7 habits to help you achieve financial freedom

The cycle of constantly paying bills and covering life’s necessary expenses can be frustrating—especially if you aren’t left with much spending money after. But what exactly is financial freedom, and how do you achieve it?

Key takeaways

  • Financial freedom can mean different things to different people. But generally, it means reaching a level of financial comfort where you can worry less about money.
  • Defining goals and practicing responsible financial habits can help you work toward financial freedom.
  • Learning the basics about budgeting, spending, saving, investing, credit and debt might help along the way.

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Financial freedom definition

The definition of “financial freedom”—sometimes used interchangeably with “financial independence”—can vary depending on who you ask. In general, achieving financial freedom means living comfortably without money-related stress.

For some, that means having paid off all outstanding debts. For others, it means having enough money after paying the bills each month to save, grow retirement savings or simply afford a preferred lifestyle. For some, it might mean being able to pursue their interests and passions without having to worry about financial strain.

Reaching a point where worries about money become less frequent—due to careful planning and hard work—can be a realistic goal.

How to become financially independent: 7 helpful habits to build

If you’re looking to pursue financial freedom, here are seven places to start.

1. Clearly define your financial goals

The first step to take toward becoming financially free is to determine what your specific goals are for your finances. Consider asking yourself a few of the following questions:

Once you’ve determined whether one or more of these questions apply to you, you can identify the next steps to take.

2. Track and analyze your spending

To understand where all your money goes every day, week, month and year, it can be wise to start tracking your spending habits. Documenting your spending can help you assess where there’s room to cut excess costs. It can also help you identify habits you can eliminate or reduce—like dining out instead of cooking at home—to free up additional money in your budget.

You can create and stick to a budget manually or with a budgeting tool. Plus, if you’re a Capital One cardholder, you can use Eno, your Capital One assistant that helps monitor your money 24/7.

3. Automate your money

In addition to tracking your spending habits, it can be helpful to automate the movement of your money. You can choose a specific amount to have automatically transferred into your savings account every pay period. The Consumer Financial Protection Bureau calls it one of the “easiest and most consistent ways” to build toward a savings goal.

Savings is just the start. You could also set up automated payments for your bills to ensure you’re avoiding late penalties and fees.

You can also automate payday with direct deposit, which is often faster and more secure than cashing a check.

4. Pay down your debts

Reducing the amount of debt you carry can help you achieve your other financial goals and move toward financial freedom. Creating a debt repayment plan—using the debt avalanche or debt snowball method, for example—can help you stay on track until you’ve successfully repaid it all. Consolidating your debts can also help make it easier to start paying them off more efficiently.

Once your debts are repaid or reduced, it might give you more wiggle room in your budget to pursue other financial goals.

5. See whether investing makes sense 

While there’s always some risk involved in investments, putting some of your available funds toward stocks, bonds, mutual funds, Roth IRAs, 401(k)s and other investment opportunities can potentially help to grow your wealth and achieve financial freedom. Consider talking to a financial expert about how to build an investment portfolio and choose the right investment assets to best fit your goals.

6. Keep an eye on your credit score

Having a good credit score can open up a lot of doors, like getting approved for mortgages, auto loans and credit cards with better interest rates and credit limits. So it’s good to regularly check your credit scores and to take steps to improve them if needed. Tools like CreditWise from Capital One can help you monitor your scores without affecting them. It’s free for everyone. And you can use the CreditWise Simulator to get an idea of how certain financial decisions might impact your credit.

7. Consider meeting with a financial adviser

It can be difficult to know where to begin on your journey toward financial freedom. But working with a trusted financial expert can help, especially when you’re just starting out.

Achieving financial freedom in a nutshell

Becoming financially free and having more flexibility with your finances is a desirable goal for many people. And with dedication and consistency, you, too, can achieve financial independence later on down the road.

You can learn more about a specific type of financial freedom called the Financial Independence, Retire Early (FIRE) movement. And if you’re looking to build more financial habits that could lead to greater independence, check out how to reduce your expenses.

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