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3 Building Blocks of Financial Freedom

One reason we’re celebrating our Financial Hero Dr. Lakisha L. Simmons this Independence Day?

At age 41, she achieved her definition of “financial freedom” by retiring from her day job.

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“Turning in my resignation was one of the hardest things I’ve ever done,” she wrote on Instagram. “Even though I have financial security, not having a paycheck to depend on feels really strange! But I’ll get used to it.”

For many workers relegated to home offices since March 2020, the pandemic served as an opportune time to reevaluate how they spend their time and money.

Now as we near what appears to be a post-pandemic era, entrepreneurial individuals are opting to change career paths to one that aligns more with their priorities. Called the “YOLO economy” or “great resignation,” this perspective on financial freedom marks a significant cultural mindset shift.

What Financial Freedom Means to Americans

This Independence Day, we’re taking a closer look at “financial freedom.” We teamed up with Empower Retirement and surveyed 2,005 American adults to explore how they define overall financial wellness, a topic we’ve highlighted with other Financial Heroes Dr. Deepak Chopra and Apolo Ohno.

The vast majority of those we surveyed — 81% — say, “I will feel financially well when I have the freedom and ability to spend how I want to.”

Those we surveyed see covering shorter-term financial needs as a big factor in financial wellbeing. When it comes to financial freedom, our survey respondents balance those priorities with investing in the future — getting free of debt, meeting retirement-saving goals, and achieving other long-term objectives.

In your opinion, how connected are these elements with financial wellbeing?
Short-term needs Long-term needs
75%  Paying bills on time and in full 69% Being debt-free
71%  Having an emergency fund 69% Being able to retire when I want to
70% Having a good credit score 69% Being able to save consistently
65% Being able to make big purchases when needed without worry 64% Reaching a certain savings balance
63% Buying/owning a home
62% Reaching a certain net worth

They agreed financial freedom comes down to one thing: the feeling of being in control of your own life.

Here are three steps to propel you toward financial freedom, particularly with a long-term mindset.

1. Get Visibility on Your Money

The first step in financial freedom is knowing exactly where you stand.

Simmons uses the Personal Capital financial tools to see and track all of her financial accounts in one place. Financial tools like the net worth tracker, savings planner and budgeting tool can help you gain a greater understanding of your financial picture.

Simmons says that getting familiar with your finances is essential — even when it’s hard to look at.

“I’ve had women tell me, ‘I’m afraid to see how much debt I really have’ or ‘I’m afraid to know what my picture really looks like,’” she told us. “It is scary.”

In coaching others, she points to her personal struggle following her divorce: “I was afraid, too. But I would encourage you, all you have to do is take one step forward.”

Important considerations include:

  • Your current debt
  • Your annual income
  • Your annual expenses
  • Your savings
  • The balance of your investment accounts
  • Your net worth

2. Get Comfortable with Budgeting

Once Simmons saw the overview of her financial life in one place, she started reducing expenses — starting with her large mortgage. She downsized to an apartment and then upgraded her money plan.

She started tracking all of her day-to-day expenses to ensure she was living within her means. For her, budgeting isn’t synonymous with frugality. Instead, she calls her method of money management a “budget bestie.”

“You really need to be close with your budget — to know everything that’s going out at any given time,” she said. She uses online finance tools to manage her cash flow and plan for both periodic and unexpected expenses. Within the span of four years, Simmons got out of debt and, through intensive investing, amassed a $750,000 net worth.

Read More: How to Take Control of Your Household Budget

Saving money is a critical component of achieving financial freedom. Most experts agree that setting aside a cash emergency fund of at least 3-6 months of expenses should be among your top financial priorities. This set-aside cash can be used to cover any surprise expenses or pay for your bills if you find yourself unexpectedly out of work. Saving is also an effective strategy for short-term financial goals, meaning those within about five years.

3. Get an Investment Plan

For true financial freedom, cash savings likely won’t be enough. Over the past year alone, consumer prices have risen 3.9%. With the purchasing power of the dollar decreasing over time, you’ll need a solid investment strategy for your long-term goals.

When you invest, you aren’t just relying on the money you save. Instead, you’re relying on compounding to help your money grow. Simply put, the money you save begins to make money, and then that money also begins to make money. Compounding is how people are able to retire millionaires without actually having saved $1 million.

Read More: How I Became a Millionaire in my 30s

Simmons started by annually maxing out her retirement accounts, including a 403(b), 457(b), and Roth IRA. She opened a brokerage account and now contributes regularly and significantly. Any time she earns extra money, she invests it.

“All these years, I worked for my money, and now my money works for me,” Simmons told us. “That is how I was able to reach financial freedom so quickly — because I was focused on it.”

Now that Simmons has built up her nest egg, she knows she has the practices in place to live off it.

“That doesn’t mean I will never work again,” she said, “It means I can focus on other goals.”

In other words, she can live financially free.

Keep Learning

Featured individual is a paid spokesperson and not a client of Personal Capital Advisors Corporation (“PCAC”).

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Alicia Castro is the Managing Editor of Daily Capital.
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Let us know…

This year, my top financial priority is:

Building my emergency fund
Paying off high-interest debt
Budgeting better
Saving for a short-term goal, like a vacation or new car
Increasing my investment contributions
Maintaining status quo - I’ve got this under control

Make moves toward your money goals with Personal Capital’s free financial tools.