26 September 2023

Free advice: How to set yourself on the path to financial freedom

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Matt Danielsson* says there are 12 simple habits that will help you achieve financial freedom.

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 earning a certain amount each year.

Unfortunately, too many of us fail to achieve it.

We are burdened with increasing debt, financial emergencies, profligate spending, and other issues that thwart us from reaching our goals.

And we encounter unexpected events, such as the pandemic, that overturn our plans and reveal holes in the safety nets we tried to weave.

Trouble happens to nearly everyone, but these 12 habits can put you on the right path.

1. Set life goals

What is financial freedom to you?

A general desire for it is too vague a goal, so get specific.

Write down how much you should have in your bank account, what the lifestyle entails, and at what age this should be achieved.

The more specific your goals, the higher the likelihood of achieving them.

Also establish and write down financial mileposts at regular intervals.

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 in full

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.

Make full use of your employer’s matching superannuation contribution.

It’s also wise to have an automatic withdrawal for an emergency fund, which can be tapped for unexpected expenses, and an automatic contribution to a brokerage account or something similar.

Ideally, the money should be pulled the same day you receive your pay, so it never even touches your hands, avoiding temptation entirely.

5. Start investing now

Bad stock markets can make people question this, but historically there has been no better way to grow your money than through investing.

The magic of compound interest will help it increase exponentially over time, but you need a lot of time to achieve meaningful growth.

Don’t try to be a stock picker or trick yourself into thinking you can be the next Warren Buffett.

Instead, open an online brokerage account that makes it easy for you to learn how to invest, create a manageable portfolio, and make weekly or monthly contributions to it automatically.

Achieving financial freedom can be very difficult in the face of growing debt, cash emergencies, medical issues, and overspending, but it is possible with discipline and careful planning.

6. Watch your credit

Your credit score determines what interest rate you are offered when buying a new car or refinancing a 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 good name.

7. Negotiate

Many people are hesitant to negotiate for goods and services, worrying that it makes them seem cheap.

Overcome this cultural handicap 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

Review all applicable changes in the tax laws each year to ensure that all adjustments and deductions are maximised.

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 defence against those who prey on unsophisticated investors to turn a quick buck.

9. Proper maintenance

Taking good care of property makes everything from cars and lawnmowers to shoes and clothes last longer.

As the cost of maintenance is a fraction of the cost of replacement, it’s an investment not to be missed.

10. Live below your means

Mastering a frugal lifestyle by having a mindset of living life to the fullest with less is not so hard.

Indeed, many wealthy individuals developed a habit of living below their means before rising to affluence.

Making small adjustments by distinguishing between the things you need and the things you want is a financially helpful habit to put into practice.

11. Get a financial advisor

Once you’ve reached a point where you’ve amassed a decent amount of wealth — be it liquid investments or tangible assets that aren’t as readily available to convert to cash — get a financial advisor to educate you and help make decisions.

12. Take care of your health

The principle of proper maintenance also applies to the body.

Invest in 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.

Obesity and ailments make health insurance premiums skyrocket, and poor health may force earlier retirement with lower monthly income.

The bottom line

These 12 steps won’t solve all of your money problems, but they will help you develop healthy habits that can get you on the path to financial freedom — whatever that means for you.

* Matt Danielsson is a freelance writer at Danielsson Enterprises.

This article first appeared at www.investopedia.com.

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