Generations of Americans have sought to live the American dream of homeownership and the accumulation of personal possessions. While some people see this as a liberating lifestyle, the means by which many people accomplish this leads them into a quagmire of debt and financial instability. People can only gain real financial freedom when they've met certain benchmarks and have achieved a strong sense of financial stability and confidence.
The American dream of homeownership has been an important part of the American experience. People are taught from their youth that homeownership is an American rite of passage. While it is true that owning a home can be an important investment, the benefits that you can reap from owning a home can quickly be countered by poor buying decisions. According to personal finance guru Dave Ramsey, people should only purchase a home when they can afford to place at least a 10 percent down payment on the home and acquire a 15-year, versus a 30-year, mortgage that has a payment of 25 percent or less of their take-home pay. Ramsey recommends a 15-year mortgage over a 30-year mortgage due to the substantially higher interest paid on a 30-year mortgage over the life of the loan.
Automobiles are another popular possession accumulated on the journey to financial freedom. However, automobiles are perhaps the most detrimental asset to meeting your financial goals. According to Dave Ramsey, the average consumer pays nearly $475 per month in car payments. Automobiles are an ideal example of a depreciating asset; that is, an asset that loses its value over time. Ramsey indicates that if the average car payment of $475 per month was invested at 12 percent annually, the consumer, by way of compound interest, would have an account balance of over $100,000 after 10 years.
The most important tool in achieving financial freedom is the ability to save money. Saving money is paramount in the journey to achieving financial freedom, as a large emergency fund is an important way to provide a sense of security. Investments can take many forms, from 401K accounts to individual retirement accounts. Many people feel that they cannot save due to their lower revenue stream, but most people, through lifestyle adjustment, should be able to save at least a small portion of their monthly income.
Financial debt, aside from an affordable 15-year mortgage, is a surefire way to delay the acquisition of financial freedom. Consumer debt, mostly in the form of credit cards, is a telltale sign that the consumer is living beyond the means provided by her revenue stream. Credit card debt should be reduced or eliminated during the quest for financial freedom, as the payments and associated interest rates are destructive to your financial stability. Personal finance expert Clark Howard advises consumers to pay off their credit card debt using a "laddering" technique, which entails paying off the credit card with the highest interest rate first, then moving down to the other credit cards with lesser rates.