Financial freedom means having no debt and earning enough passive income to cover all living expenses. It’s a place that everyone wants to be in life. Most of us just hope we can get there by the time we reach 65. Some hope to reach financial freedom sooner so they can spend time working at a job they love, volunteering or spending more time with their family.

Most people want the freedom of not having to worry about money. Knowing why you want to be financially free will motivate you to work hard enough to reach your goals. If your goal is to get rich so you can sit around and do nothing then you will probably end up disappointed. Reaching financial freedom takes hard work, dedication and consistency.

Example: Financial Freedom Goals

As an example, my goals are to reach a point where I have:

- Paid off my student loans & mortgage (or any other debt)
- Saved for my kids college education
- Saved for retirement
- The freedom to give generously
- Have enough passive income to cover my expenses and live well

My goals are not overly ambitious. I’m not out to be extremely wealthy but I do want to go to bed at night knowing that I don’t owe anyone money. I want to be able to give my kids a college education. I want to have money saved to retire and I want to be able to give money away generously, above and beyond the normal 10% that God calls us to give. I want to reach financial freedom so that I can spend time doing the things that I want to do. The decisions I make about how I spend my time should not be controlled by money.

To reach these goals I’ve come up with a plan to become debt free and begin earning and saving towards my future. Earning supplemental and passive income is going to be a major part of how I reach financial freedom. I’ve found that what I’m making at my 9-5 job is not putting me on a path to meet my goals. I’ve fit my plan into five steps that anyone can follow to reach financial freedom.

Step 1: Set your financial goals

You’ve seen my goals and now it’s time to set your own. I have some very specific numbers written down that help me define what it would take to reach each goal and you should do the same. Becoming debt free should be goal #1. Once you are debt free you can start moving towards your long term goals.

Make a list of the things you want in life. I encourage you to not be greedy and start off slow. Wanting something like a nice home is good but saying that you want to have a $5 million mansion paid off in 5 years is not reasonable. My goals have 3 – 20 year targets depending on how big the goal is. I also have a very specific dollar value for each goal so that I know what it will take to complete my goal.

Set your goals using the SMART principle

Your goals need to be:

Specific
Measurable
Attainable
Realistic
Timely

Step 2: Asses your situation

After you set our goals you need to evaluate your spending habits. It’s easy to feel bad about poor spending choices you have made. Don’t let your mistakes discourage you. You can start fresh. Even though it’s hard to do, you must sit down and go over the way you have been spending your money. If you aren’t able to track down your recent expenses keep track of how you spend your money for the next 30 days. This will give you insight into how you are spending your money.

Build a budget

Now that you see where your money is going you can make a budget for yourself. You need to include all your expenses in your budget like your rent/mortgage, debt payments, food, gas, insurance, toothpaste… everything. Obviously your budget expenses need to be less than the amount of money you are taking in each month. Be thinking about your goals as you put your budget together.

In looking at your budget there are a couple of things to consider. The first is debt. Eliminating your debt will make a huge difference in your budget. The less debt payments you have to make, the more you can save. Eliminating debt needs to be a priority. For some it requires a complete transformation in lifestyle. The recent downturn in the economy has motivated people to start climbing out of the debt and change the way they spend money.

Needs vs Wants

The other item to consider in a budget is the understanding of a need verses a want. A need is something that you cannot live without like food. A want is something that you don’t need but you would like to have, like going to a movie. It’s easy to confuse a want with a need but be honest with yourself and see if there are any of those “wants” that you can cut back on.

Building a budget and tracking your spending are critical pieces of the financial freedom puzzle. A disciplined approach to spending will help you stop accruing debt and start saving for the future. Without a budget you will never advance towards your financial goals.

Time

How you spend your time is a major factor in reaching financial freedom. Spend your time wisely, not on things that cost you money. I’ not saying you should not go out and have fun. Living a balanced life is very important and there is a time for everything. You don’t want to be routinely spending your time on things that cost you money.

Time is one of your greatest sources of investment. For now just take a look around at where you invest your time. Later I will address how you can use your spare time to earn supplemental income.

Now that you have your goals and a budget it’s time to come up with a plan. Those who earn a large income in their regular job may find that they are saving enough money each month to reach their goals without needing to earn extra money. Everyone else needs a plan to generate extra income to reach your financial goals.

Step 3: Develop a plan

The first step in developing your plan to reach financial freedom is already done – building a budget. Once you have your goals and your budget you need to identify any gaps. Is the amount you save each month going to get you where you want to be financially? For most, the answer is no and you will have to come up with another way to reach your goals.

If you are young and find yourself saying that you will be earning more money when you get older then let me put it in perspective for you. As you get older your salary increases, but so do your expenses. Having a family, paying a mortgage, saving for retirement and kids’ college really starts to add up. Putting $500 a month towards your savings account won’t get you very far in reaching your goals.

Supplemental income

To fill in the gap left between your budgeted savings and your goals you need a plan to earn extra money each month. Earning a supplemental income will help you to pay off debt faster which will free you from having to make those high interest payments. You can then take the money that was being used to pay off debt and use it to pay off other debt or to save towards a goal. Once you have enough money saved, you will be able to invest your savings to help you get closer to your goals. There are plenty of ways to earn extra money but all of them take hard work and consistency. Unlike many of the get rich quick websites want you to believe, there are no shortcuts

Since you set your very specific goals in step one, you know how much money you need to reach each goal. If your goal is to be able to afford a monthly mortgage payment, then you need to know how much you need to earn each month to afford a home. The next question to ask yourself is: How much more do I need to be making each month to reach my goal? Once figure out the answer, find a way to make that extra money.
My Story:

I struggled with finding a way to earn supplemental income for a long time. Four years ago I was trying very hard to come up with ideas to earn extra money. The idea of taking a part time job that paid much less than my regular job was not appealing to me. I tried to learn how to make money online but I failed to find anything that made sense. I started trying to buy homes in pre-foreclosure and flip them, but that plan never got off the ground.

Eventually, I came back to the idea of earning money online. I bought a website for $560 off of eBay under the impression that it was earning over $100 a month. I thought it was a low risk investment but I was wrong. The website made $0 a month after discussions with the seller I got half my money back.

Owning that website forced me to learn. I started learning about Google Adwords (advertising on Google) and how to use it to promote products. I also learned how to get my website to rank high in Google search results. I did all kinds of research, but the best resource I came across was the book “How to get to the top of Google and stay there” by David Viney. His book taught me all about search engine marketing and how to build links to my website. I read the book twice, followed every step and it worked! My stock website became number one in Google in 6 months. Along the way I started learning how to monetize my website using advertising and affiliate marketing. I now have a few websites, including needmoneytips.com and they all earn supplemental and passive income to help me reach my goals.

I’ve put together a list of ways to earn supplemental income. Most of them are based on working online which has become my favorite method to earn extra money. I have complete control of what I do and how I do it. Even more importantly I have control of when I do it. I’ve found that the more time I put in the more money I will make. Eventually I’d like to work online full time but for now it is just good ole supplemental income to help me reach my goals.

Resources
How to start a blog

How to make money blogging

How to earn supplemental income

Step 4: Execute your plan

Consistency is the key, especially when trying to stick to a budget or build an online business. It takes self discipline to consistently work hard over time. You need to be that type of person if you want to meet your goals.

Patience is equally important as consistency. Things do not happen over night. Paying off debt and building up supplemental income takes time. There are no shortcuts or easy ways out. If you find yourself getting impatient make sure you are being reasonable and remember that the time and work you are putting in up front will pay off down the road.

Using a list is a great way to stay organized and create tasks for yourself. Winners make lists. Follow your list religiously. Set tasks for yourself each day or week and make yourself complete them.

Step 5: Learn, Update, Adapt

As you go, you will find that things change. The first budget you come up with might be too loose or too tight. By using a budget you can learn to live without all of your wants or learn how to save money on some of your needs. Adjust your budget and your lifestyle as you learn new things.

The same goes for your supplemental income experience. If you take a part time job, there won’t be much to learn, update or adapt to except a new schedule. If you decide to go out on your own and start a new business (yes, a blog or website can be your business) there will be a lot of new things to learn. As you go, you will find that most of your expectations will be challenged. Keep trying new things until you find what works.

Recap

Start by deciding what you want and set your goals
Review your spending habits and set a budget
Come up with a plan to earn extra money
Execute your plan
Review your plan as you go and make updates where necessary

This article was featured on My Journey To Millions for the carnival of personal finance #241.