Are you trying to achieve financial freedom? Most people are, and if they are not, they have likely already achieved it. Those that have, often share these 12 habits and it is no coincidence. These habits are vital to anyone who wants to achieve financial freedom, as they not only help you save money, but set you up with the appropriate skills to manage your money correctly.
Financial freedom can mean many different things depending on your perspective. For some it may be as simple as not living pay check to pay check. Constantly wondering where your next meal is going to come from can be incredibly stressful, and damaging to your mental health. For others it may be the ability to live a lavish lifestyle. Take holidays, drive fancy cars and buy expensive designer wear.
May of us fail to come close to reaching this goal. Life gets in the way, with financial emergencies, rising cost of living and another debts that make it almost impossible to get ahead. But if you take it one step at a time, and develop these 12 habits, you can start to live a lifestyle that contributes to your financial future, rather than detracts from it.
1. Your Financial Freedom Needs a Budget
It goes without saying, if you want to control your spending you need to have a budget. You would be amazed the amount of people that do not have one, or at the very least a general idea on their minimum monthly spending requirements. Forbes.com’s top pick is YNAB (You need A Budget).
In a recent budgeting tools article, they listed the following key points as to why its their top pick
First, it uses a familiar spreadsheet layout that’s very easy to use and understand. Creating a monthly budget takes just a few minutes.
Second, YNAB is designed to encourage you to live on last month’s income. Rather than creating budgets based on future income, you budget based on income you’ve already earned. In so doing, you give every dollar a job, as YNAB describes it. It takes some time to adjust to this approach, but the result is an end to living paycheck to paycheck.
Finally, YNAB offers excellent reports and graphs. These tools make it easier to see where your money is going so you can make adjustments as necessary.
2. Create an Automatic Savings Plan
Once you have created a budget for yourself you will know how much you can afford to save. No amount is too small, it is about setting up a habit and a mindset that all your money is not for spending.
It is a good idea to set up your savings amount to automatically withdraw from your bank once your get paid, into another account. Preferably one that is not linked to a card that you can easily spend it on. Personally I have a bank account that I have no card for, so cannot spend it unless I move the money to another bank. And that then takes a day to process.
Another great tool for automatic savings is Acorns, Mylo, Grain or a similar application. These applications are micro saving tools that round up every time you spend to the nearest $1 and puts the amount into an investment portfolio. The great thing about these tools is it is an auto pilot way to save and invest. You often don’t realise you are doing it and don’t miss the money!
3. Create Some Life Goals
We all want financial freedom and we all want to be rich. Well at least a lot of us do! However it is such an unspecific and broad goal it is often hard to strive towards it. To achieve a long term major goal, it is often easier to create mini smaller milestones along the way.
Think about it, is it easy to imagine yourself saving $1 a day, for 500 days or just $500. You will think to yourself $1?! That’s nothing! Whereas $500 may seem impossible, especially if you are having difficult making ends meet.
I am sure you have heard the term SMART goals before. Specific, Measurable, Achievable, Realistic and Timely. This term is often considered the gold standard for goal setting requirements. The more specific your goals, the higher the likelihood of achieving them. Write down your goals, make then visible and keep yourself accountable.
4. Start Investing Now, if You Haven’t Already
Have you heard of the power of compound interest? Unlike regular interest, compound interest is the sum of interest on the principal over a period of time. For example a $100,000 deposit that receives 5% simple interest would earn $50,000 in over 10 years.
However over the same 10 year period, using compound interest the return would be $62,889.46 over the same period. Approximately 25% more than the simple interest amount. As you can see the power of compound interest is something you should take advantage of! So what does that mean for you? Start now. And start as soon as you can. The longer the period of time that passes, the greater the compounding effect! How do you know what, when and where to invest? That brings me to point 5.
5. Get a Financial Advisor
You do not need to be a financial guru to invest in stocks and other investment areas. Financial advisors are a great way to ensure your finances are managed intelligently and you are not investing with your heart instead of your head.
Many investors unfortunately let their emotions cloud their trading decisions. After a quick loss they immediately sell up and exit scare to lose more money. The price eventually returns so they would have been better off just remaining in the market.
Financial advisors are paid to make the best decisions for you. Depending on their fee structures some are even paid in line with your returns. IE the better you do, the better their fee. This aligns both your interests with your ultimate goal of achieving financial freedom.
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6. Educate Yourself
Just because I have suggested you get a financial advisor for your investments, doesn’t mean you shouldn’t take control and ownership of your own financial decisions. Having the knowledge and power to make your own decisions come with many benefits, the very least of which is not having to pay fees for someone to manage your finances.
Through education you can start to appreciate and understand future potential investment opportunities. You will understand and be able to take advantage of tax incentives and strategies to reduce your liabilities. Knowledge is the best defence against poor decisions, and is a great step to becoming financially free.
7. Do Not Carry Debt On Credit Cards
A lot of people will tell you credit cards are a bad idea. I have had many financial advisors tell me that I should never get a credit card. However, I believe they are an incredibly valuable cash flow management tool if you use them RESPONSIBLY. The number 1 way banks make money on credit cards is the high interest rate you need to pay when you don’t pay off your debt.
You should use a credit card in line with your own funds. I personally only make purchases that I have money to cover, and move that money into a “credit card” account ready to pay off at the end of the month. Why you may ask? I have a mortgage with an offset account, so carry as much cash in my account as I can reduces the interest. It may be a minute amount, but over 30 years it adds up.
NEVER allow your balance to carry over into the interest accruing period. Some credit cards can charge upwards of 27% for interest on debts. A few $100 can rapidly become an ominous debt if not managed correctly. If you do not have the control to manage a credit card in this way, do not get one. It is best to not tempt fate.
8. Get a Better Deal!
There are two aspects I am referring to here. Firstly with your debts and financial services. Banks and leaders are competing for your business constantly. You will be surprised the amount of power you hold by HAVING debt. Regularly shop around for a better deal. If you have a mortgage, review your interest rate very year and make sure your bank is doing the best they can to keep your business.
What is the worst that can happen? They say no? Who cares! Banks are constantly trying to steal each others customers and undercut one another. Debt is big business, so make then work for it.
Secondly is all the goods and services you purchase. Make sure you are paying the lowest dollar you can find, and if you can ask for a better deal. Buy in bulk if it makes sense and you can save money. Purchase with your friends to create a buying group to give you more bargaining power. Being frugal means being creative, and intelligently find ways to save money. Do not be afraid to negotiate!
9. Live Below Your Means
In today’s society we are constantly trying to project a life of success and luxury that we often do not have. Have you ever read that a lot of famous billionaires drive cheap car? Warren Buffet drives a $45,000 Cadillac XTS. Mark Zuckerberg drives an Acura TSX valued at $30,000.
Despite having billions of dollars, the see no need spending lavish amounts of money on a status symbol. Their cars get them from A to B, whether they are a million dollar sports car, or a run down family car.
“We buy things we don’t need with money we don’t have to impress people we don’t like.”
The challenge is to identify your currently living capabilities and to live below them. If you can live on $1000 a month, try and live on $800. Grow into the habit of saving, and not a life of excess. By making small adjustments to your spending habits and mindset, you will be able to develop a healthy financial mindset.
Or if you like, think of it like this. By doing it now, and getting to a life where you are financially free you can live the life you want sooner!
10. Financial Freedom & Your Health
According to the an article from the Committee for a Responsible Federal Budget, in 2017 the United States spent $3.5 trillion on health expenses. Your health has an incredibly impact on your financial well being, not just your life expectancy.
If live an unhealthy life style you get sick. This leads to days off work, which can also eventually lead to you losing your job. Sickness also costs money to manage. Not only in the treatment of ailments, but also potentially in health insurance.
Having a healthy lifestyle will allow you to save your money AND live longer – so put it at the top of your financial freedom habits list as well!
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