Imagine having enough money in your bank account so you don’t have to live from salary to salary. Or not having to stress about daily expenses and bills. How great would it be to go on holiday without going into debt? Or being able to retire early, knowing your financial future is secure.
That’s the feeling of financial freedom—to enjoy life without having to worry about money.
Financial freedom means something different for everyone. For some it means having enough money to buy a house and pay off the mortgage by age 50, or having the capital to start your own business and still have savings. For others, it means being able to live a comfortable lifestyle or to travel the world. Each person has their own ideas and requirements for financial freedom, so each person’s journey is unique. However, there are common guidelines you can use to help you on your journey to financial freedom. Here are our 7 steps to help guide you to financial freedom.
1. Determine clear goals
Failing to plan is planning to fail. As with most things in life, having a plan is essential to achieving your goal. Spend some time and think about what exactly it is you want when it comes to your financial freedom. Determine what you want to be able to do, how much money you’ll need to do it, and by when you want that amount of money. Once you have those three objectives, you can work your way back to see what you have to do in order to make it a reality.
2. Make an investment plan and stick to it
Having an investment plan is essential to obtaining financial freedom. Do your research, consult financial advisors and decide which investment path will suit your needs, situation and financial abilities best. Take into consideration your current job and financial situation, earning potential and career path, your lifestyle, family responsibilities, changes to your future (e.g. having children), your ideal retirement age, etc. All these factors will influence your investment plan.
Once you have a viable financial plan, start investing immediately—and most importantly—stick to it. Your investment plan is a long-term commitment to yourself and your future. Don’t withdraw your investments before maturity—stick to you plan and commit to your end-goal.
3. Learn how to manage money, consume information, and get advice from specialists
Educating yourself and learning more about the world of investing can only benefit you on the journey to financial freedom. You don’t need a degree in economics to deserve life free from worrying over your finances. By reading trustworthy blogs, articles, speaking to experts, understanding tax laws and regularly checking whether you’re still investing on the options that suit you best, all contribute to your financial well-being. Getting financial advice from an expert and educating yourself can help prevent financial problems.
4. Follow a monthly budget
Having a budget means you’ll know exactly where your money is going. It also gives you more control over your spending habits. Take your last three months’ bank statements and meticulously track all your expenses; from your monthly debit orders and study debt, to the cappuccino you buy in your lunch break. Review whether you’re wasting money in some areas (do you really need to buy that daily donut?) and where you can cut back and rather add money to your investment or pay off debt.
The 50/30/20 budget rule is an effective strategy that helps you to divide your income into needs (50), wants (30), and saving/investments (20). This helps you to keep your spending habits in check and achieve your financial goals. By having a budget you’ll have more control over your expenses and it’ll give you a clearer idea on whether you’re en route to achieve your goal, or need to work harder.
5. Pay off your debt
Not all debt is created equal. Certain long-term loans, such as student loans and mortgages, can be advantageous, as it provides you with the opportunity to build good credit—just be sure to make your payments on time. With credit cards, store credit accounts and other short-term debts, however, the interest rates tend to be much higher and if not kept in check, could cripple your finances. Try to avoid this kind of debt, or pay it off as soon as possible.
6. Save and cut on unnecessary costs
Pay yourself first. That donut we spoke of earlier? That (and other ‘wants’ expenses) shouldn’t take preference over your savings. Every month, you should set aside money for your savings and investments. You can set up recurring payments or debit orders to help you manage this automatically. Don’t wait until the end of the month to transfer money to your savings account. As soon as you get your salary, pay yourself—future you will thank you for it. Of course you can still enjoy life, and you should. But cut down on unnecessary costs. You can still buy the donut, but make it a once-a-week treat and not a daily one. You’ll be surprised how quickly those would-be expenses add up and contribute positively to your financial health.
7. Adapt the plans along the way
Following your budget and investment plan takes time, dedication and self-discipline. But after a while it becomes second nature. Even though it’s important to stick to your plan, it doesn’t mean you can’t change it. Review your investment plan, along with all your other financial assets and expenses to see where you can save on unnecessary costs, manage your income better, or add more money to your investments. Perhaps you got a promotion, have less expenses, or changed to another bank that offers better interest rates. See how you can cut on expenses or add to your investments to reach your financial goals quicker.
The journey to financial freedom starts here
And there you have it! When you use our 7 steps to financial freedom and apply it to your own idea of what financial freedom is, you’re well on your way to live a financially healthy life where you don’t have to worry about finances. It will take hard work and sacrifices, but, in the long run, you’ll be happy that you prioritized your financial freedom.