My finances, my projects, my life
May 27, 2022

On the road to financial freedom

  Compiled by myLIFE team me&myFAMILY January 6, 2022 35

We all dream of one day having the resources to be financially independent. Yet those who achieve this are few and far between! This is not necessarily due to a lack of underlying means – often a lack of determination, staying power and discipline also play a role. If this applies to you, we have a few tips on how you can advance along the path to financial freedom.

Financial freedom can be defined in many ways. In this article, we mean having sufficient savings and resources to afford the lifestyle we want, while also replenishing or even growing those savings and resources without recourse to any income from a professional activity. In other words, it means getting to a position where your money works for you rather than you working for money, so that you have total freedom on how to spend your time and your lifestyle choices. There are many ways to make your money work for you – interest, dividends from your investments, rental income and royalties.

How can you manage these financial flows? Is this type of freedom and personal fulfilment the preserve of the better off? The answer is no, although these people do have a solid head start! Whatever your income level, you can start to gradually work towards achieving this goal. The real key is to spend and invest intelligently, and to bear in mind that taking this road requires real effort, a good dose of discipline, and years or even decades of patience. We don’t have a miraculous solution for you, but can recommend a few good habits that will help you remain on track over the long term.

Financial freedom means achieving a position where your money works for you, rather than you working for money.

1. A vision with short and long-term objectives.

What does financial freedom mean for you? A vague desire to be comfortably off is not enough. You must be able to set precise targets, whether financial or directly linked to your lifestyle. So you should be able to answer the following questions: how much money do you need? What lifestyle do you aspire to? Over what time horizon? What sources of recurring income are you starting with? You can’t draw up a roadmap unless you know where you want to get to! Once you have fixed your destination, it is possible to set intermediate steps for the short and long term.

2. Manage your budget responsibly

Financial freedom begins with proper budget management. Draw up the budget for your household so you can gain a good understanding of your current situation and define your expenditure on a rational basis. Your first goal is to ensure that your income exceeds your expenditure. We cannot emphasise enough how important it is to manage your debt levels properly, not just your spending levels. You must keep a tight rein on your debts and keep them as low as possible if your goal is to one day achieve financial freedom.

You should determine upfront the total cost of your fixed outgoings (rent, water, electricity) and basic needs (food, healthcare, etc.) that are considered indispensable. Deduct these from your budget and you are left with the amount of money available for saving, repaying your debts and discretionary expenditure. Respecting this budget will stop you falling into temptation and ensure that you pay your bills punctually. Financial discipline is the only way to stay on track to achieve your goals.

3. Keep your spending under control

You don’t always need a lot to live well and not want for anything. While living within your budget is the first step towards financial freedom, living below your budget can help boost your resources. Particularly if these are limited. Taking control of your finances by reducing your spending is an efficient way to achieve financial freedom, whatever your salary. We’re not talking about a minimalist lifestyle or depriving yourself totally, but about making small adjustments, distinguishing between what is essential (things you really need) and what is superfluous (things you want), or, for example, purchasing things second-hand. There are countless ways to save money.

4. Adopt a culture of saving

There is a golden rule to achieving financial freedom: pay yourself first! This means that the first thing you should do each payday is to transfer part of your disposable budget into a savings plan, investment portfolio or similar, which will be used to create this financial independence. This does not contradict the previous point; it sets the priorities for the money that is available once your primary needs have been met.

Ideally, you should allocate at least 15-20% of your budget to this, or even more. If that’s too much, start with what is feasible for you today. The most important thing is to systematically allocate a part of your resources to achieving your vision. When you’ve paid yourself, honour your debts at the start of each month. You should also transfer a certain amount each month into an emergency fund to meet any unexpected expenses. You’ve got the message – the road to financial independence leaves little room for miscellaneous expenditure.

There is a golden rule to achieving financial freedom: pay yourself first!

5. Take care of yourself and your assets!

It’s often cheaper to pay for a service or maintenance work than to buy a replacement. Taking care of your assets on a day-to-day basis ensures that they will last longer. This will help avoid unexpected and sometimes costly investments. This also applies to your body. Regular visits to your doctor or dentist and a few lifestyle changes, such as a healthier diet or more regular exercise, will spare you health issues in the long term.

6. Make your assets grow

If you have followed the initial steps outlined above, you will find yourself with a growing nest egg that you can now put to work. As savings returns have been particularly poor for a number of years, investing in markets, real estate or elsewhere is one solution. To find an approach that matches your profile and goals, it is important to seek professional support on financial, and even legal, tax and real estate matters.

To boost your income whilst waiting for your returns to grow, you could rent out some of your assets on various sharing platforms, or set up your own business as a sideline to your job. Are you passionate about something (a creative hobby, art, etc.)? Transform this into a money-spinning project and generate royalty income. Here too, professional advice could help with your project and point you in the direction of the appropriate tools.

An investment that increases in value is not enough! You need to ensure that your money generates additional funds for reinvestment.

7. Putting your money to work

An investment that increases in value is not enough! To achieve financial freedom, you need to ensure that your money generates additional funds: rental income, dividends, interest. This is so you can invest this additional income and grow your resources exponentially. It will take a long time to achieve significant growth, but your struggle is almost over once you enter this phase. This is a key part of your investment strategy.

8. Invest in yourself

Look for training and information, acquire new skills and experience, these are the keys to success. Knowledge and expertise are powerful allies that will help you make the right decisions, choose the best experts to support you, and deal with any unexpected turn of events.

The ends justify your best efforts. Good luck and drive safely!