Financial independence: It’s something almost all of us dream of having.
But to achieve financial independence, there are several important factors to you need to be mindful of. Whether it’s getting a handle on your necessary expenses or acknowledging that sacrifices do need to be made, independence does require genuine effort and consideration. However, these efforts are worth it in the end.
In today’s article, we offer an overview of some of the most important things you need to do to end up on the road to financial independence.
Get a handle on your expenses
Expenses on their own won’t mean much, but when you level those expenses up against your current financial situation (primarily referring to your income), then you can get a much greater idea of how much money you have to work with.
Of course, the ideal situation is that the money you have outweighs the expenses you need to account for. But you also need to be in a situation where the money you have allows you to cover your expenses and then have some money left over. So, first and foremost, figure out your recurring expenses. These could be phone bills; groceries; electricity, utility and water bills; etc. Once you have a general, somewhat overestimated idea of your expenses throughout the year, you can then focus on the next step…
Allocate your earnings accordingly
Expenses should be a priority. Not just because failing to pay an electricity bill can leave you without electricity, but also because failing to pay off certain expenses in time will lead to a situation where you will incur late fee charges / interest on your next bill. All this means is that you are losing even more money down the line, which will make achieving financial independence much harder.
Whatever money you make (either by yourself or in conjunction with someone), you need to allocate it accordingly. How much should be put aside for bills and necessary expenses? How much should then be put aside for emergencies? How much should be placed into savings? These are just some of the questions to ask yourself. Focus on the necessary expenditures first, then move on to other areas after that.
Avoid gratuitous purchases
Gaining financial independence does ultimately require a level of sacrifice in the short-to-medium term. If you want to be in a strong financial position in the future, then you’ll need to avoid a few luxuries in the here-and-now. For example, even if you want to purchase a new TV, do you actually need it? By not spending money on a likely gratuitous purchase, you can effectively save hundreds to thousands of dollars. Through committing to such a mentality for a couple of years, you’d be surprised how much money that will leave with you by the end of that period.
Last but not least, you need to save money. You keep your expenditures down, and then use much of the bonus money to invest in areas that will ensure you have more wealth down the line. Saving does come in a couple of forms, however. There’s the traditional idea of putting your money into a savings account that builds with interest, but don’t forget that paying off debts is also a means of saving money. Sure, you’re not seeing an account build up with money, but you’re effectively getting rid of something that is impeding on your ability to save (e.g. mortgage).
So when it comes to saving, don’t forget that it’s not just about seeing your money grow in an account. It’s also about removing factors that are making it difficult for you to put your money into an account in the first place.
Need guidance on how to save money and achieve a financially secure future? Give Straight Money Talk a call on 1300 416 590.
Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.
* Image source: Ben Hosking