Set yourself on the right financial path by implementing healthy habits into your life.
What is Financial Freedom?
Finanical freedom can be defined as the folowing four elements:
- Having control over your day-to-day, and month-to-month finances
- Having the ability to absorb financial shock
- Being on track to meet your financial goals
- Making the choices that enable you to best enjoy life1
By having financial freedom, one can make decisions that align with their values and life goals instead of according to their next paycheck. These following healthy financial habits can help you reach financial freedom.
Set Life Goals
You’ve read the definition we provided, but what is your definition of financial freedom? By forming a personal definition, you create for yourself a specific goal. The more specific your goals related to reaching financial freedom, the higher the likelihood of achieving them. Write down how much you should have in your bank account, what the lifestyle entails, and at what age this should be achieved.
Your next task is to count backward to your current age and establish financial mileposts at regular intervals. This financial timeline needs to be neat and organized in order to help you visually stay on track.
Make a Monthly Budget
Forming, and sticking to, a monthly household budget can help you keep your bills and savings on track. It’s a regular routine that reinforces your goals and encourages you to resist the temptation to splurge.
A popular method of creating a budget is to follow the 50/20/30 budget rule. You can implement this rule with every paycheck you receive. The 50% accounts for your “needs” which include bills, groceries, transportation, insurance, healthcare, etc. The 30% refers to your “wants” in life, such as eating out, entertainment, shopping, vacations, and anything that is not absolutely essential. The remaining 20% is for your savings and investments.
Are you following a budget with another person? Google Sheets provides a platform similar to Microsoft Excel where simultaneous editing can take place. This platform can make it easier to track each other’s monthly expenses and create joint financial goals.2
Pay Off Your Debt
Holding onto high-interest debt can be toxic to wealth-building.
Organize your debt into a pyramid with the highest interest rates at the top and the lowest at the bottom. Focus on starting at the top of the pyramid.
For instance, make it a point to pay off the full balance of your credit card, or as close to it as possible, each month. Credit cards and consumer loans hold high interest rates if not paid back by certain deadlines. Then bring your focus down the pyramid towards lower-interest items. Student loans, mortgages, and similar loans typically have much lower interest rates, so paying them off is not an emergency.3
Paying on time will help you maintain and grow a good credit score.
Create Automatic Savings
Pay yourself first. Enroll in your employer’s retirement plam and make full use of any matching contribution benefit. You can also set up an automatic withdrawal for an emergency fund which is used for unexpected expenses. This money is essentially removed from your paycheck before you see it, putting it “out of sight, out of mind.” Since the money never touches your hands, you avoid the temptation to spend it.
Historically, investing your money is a better way to grow it than leaving it in a savings account.3
Savings accounts slowly grow your money at a lower interest rate, whereas invested money has the potential to earn a larger return. With a careful plan, and guidance from your financial advisor, you can strengthen your path towards financial freedom through investing. Reach out to your financial advisor today to begin your investing journey.
“Education is the key that unlocks the golden door to freedom,” quoted George Washington Cover.
Never stop perusing financial education. Review all applicable changes in the tax laws each year to ensure that all adjustments and deductions are maximized. Keep up with financial news and developments, and do not hesitate to adjust your investment portfolio and financial plan accordingly. Consistently connect with your financial advisor to learn of market updates and visit TrekInsights.com for market news and helpful topics.