6 Personal Finance Tips to Help You Achieve Financial Freedom in the Future
How to Achieve Financial Freedom
We live in a consumer culture that encourages us to spend lavishly on anything and everything.
Advertising and social expectations conspire to make many of us spend beyond our means, get into debt, and never achieve financial security.
Fortunately, you don’t have to go down this financial path forever.
By delaying gratification and putting off spending, you can create a solid base that leads to almost unimaginable financial freedom in the future.
Being financially free is about more than having an extensive investment portfolio or plenty of cash in the bank.
Need Help Reviewing Your Financial Situation?
Contact a Licensed Trustee for a Free Debt Relief Evaluation
It also allows you to choose how you spend your time, what you do for a living, and what you achieve in life.
Solving resource constraints today permits you to live a life of abundance tomorrow, unencumbered by all the usual money concerns.
The theory sounds great, but how do you get there in practice?
Take a look at these six personal finance tips for achieving financial freedom in the future.
Change Your Mindset
Achieving financial freedom in the future requires a fundamental change in mindset.
Instead, you have to accept sacrifice now to obtain a higher payoff in the future.
Adjusting how you think about money can be a tremendous undertaking, but it is necessary before you follow any of the other finance tips in this article.
Currently, there is a part of you that wants things right now and isn’t prepared to wait.
You convince yourself that you need stuff today to lead your best life, and you cannot put things off to the future.
Life, you say, is for living.
This impulse is by far the biggest hurdle to financial freedom.
The desire for immediate gratification is compelling, but it undermines your objectives at every turn.
It sounds like a mental trap – and it is.
But there are ways around it.
The first is to become comfortable with less.
Ideally, you want to show yourself that you can have a happy and fulfilling existence without spending vast sums of money every month on a lavish lifestyle.
Living simply, well within your means, permits you to save vast quantities of money every month to invest and grow.
Second, you need to remind yourself of why you’re making these sacrifices.
While your income provides you with some freedom today, it is nothing compared to what you will enjoy in the future.
$10,000 invested right now can become $50,000 in twenty years.
$10,000 invested every year can generate hundreds of thousands of dollars throughout a lifetime.
Third, you want to make forgoing consumption a badge of honour.
Giving up life’s pleasures today (even temporarily) is something that relatively few people ever do.
If you manage it, though, you can count yourself a rare person indeed with incredible strength of character.
Pay Off Your Debts
Once you shift your mindset to one of purpose, abundance and growth, you’re ready to take practical steps towards financial freedom.
The first of these is to pay off your existing debts.
Debt is a millstone around your neck.
Interest payments and fees eat into your capacity to generate wealth and cut into your savings.
Your priority, therefore, should be to eliminate all your debt as soon as possible.
The more interest you must pay to creditors, the higher the opportunity cost, and the lower your net worth in the future.
Many people use the avalanche method to pay off their debts.
Here you pay off all your highest interest rate debt first while making the minimum allowable payments on your low-interest borrowing.
This way, you cut fees and slash the repayment time.
Cutting your spending and paying off debts is a sacrifice, but it is worth it.
Financial freedom is the most wonderful feeling, particularly if you have spent years of your life worrying about creditors and debt repayments.
If you’re struggling to reduce your debts by cutting your spending, you still have other options.
You could, for instance, work evenings or get a weekend gig.
It requires sacrifice.
But, again, it puts you on the path to financial freedom – something that could change your life forever.
Plan For Emergencies
Life is uncertain.
You never know what emergencies might befall you in the future.
It is vital, therefore, that you have a cash pile, ready and waiting to go if you need to meet sudden expenses.
You should think of your emergency fund as something fundamentally separate from your other assets.
Essentially, you want to create a cash pile you can dip into if you ever hit rough times (such as losing your job or filing for divorce).
The extra cash helps to prevent you from going into debt and spiralling once more into financial difficulties.
You should also buy sensible insurance products to lower your risks, just in case disaster strikes.
Home insurance, for instance, can protect you if you lose your possessions to fire or theft.
You may want to write a will, stating who should get your money in the event of your death, especially if you have a spouse or children.
Learn How To Manage Your Finances
Learning how to manage your money is a skill – and one that relatively few people possess.
The golden rule of personal finance is to earn more than you spend.
Ideally, you want to have at least 10 percent of your income left at the end of the month and plow this cash into savings and investments long-term.
Many people see budgeting as the simple matter of calculating your income and expenses and then creating a spending plan to match.
And while this is true, it is only part of the story.
Budgeting is also inspirational.
It allows you to create a plan that will enable you to see how your life will look in the future if you take financial freedom seriously.
For instance, suppose you currently have $5,000 in the savings, and you commit to adding $1,000 per month for the next twenty-five years.
Furthermore, assume that the rate of return on your investment equals the historical rate of return across financial assets: 8 percent.
When you plug those figures into an investment calculator, you wind up with a total investment value of $987,727 after 25 years – a staggering sum of money.
Thus, consistency and dedication to your budget reveal the kind of rewards you can expect from making sacrifices today.
Start Saving For Retirement Today
In the above example, more than $682,000 of the total net worth is simply the interest on the investment.
Over time, interest earnings become a larger chunk of your wealth than principal savings.
This phenomenon results from the effects of compound interest – the most powerful force in finance and how the majority of people become wealthy.
They start saving money early, and then they wait for it to grow.
Every year their total pot of wealth becomes larger and, as a consequence, so too does the interest payment.
8 percent of $5,000 is $400 – not bad.
But 8 percent of $987,727 is $79,018 – which is fantastic.
Beginning your retirement savings early, therefore, is essential.
The longer you can leave your money tied up in capital, the better.
Every year, it compounds, ballooning as the years go by.
Carefully Consider Major Financial Decisions
The road to financial freedom is bumpy.
Even if you save consistently and remain employed for the duration of your working life, things can go wrong.
The economy can tank, stocks can crash, and companies can fail.
Life is uncertain, and you never quite know what’s lurking just around the corner.
By and large, these risks are unavoidable.
Many people, however, never achieve financial freedom because they make entirely avoidable mistakes.
They buy the wrong financial instruments, lend to somebody who can’t repay the debt, or invest money into a company that fails.
If you are an investment guru who makes quality decisions that yield market-beating returns year after year, feel free to manage your own money.
If, however, you’re a regular investor with no particular insight into the value of stocks and bonds, you may want to consider outsourcing the task to somebody else.
Other major financial decisions also require careful consideration.
Do you need to buy a new vehicle?
Do you have to purchase a new property?
When spending a lot of money, ask yourself whether it will give you more or less freedom.
Be honest with yourself about what your spending entails.
In summary, achieving financial freedom doesn’t always require building a billion-dollar business or taking massive risks.
Instead, it can come about through simple changes in your mindset and consistent, decisive action.
If you want to know more about how to achieve a life of true abundance and freedom and get out of debt problems, you may wish to speak with a credit counsellor or financial expert.
With their help, you can chart a path to a radically different future.
Information on Consumer Proposals
Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
How to Amend a Consumer Proposal
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
Consumer Proposal Eligibility
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
How to File for Bankruptcy
What is Bankruptcy?
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?