Financial Freedom

Achieving financial freedom – advice and benefits

Here are some tips and advice to help you achieve financial freedom and independence. Why, financial freedom? Simply, it gives you choices and a level of personal freedom. It means not being under financial pressure if you are unfortunate enough to find yourself suddenly and unexpectedly unemployed. It gives you the freedom to pursue interests that are close to your heart, retire early, go travelling, be mortgage free, and not stay in a job you dislike, to name but a few!

Live within your means

One of the best ways to achieve financial freedom and independence is to live within or below your means, simply put, don’t spend more than you earn! Learn to budget effectively and stick to your budget. If you miss a night out with friends because your entertainment budget for the month has been spent, so be it. And don’t get swept up in consumerism – it’s not good for the planet or your finances. Think of all the resources consumed to make that item that you probably don’t really need anyway. Always ask yourself – DO I NEED IT?

In essence, try not to succumb to the narrative of our cultural and economic construct, which has resulted in so many of us doing jobs that we don’t particularly enjoy, to earn the money to spend on stuff that we don’t really need. Exercising a modicum of FRUGALITY will benefit your financial health and being frugal is kind of quite trendy these days!

Save

SAVE, SAVE, and save some more! Have a healthy saving habit…. start saving early and have saving objectives, such as saving for a house deposit. Think of all that compounding interest growing your savings and do ensure you have a decent savings pot ‘for emergencies only’.

Interest and inflation

Interest on savings accounts is unlikely to match the inflation rate, which is the increase in prices over a specified time. If an item costs you £100 at the beginning of a year and the annual inflation rate during that year is 2%, you will need £102 to buy the same item a year later. If inflation is 2% and your savings account is paying 1% interest, your savings will be worth 1% less at the end of that period. The aim of saving and investing is to match or beat the inflation rate. Investing in the stock market may achieve this. Beware though, as investing in the stock market carries risk as shares can increase or decrease in value.

Pension

Start saving for your pension when you start working. You don’t have to opt for a traditional pension plan if that’s not for you, why not look at other options such as ISAs and SIPPs.

Manage your money

Spend time managing your finances. For instance, make sure you are getting the best interest rates, be that for savings or debt. And, just to reiterate, don’t forget the power of compounding interest, the 8th wonder of the world, according to Einstein!

Shop around for current accounts offering a decent rate of interest and look at any other benefits they offer. Have a separate account and bank card just for nights out and entertainment. This is a good way of making sure you don’t spend more than you want to on your night out. If you transfer the maximum that you are happy to spend to the card this reduces the temptation to overspend. Additionally, should you be unfortunate to lose or have your card stolen, there is only a limited amount of money on the card. You also have your other main bank account and card to use while you are waiting for a replacement card to be issued.

Debt

Only borrow money for life improvements such as buying a home, funding your further education or buying a car. Try and save up for everything else, it’s what everyone did before credit cards and easy credit. If you have a credit card, clear the balance every month. If you don’t have the available cash to cover the cost of an item, don’t buy it. Do try to avoid falling into the trap of being a debt slave.

If you get into debt, always make sure you pay off the debt with the highest interest rate first and see if you can consolidate your debt with a lower overall interest rate. And don’t forget to look for credit cards that offer an initial interest-free period.

Your home

Try to avoid renting a property. Firstly, you’ll probably pay more on rent than a mortgage and secondly, why pay off somebody else’s mortgage? After 25 years of paying a mortgage, you will own your home and your mortgage payment will decrease in real terms over the life of the mortgage. Furthermore, rents will continue to increase, and you’ll have no asset at the end of it. And don’t forget to try and pay more than your required mortgage payment each month – this will save you lots of interest and reduce the total repayment period.