In my last post I defined financial freedom, so it seems appropriate that this post should give you some ideas on how to achieve it. These tips would be particularly helpful to a young person just starting out in their first job, but hopefully useful ideas for anyone to ponder.
- Avoid consumer debt. Save and pay cash for everything you “need”. Don’t buy things you don’t “need”.
- Pay yourself first. Always be sure to pay yourself 10% of everything you earn. This is not just good financial sense, but it also makes you feel better if you keep some of your hard earned wages. Nobody likes working solely to pay bills.
- Save. Put a portion of your wages away each payday so you can invest in an asset for your future.
- Buy a home. If you buy yourself a modest house as soon as you are able, then you stem the flow of money wasted on ever increasing rent payments. Over time, property tends to increase in value, so you can look at your home loan payments as a form of compulsory saving. DON’T, however, borrow the maximum you can to buy a big flash house. It is far better to pay off a lower priced home quickly.
- Buy a passive income-generating asset. Use the equity that you’ve gained in your home as a deposit on an asset that will put money in your pocket; such as a rental property, or a business that can operate without you. Be sure that after all expenses, there is a positive cashflow from the asset. DON’T buy something that costs you money each month.
- Alter the way you think about money. Treat each dollar as a tiny money tree that has the potential to grow and earn you interest. Once you spend it, it’s gone. Plant it, add to it, and watch it grow.
- Consider the “Why?” Why do you want that flash new car? Is it because it looks really cool, or do you ultimately just want the freedom to hop in and drive? Would an economical Japanese car do the same job for a lot less than the flash European model? Might it be better to keep the extra money working for you, rather than pay extra for an expensive car that serves the same purpose? I’m having this debate with my husband at present – he wants an Audi TT!
- Value your time. Before you impulse spend, consider how many hours you had to work for that money. Is the item you are buying worth that many hours of your time? Thinking like this helps you work out what is important to you.
- Reduce the gap. Aim to increase your passive income, and reduce your expenses. Cover your expenses with passive income, and you’re free to quit your job.
- No-one is watching. The Joneses don’t care if you don’t keep up with them. They are too busy working long hours to pay off the massive debt they took on to keep up their appearance. Is that the life you want for yourself? In reality, most people who look like they have money, actually have large consumer debt.
- Imitate a millionaire. You might be interested to know that most millionaires don’t look like millionaires. Self-made millionaires got there by being sensible with their funds and creating good habits. They keep those habits even when they have made their millions. You could be living next door to one and you’d never know!
- Be patient. There is no get rich quick scheme. You need to have goals, a plan, and the motivation to stick to it. If financial freedom is what you really want then you will get there.
I try to live by these ideals, but we all fall off the wagon every so often. You do still need to live for today, but always keep your eye on the prize. If you want it badly enough, you’ll get it!