Financial freedom made simple: a beginner's roadmap

Whether you're just starting out or starting over, financial freedom is a goal you can work toward one step at a time. The roadmap comes down to four adulting basics: know your numbers, set a goal, pay down debt, and build savings. Some of those steps might feel small at first. But you've got this. Like millions before you, you can find your path to financial freedom.

What does financial freedom really mean?

An Achieve survey illuminated Americans' definition of financial freedom. Very few (less than 13%) described financial freedom as being rich. Instead, most people had more down-to-earth ideas. Here's how people described their visions of living free from money stress:

• Live debt-free: 54.2%

• Live comfortably, not necessarily rich: 50%

• Meet all financial obligations and have money left over: 49.3%

• Never worrying about money: 46.2%

Financial freedom may not be the answer to every issue, but working through financial challenges could help you develop useful skills to take on other difficulties throughout your life.

Signs you've reached financial freedom

Financial freedom means something different to everyone, and these practical signs can help you check your own progress:

• You pay your bills on time with money left over.

• You have a cushion of savings for surprises.

• You handle your debt payments comfortably, or you've already paid off high-interest debt.

• You save regularly toward future goals.

• You make money choices based on your priorities instead of worry.

Why does financial freedom matter for everyday peace of mind?

One advantage of financial freedom is less worry and more peace of mind. That absence of stress may also have some other benefits:

• Less long-term money stress. Long-term stress may play a part in health problems like heart disease and high blood pressure.

• More patience

• More time to focus on tasks

• More room to live in the moment

Having enough means more than just having money. It means having the space to be yourself and live your life.

How to reach financial freedom: steps to get started

The first step to better manage your money for financial success is knowing where you stand. Unless the facts and figures are already etched in your mind, take the time to get organized. Gather everything you have related to your finances. This may include:

• Your latest bank statements

• Statements for any savings or retirement accounts in your name

• A copy of all monthly bills

Step 1: Understand your finances

It helps to see your financial obligations in black and white, which can be as simple as writing them out on a piece of notebook paper. Once you've gathered your monthly bills, create a table like this one:

Next, figure out which debts cost you the most in the long run. Typically, it's the debt with the highest interest rates. For example, in this example, the most expensive debt is the Discover card, with a 25% APR. The minimum monthly payment is $125.

If you continue paying $125 each month, it'll take you seven years and three months to pay the card off. You'll pay a total of $5,862 in interest. In other words, you'll repay $10,862, more than twice the amount you initially charged to the card.

Step 2: Set goals you can measure

Now that you know your numbers, decide what financial freedom means to you. Maybe you dream of living debt-free, or of covering every bill with money left over. Your answer points to your first goals.

Write down one or two goals, and give each one a dollar amount and a target date you choose. A clear number and date make your progress easy to track. With the table from Step 1, your goals might go like this:

• Pay off the $5,000 Discover Card balance by a date you pick.

• Build a starter cushion for surprises, with an amount and deadline that fit your budget.

Next, turn those goals into a written monthly budget. The Federal Trade Commission describes a budget as a plan you write down to decide how you'll spend your money each month. Give your goals their own line in that budget, just like rent or groceries, so they get money every month, too.

Step 3: Manage and reduce debt

If you want financial freedom, your best bet is to aim for a debt-free lifestyle. Can you reach financial freedom if you're already in debt? Absolutely. Millions of people who live debt-free reached their goals using debt solution tools like these:

Debt avalanche

The name of this technique may sound dramatic, but the debt avalanche method is a simple strategy for debt management. Here's how it works.

1. List your debts by interest rate. In our example, the list goes like this:

• Discover Card: 25%

• Chase: 22%

• Capital One: 19%

• Car payment: 7.5%

• Student loan: 6.5%

2. Continue to make monthly minimum payments on all your debt—except the debt with the highest interest rate. That one gets all the extra mojo. Pay any extra amount you can toward that debt each month.

Even smaller extra payments will make a difference. Let's say the most you can pay toward the Discover Card is an extra $50. Instead of a monthly payment of $125, you bump it up to $175. That clears the balance in 44 months (3 1/2 years). Your total interest comes down to $2,676. That's a lot of money saved.

3. Once the first debt is paid off, start on the debt with the next highest interest rate. In this case, it would be the Chase credit card. Since you're no longer paying Discover, you automatically have an extra $175 monthly to put toward the Chase card. Add that $175 to the $75 you're already paying on the Chase card, for a total of $250 per month.

4. When Chase is paid off, it's time to move on to the next debt. The more debts you pay off, the more money you have available to roll over to the next debt in line. That's why this method is called an avalanche. It may start slowly, but it picks up steam.

Debt snowball

If waiting months or years to pay off the first debt might cause you to lose motivation, consider using the debt snowball method instead. The debt snowball is very similar to the debt avalanche. The big difference is that you put your resources into the smallest debt first and work your way up, instead of worrying about interest rates.

1. List your debts by the amount owed, beginning with the smallest. Your list might go like this:

• Chase: $3,000

• Capital One: $3,500

• Discover: $5,000

• Car payment: $15,000

• Student loan: $19,000

2. Continue making monthly minimum payments on all your debts. Pay extra toward the smallest one each month.

3. Once the first debt is paid off, start on the next lowest balance, and so on.

Start building your cushion

Part of being financially free is building an emergency fund so you have a cushion to fall back on. Financial planners often recommend an emergency fund with three to six months of living expenses.

Every single dollar counts. Even if the most you can possibly save is $1 a day, that's a great start. That dollar will become part of the funds to pay for new tires, or an emergency trip to the dentist.

At $30 a month, you'd have $360 in a year ($30 × 12 = $360). It doesn't matter how slowly you build an emergency account. What matters is that you do it.

Save for your future, too

Once you've built a small cushion, retirement savings can join your plan. Your future self is part of financial freedom, too.

Ask your HR department about a workplace retirement plan with an employer match, if your employer offers one. A match means your employer adds money to your retirement account when you contribute, up to a certain level. An employer match is free money.

Start with the amount that gets you the full match. Then raise it as your budget grows.

How to avoid common setbacks on your way to financial freedom

It's easy to get in your own way by thinking you'll never meet your goals. Nothing could be further from the truth. It's not magic. It's strategic planning. Here are some steps to avoid setbacks.

• Create a realistic monthly budget. Your budget should be a plan you can stick with.

• Learn everything you can. Learn about financial issues that impact you now (or in the future). This includes retirement planning and investment strategies. Fees vary by brokerage, so compare them before you open an account.

• Avoid lifestyle creep. As your income increases, stick with your current budget rather than spending more. The goal is to spend less than you earn so the difference can go toward savings.

• Monitor your progress. Sometimes, time takes on a different meaning when you're trying to get on track financially. For example, it may feel like it's taking forever to pay off debt or build an emergency fund. However, if you regularly monitor your progress, you'll notice that you're moving in the right direction.

• Celebrate your successes. Every little thing you do to move toward financial freedom is a success. Be sure to celebrate by cooking a special meal, having friends over for a gathering, or hosting a game night.

Resources to support you on your journey to financial freedom

Millions of Americans have traveled this road before you, and some of them have created resources that can help you along your way. They include:

• Financial books, magazines, and news articles. You can also search online for information regarding issues you want to know more about or visit your local library.

• Free apps. Want to get rid of debt on your own? The Achieve GOOD™ app is built for that. Or want more money left over each month? Achieve MoLO® can help with that, too. Loaded with a couple great money apps, your smartphone could be an invaluable resource to help you deal with debt and improve your money management skills day-to-day.

• Friends and family. If you're close to someone who has their financial life in order, they'd probably be happy to answer any questions you have.

• Financial experts. If you need help figuring out where to start or feel your financial issues are above your pay grade, it can help to talk to a professional debt consultant. Many debt solutions companies offer a free consultation, so you can talk to someone at no risk. Life after debt can be pretty sweet. A quick phone call is one way to find out what's possible.