Especially if you have debt.
Study the condition so you can find out what actions you should take later for financial management. How to check it? You can consult with a financial planner or someone who is an expert in their field.
2. Define Goals and Needs in Detail
Next determine your financial goals. This is useful so that you know what goals to achieve in the near and long term. For example, the goal of paying off a debt must take precedence over collecting emergency funds, let alone other needs.
Why is that? Even though an emergency fund is also important because we might need it at any time. This is because you need to consider the risks you get.
If you submit a debt to a bank or other lender, the interest will definitely be burdensome in paying it off. Well, this part must be trimmed first so that the fulfillment of other financial needs can be carried out in an orderly manner.
Next, try to note what your needs are. For example the cost of daily living, secondary needs to maximize work, to maybe the cost of meeting the needs of the whole family.
Plotting each need in detail. That way, you can divide your income properly and know the remaining funds that can be saved.
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3. Prioritize
The next way to achieve financial freedom is to prioritize needs. This is very important because no matter how much salary you receive each month, if you can’t prioritize, you will always be wasteful. If this is the case, the money to be saved will not be maximized.
As the second point above, this relates to priority. Consider the following hierarchy of financial needs. There are many layers in it. What you have to pay attention to first is, of course, the lowest one as the foundation.
Income must be used to meet daily needs. After plotting daily needs has been carried out, divide the remaining income for further urgent needs, for example paying debts. Then you can use the remaining income to save in an emergency fund and others.
You can make financial management principles 50:30:20. Namely 50% to meet basic needs, 30% for entertainment and other needs, and 20% for savings. Do this principle carefully and consistently, okay?
Don’t forget, prioritize setting up an emergency fund first, then think about health insurance, retirement funds, then investments.
4. Manage Expenses Well
Usually, we will feel confused why at the end of the month the financial condition is dying. Where did the money go? This confusion is because you don’t record expenses so you can’t track financial traction.
In fact, by diligently recording finances in an orderly and neat manner, you can find out the balance between expenses and income.
And it could be, there are moments where you have been “hungry eyes” by buying an item impulsively because of being tempted by a discount so that you are trapped in the flow of “just buy my friends, can’t I”.
Unimportant expenses that occur without you realizing it can be tracked when you record expenses properly. Even with every percentage of the largest and smallest expenses that occur.
Thus, you will know how to manage expenses in the following month effectively from the results of the notes in the previous month.
5. Expand Revenue Sources
There is an appropriate phrase for those of you who are trying to achieve financial freedom :
“If you can’t reduce spending, then increase income. If you can’t increase your income, reduce your expenses.”
However, spending will be inversely proportional to the amount of savings you have. If you want to have a lot of savings, save a lot and reduce expenses.
Conversely, if you spend a lot and want to save a lot, then increase your income.
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You can start by looking for side hustle or opening a business as passive income . So, your source of income can expand.
6. Study investment instruments as needed
It should be noted that of the many investment instruments, each has its own function, purpose and use. You must choose according to your needs.
Don’t invest in stocks if you want to save for the short term. This is because stocks are long-term investments that will not have maximum results if you only put your funds in a matter of weeks or months.
That’s how to achieve financial freedom at a young age that you can try. Remember that achieving financial freedom requires discipline and patience, but the results will be very beneficial for your financial condition in the future. Hopefully, with this article, your knowledge of financial management can increase and you can more easily decide on the methods that are right for you.