What does financial freedom mean to you?
Achieving financial freedom is a goal for many people. It generally means having enough savings, investments, and cash on hand to afford the lifestyle we want for ourselves and our families—and a growing nest egg that will allow us to retire or pursue the career we want without being driven by the need to earn a certain amount each year.
Unfortunately, too many of us fail to achieve it. We are burdened with increasing debt, financial emergencies, and other issues that thwart us from reaching our goals. And we encounter unexpected events, such as this pandemic, that overturn our plans and reveal holes in the safety nets we tried to weave for ourselves and our families.
No matter what financial freedom means to you, here are some healthy habits you can develop to get you on the path to financial freedom:
1. Set Life Goals
A general desire for financial freedom is too vague a goal, so get specific. Write down how much you should have in your bank account, what your desired lifestyle entails, and at what age this should be achieved. The more specific your goals, the higher your likelihood of achieving them.
Next, count backward to your current age and establish financial mileposts at regular intervals. Write it all down neatly and put the goal sheet at the very beginning of your financial binder.
2. Make a Budget
Making a monthly household budget—and sticking to it—is the best way to guarantee that all bills are paid and savings are on track. It’s also a regular routine that reinforces your goals and bolsters resolve against the temptation to splurge.
3. Pay-Off Credit Cards Regularly
Credit cards and similar high-interest consumer loans are toxic to wealth-building. Make it a point to pay off the full balance each month. Student loans, mortgages, and similar loans typically have much lower interest rates; paying them off is not an emergency. Paying on time is and will build a good credit rating.
4. Create Automatic Savings
Pay yourself first. Enroll in your employer’s retirement plan and make full use of any matching contribution benefit. It’s also wise to have an emergency fund, which can be tapped for unexpected expenses. Ideally, your automatic savings contributions should be made the same day you receive your paycheque, so the money never touches your hands and helps you avoid the temptation of uncontrolled spending.
5. Work with a Financial Advisor / Planner
Work with a financial advisor/planner early on to help you set your financial goals and evaluate your risk tolerance. Your financial advisor /planner can help you stay on track and avoid knee-jerk investment decisions. You should review your investment performance on an annual basis (at a minimum) to evaluate performance, and evaluate any changes such as life events like a promotion, arrival of a child, etc. The outcome of this meeting will determine any changes that are needed for your overall portfolio.
Work with your financial advisor/planner to learn how to invest, create a manageable portfolio, and start making automatic contributions as early as possible.
6. Watch Your Credit
Your credit score determines what interest rate you are offered when it comes time to borrow to buy a new car or home. It also impacts seemingly unrelated things, such as car insurance and life insurance premiums.
The reasoning is that someone with reckless financial habits is also likely to be reckless in other aspects of life, such as driving and drinking. This is why it’s important to get a credit report at regular intervals to make sure that there are no erroneous black marks ruining your financial reputation.
Many people are hesitant to negotiate for goods and services, worrying that it makes them seem cheap. Overcome this hesitation and you could save thousands each year. Small businesses, in particular, tend to be open to negotiation, where buying in bulk or repeat business can open the door to good discounts.
8. Continuous Education
Work with your financial or tax advisor to review all applicable changes in the tax laws each year to ensure that all available adjustments and deductions are maximized. Keep up with financial news and developments in the stock market and do not hesitate to adjust your investment portfolio accordingly. Knowledge is also the best defense against those who prey on unsophisticated investors to turn a quick buck.
9. Live Below Your Means
Adopting a mindset of living life to the fullest with less is not as hard as it may sound. Many wealthy individuals developed a habit of living below their means before rising to affluence.
This isn’t a challenge to adopt a minimalist lifestyle or a call to action to head to the dumpster with things you’ve hoarded over the years. Making small adjustments by distinguishing between the things you need and the things you want is a financially helpful habit to put into practice.
An example of mastering a frugal lifestyle is taking care of your property. Taking good care of property makes everything from cars and lawnmowers to shoes and clothes last longer. The cost of maintenance is a fraction of the cost of replacement, so it’s an opportunity not to be missed.
10. Take Care of Your Health
The principle of proper maintenance also applies to the body. Invest in your good health with regular visits to doctors and dentists, and follow health advice about any problems you encounter. Many problems can be helped—or even prevented—with lifestyle changes such as more exercise and a healthier diet. Some companies have limited sick days, making it a notable loss of income once those days are used up. Obesity and ailments make insurance premiums skyrocket, and poor health may force earlier retirement with lower monthly income.
The Bottom Line
The above steps may not solve all of your money problems, but they can help you develop healthy habits that can get you on the path to financial freedom—whatever that means for you.