Arguably, the greatest freedom of all is the freedom of choice, the power to make your own decisions and command your own destiny.
Amongst all of the decisions that you can make in your life, your financial decisions typically have some of the largest impacts, positive or negative, on the quality of your life and the options that you will have available to you.
We recently faced an unprecedented convergence of economic challenges…depreciating home values, a plunging stock market, record levels of consumer debt, unemployment, a rise in inflation, high fuel prices, and restricted access to credit at the consumer and institutional levels.
While there are still issues and concerns that must be addressed, many economic indicators have fortunately stabilized. Rest assured, however, that we will face further uncertainty and economic turmoil in years to come.
When challenges arise and economic uncertainty looms, virtually all of the volatility that is created in the financial marketplace is driven by two factors, fear and rampant speculation.
If you are somebody who is fearful and full of anxiety about your finances, do you also feel helpless and lost about what to do? Can you imagine how great it would feel to be free of your fear and to experience peace of mind relative to your finances?
It is more important now than at any time in the last 75 years to make good financial decisions that will help you to achieve your own economic freedom and minimize any restrictions that will keep you from realizing your financial goals.
Make no mistake about it. You can enjoy economic freedom no matter how much money you make and regardless of what your financial situation has been in the past. You and your own actions will be the sole determinants of whether or not you achieve financial strength and soundness. Conversely, if you do not set financial goals for yourself and get on the path that leads to the achievement of those goals, it will be your fault and your fault alone.
The peace of mind that comes with not having to worry about your finances during difficult times can be yours and the tools that will help you obtain it already exist.
When I was researching information for this article and trying to determine how best to summarize the steps you need to take to achieve personal economic freedom, I realized that we had already discussed the ten most important things that you can do to realize your life’s goals and to best prepare for uncertain and challenging economic times. Because of this, much of what I will highlight in this article will be a summary or a reference to information in previous articles.
If you have been following along and have taken the steps that we have previously outlined, this will be a great time to check your work and fine-tune your plan if necessary. If you have not taken the steps that you should have to prepare for what you may currently be facing or will possibly face sometime in the future, it is not too late to take the sting out of your current situation and better prepare for the next time.
1. Create a Plan
Begin by honestly assessing your financial situation and determine what you have been doing and what you have not been doing. Figure out what you know and what you don’t know and then devise a plan that builds on your strengths and addresses your weaknesses. As an example, if you have not been as organized as you should have been and as a result have not balanced your checkbook regularly, make sure that part of your plan includes a regular review and balancing of your checkbook. Then, commit to that plan. A successful financial plan must contain realistic, attainable action steps as well as measurements and checkpoints to ensure you stay on track.
2. Develop and Follow a Budget
Clearly define your income and your expenses. For the purposes of your budget, your income is not your gross salary, it is your actual take home pay. For this exercise to be of value, being specific and precise is a must especially as it relates to your expenses. The more detailed that you can be about your exact expenses, the more confident you will be about your numbers and what you will have left to save. Once you have developed a budget, follow it. It will take discipline on your part, but the reward is great, namely that you will be taking a big step toward commanding your own financial destiny.
3. Become Credit Wise
The single biggest factor in determining your ability to borrow money and qualify for the best borrowing rates is your credit rating, specifically your credit score as reported by the three main credit bureaus. The credit rating system is notoriously difficult to understand and susceptible to errors and inaccuracies so you will be way ahead of the game if you take the time to understand your credit report, the components of your credit score, and what you can do to ensure that your rating is as accurate and as strong as possible.
4. Perform Credit CPR
To the extent that you identify inaccuracies or legitimate weaknesses in your financial standing, perform the necessary tasks to take corrective action. In this case, CPR can be defined as strong Communication with relevant parties, sound Planning, and a commitment to Resolve any and all matters.
5. Set Your Financial Priorities
Now that you have taken the steps that form the foundation of your future financial strength and your in-depth financial knowledge, it is time to determine exactly what your priorities should be. If you have more debt than you are comfortable with, then the first order of business should be to pay off that debt or bring it down to a more reasonable level. If your debt and expenses are in order, your priority should be to maximize your savings.
6. Establish Goals and Incentives
Once your plan is in place and your priorities are in order, the next step is to establish your goals and the rewards you will reap when those goals are achieved. As is the case with each of these steps, the goals that you set will be personal to you and will only be helpful if they are meaningful to you and attainable. Setting the incentives is just as important because they will play a key role in your level of motivation to achieve your goals.
7. Create Reinforcing Habits
Particularly when it comes to saving, but certainly in every aspect of your own financial management, you will benefit from making habits out of the actions you are taking and repeating. Your plan is in place and it is based on accurate information. You have set your priorities and established your goals. The best way to reinforce this behavior is to make it second nature.
8. Build Wealth
When you have realized the importance of saving, the next logical step is to go out and actually build wealth and there remains only two legitimate ways to do it. You must either obtain ownership of something (i.e., real estate, stock, business, etc.) and/or build passive income; that is income that you generate that is not directly reliant on your labor or task completion (i.e., interest, dividends, appreciation).
9. Insulate Yourself From Recessions
There are several things that you can do to lessen the impact a downturn in the economy can have on your finances in terms of preemptive measures and preparation. If you have not completed the previous steps then these measures will be a lot less effective. Once you have prepared for these times, you have essentially completed your path to economic freedom and you will find a peace of mind relative to your personal financial situation that will be both inspiring and liberating.
10. Trust Your Instincts and Stay Curious
At this point, you have completed all of the steps and have clearly learned how to make good, sound financial decisions. You are following your own path and realizing power and command that previously seemed unreachable. You have all of your financial matters in order. Enjoy the benefits of your commitment to this process by sticking with the decisions and choices that you have made, but do not rest on what you have already accomplished. Stay curious, keep asking questions and answering your own challenges, and remain open-minded so that you are able to make adjustments to your plans and objectives as necessary.
So, follow these steps and keep the faith. Your Economic Freedom is at hand.
And, don’t forget, members of the Credit Union enjoy free and confidential Credit Counseling and Financial Planning through our Financial Planning and Education Center. We are here to assist you every step of the way.
Chief Executive Officer
Chicago Patrolmen’s Federal Credit Union