Financial freedom is what we’re all striving for, and something that most hope to achieve at some point in our lives. It’s what keeps us going in jobs we hate, contributing to a retirement fund, living frugally or committing to paying off debt, even when it means having barely anything left afterwards. But few people understand what financial freedom really means. Although generally people associate financial freedom with having adequate funds to live comfortably, with a degree of savings and little worry, what it really means to is to be in control of your finances – but not let them control you. To feel safe knowing that where the next month’s rent is coming from isn’t a concern. While this is an inherent fear for most of us, how about the other things that inhibit financial freedom, like understanding how to live sensibly but without being to afraid to actually spend money occasionally on things that might not be ‘necessities or ‘in the plan’? What about breaking the habit of going between budgeting and making irrational, unnecessary purchases? Or living beyond your means with the help of a credit card (or two)? It’s our relationship with money which is what usually governs our financial situation, and so without reevaluating your relationship money you won’t find yourself financially free.
Budgeting
If you’re finding it hard to keep track of outgoings, or have a particular financial goal in mind (for instance, being debt free) then one surefire way of taking steps towards financial freedom is by budgeting.
Budgeting allows you to differentiate between your needs and your wants; by budgeting you’re able to work out your non negotiable outgoings each month (for instance rent, bills, food), and what you have left afterwards, which you can then choose to allocate to savings, paying off debt or things like socialising. This is particularly helpful for those who find themselves living month to month, but not really understanding why, or where their money has gone. Budgeting is important as it allows you to understand, and feel in control, of exactly your incomings vs your outgoings. With a budget, you will have all of your expenditures detailed so that you know how much you need in a month to meet your own financial requirements. Far too many of us are depending on credit, or debt, to cover these needs. If this is the case with you, you need to significantly cut down on your expenditure to a level where your income can cover all your needs. Sometimes, this isn’t always the fun option. Luxuries like new clothing, holidays or eating out might have to take a back seat whilst you concentrate on getting back in control of your financial situation. However, if you’re in a situation where you’re struggling financially it’s imperative that you focus on your long term financial health. You can’t be financially free if you’re living outside of your means, have debt weighing you down or feel like your outgoings are out of your control. If this sounds like you, then start a budget today and get back on top of your finances.
Saving
It may sound like stating the obvious, but one of the best things you can do for financial freedom is to save. While not all of us are lucky enough to have the opportunity to save, if you can it is so worthwhile as an important step to creating financial freedom. Financial freedom is being able take that trip, quit that job you hate, secure a family home, know you’ll have a livable retirement and simply live without the fear of money ruling you. Saving can allow for all this. It can enable you to have a ‘backup plan’, should something unexpected happen with work, such as a redundancy or sudden dismissal. It means not ever having to worry that you have enough to cover next month’s expenses.
Saving and budgeting go hand in hand, as despite our best intentions if you don’t budget and commit to putting aside a sum of money each month, it often doesn’t happen. Draw up a budget and work out how much you can afford to put aside each month, then once you have established this commit to transferring that amount directly into a savings account at the beginning of each month (or when you first get paid). You can even set up a direct debit, so that any temptation to spend it is taken out of the equation. Once you’re happy with how much you can save and perhaps any incentives for doing so, look for a bank that is offering the best interest rate on savings accounts. I assure you that as you start to see your savings grow you will be more motivated to invest in them, and on your way to financial freedom.
Secure your financial future by investing
If you can afford to, one of best things you can do for yourself to secure your financial future is to invest. Investment is more of a long term pursuit for financial freedom, but it can be incredibly fruitful. It can provide a ‘nest egg’ or retirement fund. By investing, you’re able to grow a relatively small amount of money into (ideally) something much more significant, which can secure your financial freedom in the future. Most people resonate with this by means of investing for retirement. However, it’s important to approach it correctly in order for it to enable financial freedom, not hinder it. Some of the most popular means of investing are in property or diversification for retirement funds, as well as through stocks and shares. However, contrary to popular belief you don’t need to wait until you have thousands of dollars in savings to be able to invest. Depending on your investment goals you can start with as little as you want. For those with no background in investment or finance it’s most common to seek advice from an independent financial adviser, who can assess your financial situation as well as investment goals and advise on what might be the best investment option for you, working with you to manage your investments. If you would prefer to approach investing yourself, consider online brokers as CMC Markets that will allow you to open an account and manage your investments online. This would be better suited if you’re thinking about the more traditional stocks and shares, and for those with experience in investing. If have more money available, then consider investing in property as this will allow you an asset, and can even be leased out to generate additional income while you wait for it to (hopefully) grow in value.
However, if you do choose to invest, you must be sure that you’re in a financial situation to be able to make the initial investment as well as withstand any losses, without putting you at any risk. Entering into investment hastily or with inexperience can often result in losses, and will be a hindrance not a help to your financial situation. But done right, investing can absolutely be a means to reaching financial freedom.
Look at your relationship with money
The most important factor in achieving financial freedom is through addressing your relationship with money. Our relationship with money is often what governs our financial situation – be it consumer debt, or lack of willpower to prioritize saving. It could even be something as complex as living beyond your means to seek the validation of others (for instance, feeling the pressure to drive a certain car or purchase a house that really was out of your budget). It’s only you who is in control of your financial situation and decide to change it for the better, and once you understand this you are so much closer to achieving financial freedom.
The trouble with our relationship with money is that it’s often inherent and learn, something that many of us have had it imparted from our parents growing up. How your parents dealt with money or your financial situation growing up can affect how you in turn relate to money, often influencing your financial health. To overcome this, first try to identify your relationship with money, and what you could do to better it. Ask yourself, what is your relationship with money like? Do you account for every penny, and feel guilty or resentful when you do have to spend out? Are you worried about money unnecessarily, despite having a good, reliable job or healthy savings account? Or do you live outside of your means, regularly making irrational and unnecessary purchases? For instance, your parents might have struggled and so as a result been apprehensive about any kind of spending, but that might well not be necessary for you if you’re in a good financial situation and earn a good salary. Financial freedom is about being free from the worry of money – not about being held captive by learnt behaviors that may well not be needed. Be realistic with your financial circumstance (this can work both ways) and from that work out a reasonable budget. Then, with any money left over, try to strike a balance between spending sensibly and within your means (ideally saving) but enjoying what money allows you, rather than only viewing it solely as a negative. Once you’ve identified and addressed your relationship with money you are so much closer to financial freedom.
You need to take charge of your finances in order to benefit from financial freedom, and be free of the drudgery of the stress that often accompanies it. In prioritizing financial freedom now, you’ll be able to enjoy what it has to bring in years to come – even if it’s as simple as paying off your mortgage, or never having to worry about paying a bill ever again.
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