6 Personal Finance Tips to Help You Achieve Financial Freedom
6 Personal Finance Tips to Help You Achieve Financial Freedom in the Future
Financial freedom is something many of us hope to achieve in the future, and although such a goal may seem unlikely when you’re in a tough financial spot, developing good personal finance habits now can make a world of difference down the road.
Financial freedom means more than just being debt free; it’s about having the freedom to make choices, financially or otherwise, based on what your heart desires instead of what your bank account dictates. Living financially free of student loan debt obligations, credit card debt, and worrying about monthly expenses means you have more time to not only enjoy life, but also have financial security in a savings account, in passive income, and retirement savings.
If you’ve often wondered how to achieve financial freedom and security, but aren’t sure how to get started, this article is for you. From paying off debt to starting a savings fund early on, here are 6 things you can start implementing now so you can achieve financial freedom in the future.
1. Learn How to Budget
Budgeting is an essential – but often overlooked – part of good personal finance, because if you’re consistently spending more than you earn, you will never get ahead financially. In fact, this sort of behaviour is guaranteed to lead you to financial trouble.
The best way to make sure you’re not spending more than you earn is to plan your spending ahead of time, which is what a budget is all about. A budget lays out all your expenses and outlines how much you can afford to allocate for each expense. If you’re spending more than you have, a budget will spot this so you’ll know where you should cut back.
Once you add a dollar value to your daily habits, you’ll start to become more aware of how much you’re actually spending, and you’ll likely become more motivated to make changes for the better. For example, if you get a breakfast sandwich every morning before work, you probably don’t think twice because it’s just $3. But, that $3 adds up to about $60 a month. Instead of allocating $60 towards breakfast, you could put that money towards your savings and bring in a breakfast every morning.
One of the best things you can do for your personal finances, and in order to become financially independent, is to pay off debt as soon as you can. Having debt now just weighs you down in the future and prevents you from achieving financial independence, so make sure paying off debt becomes one of your main priorities.
There are lots of ways to pay off debt, from the avalanche method to the snowball method. Try different methods, and see what works best for you and your financial situation. Apart from creating a debt repayment plan, also look for ways to decrease your expenses and funnel those savings towards paying off your debt. This may mean cutting back on entertainment and going out less often for dinner, but it’s a small sacrifice to pay to achieve financial freedom.
Another way to expedite your debt repayment is to increase your income. Whether it’s asking for a raise, getting a job during the evenings or weekend, or taking on a freelance gig on the side, put all that extra income towards your debt. It’ll shave years off repaying your debt, and save you more money on interest, too.
Life is full of peaks and valleys. We can’t always be prepared for the emotional or physical challenges life hands us, but we can ensure we have a financial safety net to fall back on and that our family and assets are protected.
One way to start preparing for the future is by having an emergency fund. Emergencies – whether it’s an illness, a job loss or expensive home repairs – will happen, and when that time comes you want to make sure you have enough cash to help you navigate through rough times. If you don’t have an emergency slush fund, chances are you’ll turn to credit when times get tough, and this could spiral into financial difficulties down the road.
It’s also important that you have adequate insurance coverage, because there’s no telling what the future has in store. An emergency fund, even if you think you have enough money, may not always be enough. Accidents happen, work injuries occur, and natural disasters can easily cause thousands of dollars in damage to your home. To prevent any, or all, of these circumstances from eating away at all the money in your savings, make sure you have enough insurance for your home and the lifestyle you lead.
Writing a will is another precaution worth taking, especially if you own assets and have a spouse or children. Having an updated will ensures that in the event of your passing, your assets will be distributed the way you wanted. Without a will, you’re allowing the laws in your province to dictate those decisions for you.
4. Start Saving For Retirement
These days, more Canadians are going into retirement with some form of debt to shoulder, which makes it more difficult for them to truly enjoy their golden years. When we retire, we’ll still have the same living expenses to cover, but we won’t have the same sort of income or earning potential. And, it’s for this reason that planning – and saving – for your retirement is key to attaining financial freedom in the future.
If you get a head start on saving for your retirement, you’ll allow compound interest to work in your favour, which means you’ll be in a better position to enjoy yourself when you leave the workforce. For example, if a 21-year old starts saving $100 a month for retirement, by the time they turn 65, they would have accumulated $253,000 for their retirement (assuming a 6% annual rate of return). On the other hand, if a 31-year-old is just starting to save for retirement, they would have to save $190 per month to have the same amount by age 65.
If you invest in the stock market, it can dish out its ups and downs, but there are ways to invest in a way that benefits you the most in the long run. Ask at your bank or credit union to speak with an adviser. It’s never too late to begin saving for retirement, but the sooner you begin, the better off you’ll be. You can use this handy retirement calculator to help you start planning.
5. Do Your Research and Think Twice Before Making a Major Financial Decision
A lot of us engage in impulse buying every now and then, and although a chocolate bar or a cup of coffee may seem harmless, a habit of impulse buying could lead to financial troubles, especially when it comes to big purchases.
Whether you’re purchasing a car, a television, or an investment, make sure you do your research and crunch some numbers to see if it’s something you can truly afford. Major financial decisions or purchases shouldn’t be made on the spot, and if you find yourself in this position, it’s best if you walk away to allow yourself time to think it through rationally and clearly.
When you take the time to sleep on big financial decisions, you’ll be able to consider other alternatives, evaluate whether you really need the purchase, and determine if it’s something you can realistically afford. For example, if you’ve been thinking about buying a car, instead of signing the lease on a brand new car in the first dealership you walk into, take a few days to think it over. This will give you time to shop around, compare other makes and models, and run through your budget to see whether you can afford the payments, the insurance and the maintenance. In the end, you may discover that you can’t afford a new car, and that you actually don’t need one!
Doing your research and taking some time to think through a decision are wise things to do each time you’re faced with a financial decision, otherwise you could end up learning a very expensive lesson.
6. Stay Married
Statistically speaking, staying married is good for your finances. Studies show that married people earn higher incomes, have twice the assets at retirement, and live on 25% less than what comparable single people would need to live the same life.
Having said that, we understand that no relationship is perfect, and every couple goes through their ups and downs. If you and your partner are having some challenges, speak to a qualified professional who is trained to help you.
The Path To Financial Freedom Starts with Taking a Few Simple Steps
Adopting smart personal finance habits and speaking with a financial advisor can make a world of difference. It will help us save money, pay off debt, and manage our own money. This will, in turn, allow us to enjoy the rewards of a financially free future. If you’re struggling with your money and have dreams of becoming financially secure, rest assured that such dreams are possible. Give yourself time, patience, and discipline to incorporate some of the financial freedom tips we’ve outlined above. You’ll soon be on your way to achieving financial freedom and all that comes with it.
Get started today by making an appointment to speak with one of our credit counsellors. We’re happy to answer your questions and help you. All of our appointments are free, confidential, and non-judgmental.