Nowadays it seems normal for people to be in some type of debt (student loans, credit cards, car loans, etc.). Marketing funded by corporations in our society makes us believe that it is okay to be in debt. Although this may be "normal", it's hurting your chances to become rich and holding you back from financial freedom.
"Collectively, Americans owe 10 percent of their disposable income to non-mortgage debts like car loans, credit card accounts and student or personal loans."
If you intend to achieve financial freedom, you'll have to think differently. Your lifestyle is diminished with debt. The more debt you carry, the more your income is devoured by interest payments.
Not only does debt consume your income, but it can also take a toll on you mentally. You become a slave to the amount of debt you possess. You're more stressed with debt and feel chained by it.
Understand how much you're in debt. Write down your debts and rank them by interest rate. Start by paying off the highest interest rate first. Once that is paid off, continue to pay off the second-highest and so on.
I know this takes discipline, but it will be worth it in the long run. If your goal is to truly be financially free and have "FU" money, it's imperative that you pay off your debt IMMEDIATELY.
If you feel your current income will take light years to pay off your debt, find ways to make extra cash on the side. The faster you can pay it off, the faster you can invest your money and make your money work for you.
2. Spend Less Than You Earn
Mike Tyson, a famous Heavyweight Boxer has made over $300 million in his career, and yet he filed for bankruptcy in 2003. Moral of the story, if you're spending more than you make, you'll go broke.
Track your money and create a monthly budget. Be smart with your finances and eliminate all but essential spending. Do you really need to buy a cup of coffee on your way to work every day? Do you really need to eat out 5 days a week? Is it that important to wear the latest and greatest style of clothing? I know this may be hard, but remember that you're saving now so you can be financially free in the future.
Look at your current lifestyle and see where you can cut back.
Now that you have eliminated your debt and have created a monthly budget, it's time to invest a portion of your money so your money can work for you. The best way to ensure a safe and low-risk investment is by diversifying your portfolio. By using asset allocation, you're balancing risk versus reward on your returns.
Ways to Invest:
Low- Cost Index Funds
Stocks (Vanguard Total Stock or Vanguard S&P 500)
Becoming financially free requires discipline and sacrifice. It requires an understanding of your finances and figuring out ways for your money to work for you.
Disclaimer: The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.