Financial Freedom or Financial independence is the status of having enough money to pay one’s living expenses for the rest of one’s life without having to be employed or dependent on others.
There are many strategies to achieve financial independence, each with their own benefits and drawbacks. To achieve financial independence, it will be helpful if you have a financial plan and budget, so you know what money is coming in and going out, have a clear view of your current incomes and expenses, and can identify and choose appropriate strategies to move towards your financial goals. A financial plan addresses every aspect of your finances.
Planning for retirement, or even financial freedom, is a marathon and not a sprint, as the saying goes. Breaking up your financial independence goals into small chunks can help keep you on track while making the process a bit more manageable and, hopefully, a little less stressful. Even if you are starting small, the important thing is to get started.
7 Steps to Financial Freedom
Step 1: Build an Emergency Fund
The first level of financial freedom is building up an emergency fund. Unfortunately, living paycheck to paycheck is the reality of millions of Filipinos. In the 2017 Financial Inclusion Survey (FIS), the central bank announced that only an estimated 15.8 million adult Filipinos, or 22.6 percent, have bank accounts, while an approximate 52.8 million, or 77.4 percent, remain unbanked.
Most of us will have some unexpected bills pop up throughout the year such as car repairs, medical bills, and nights out drinking with friends. Having an emergency fund will come in handy during those types of situations.
You’ve probably heard the expression “pay yourself first” before. But in case you haven’t, “pay yourself first” means putting a specific amount of money in your savings account before paying anything else, such as bills.
By paying yourself first, you guarantee that you’re always putting money aside to invest in yourself. By doing the opposite, you only get whatever is left over, which usually isn’t substantial enough to help you experience financial freedom. The act of paying yourself first has helped countless people inch closer to achieving financial freedom.
Step 2: Save Enough Money to Quit your Job (for a bit)
Financial freedom is all about making work an option. Saving enough money to quit your job forever is a huge undertaking. Accumulating enough money to be able to take some time away from working is a big jump in that direction. This does not mean you have to quit your job, but it sure is a good feeling to know you can.
How much should I save? Ideally, at least about 3 months of your salary or current income to sustain your lifestyle, you can also use this to get back to your feet in case bad things happen to your main source of funds.
For extra credit, you may want to save up for a sabbatical or extended vacation to Boracay. The dream of spending a month, or two, in a foreign country each year. By no means will I be quitting my job, but it would take some planning in order to be away from my financial firm for that long.
In the shorter term, that extra money could also serve as your emergency fund. I mentioned that just in case some of you wanted some extra motivation to get to this level.
Step 3: Clean up your Finances
Now that you have enough savings, its time to wipe off those debts! Once you start learning how to manage money, you may realize you’ve made some mistakes with your finances in the past. That’s okay! But if you want to be financially independent, you have to clean up the mess before you can start building wealth.
According to the recent survey mostly, the millennials or young adults—are at risk of being debt-strapped, based on the latest Manulife Investor Sentiment Index (ISI) survey.
Despite being cautious in managing their finances, more than four in 10 Filipino investors carry debt, with the proportion being higher among those under 35, the research indicated. That means if you have debt like credit cards, personal loans, or car loans, it’s time to get serious about kicking it to the curb.
Why? Because while you owe money, your paychecks have someone else’s name on them. If you want to reach your goal, you need your full income at your disposal, not bits and pieces that are left over after paying credit card bills and student loan payments. Throw all of that extra coffee or pizza money at your smallest debt until it’s gone. Then keep the snowball rolling! Paying off debt is hard work, but there’s nothing like the feeling of actually keeping the money you bring in every month!
Once you’re debt-free, stay there. For good. Having debt undermines your ability to build wealth and puts your financial plan at risk. It’s simple. Steer away from bad debt!
Step 4: Start Investing!
You’ve saved enough and cleared your Debt board. Good Job! Now it’s to make your money work for you. If you ask me what is the best investment? Knowledge, of course, invest on books and seminars and surround yourself with friends with the right financial mindset together, learn how to get out of the rat race to follow your passion, or spend more time with family, and not going completely broke doing it or start your own business with whatever you’re passionate about.
Find a Financial Advisor who can help you make the most of your long-term investment options, message us at StockBytes(*wink wink), The good news is the sooner you start investing, the more time your money has to grow. That’s the power of compound interest at work.
There are a lot of investment instruments follow this link to know more: Investment Basics
According to the Bangko Sentral ng Pilipinas, only 3% of the population invest their money in stocks, bonds, mutual funds and other managed investment schemes as of 2017.
The figure translates to around 2 million Filipinos. Invest now! be part of the better 3%.
Step 5: Protect your nest egg and your Family
We’ve got good savings and investments, our cash flow is great. Next step? Protect it from collapse we are just halfway there, this is probably the most important part. We build our nest egg for our family or for the future but there is a ticking time bomb that everyone one of us has no control over “Death”, this can wipe-off everything that we did from Step 1 to 4.
Maybe you are the breadwinner of the family or you want to leave a sum of money to your loved ones, this is the best way to do it? Get a Life insurance plan there is a lot of type of Life insurance to know more follow this link: Guide to Life Insurance.
Your life insurance gives your family choices by providing the benefits to help pay off debts, to help meet housing payments and ongoing living expenses, to help fund college educations for your children or grandchildren, and much, much more. Life insurance provides cash when it’s needed most
Life insurance is an expression of love and caring. Because you care about your family, you want to ensure the financial security of family members if you’re suddenly not around to provide it. Should you die, the proceeds will help you keep the promises you have made to the people who are important to you.
Step 6: Plan you Dream Retirement
Step 1 – 5 check! Next, Let’s Plan for your retirement, accumulate enough for Your Dream Retirement, If you stopped working, what would your dream life look like? Would it include things like traveling more and spending more time with friends and family? Traveling the world, flying first class, and staying in nice hotels does not come cheap. Is your SSS retirement benefits enough? Think big here. What would really bring joy into your life? Let’s go over my list here why is this important:
- The Average Life Expectancy Continues to rise, with the advancement of Healthcare and sciences life expectancy of an average person continues to increase. We can’t work forever!
- Retirement Is The Best Time to Check Off Your Bucket List, sitting on a beachfront sipping Piña colada the good life, Sky is the limit!
- Your Future May Have More Financial Obstacles Than Your Past Or Present, we are not getting any younger if we are not careful we might encounter health issues along the way that is why relying on Social Security Or A Pension Is Risky.
- Your Retirement can contribute to your Family too, treat your kids or grandchildren for a vacation, or with the latest gadgets! Be the cool Grandma or Granpa!
- It’s Unfair To Depend Upon Your Family, some Filipino families treat their kids as investments and it’s totally unfair, let’s break the chain! It’s hard to say this but let’s not be a burden to our children. Everyone should always have enough Money to Save for Retirement.
How great would it feel knowing you are on track to have enough money to retire and be able to live your dream life? What is stopping you from getting there before you are 70 years old?
Step 7: Be active on your Journey to Financial Freedom
These steps are easier said than done, but everything starts with the first step. Making the right investment decisions is the first step, but staying in tune with your fund performance is crucial to getting the most out of your investments. Setting your investments on autopilot is not an investment strategy.
But the idea of actively making decisions about your investments may feel overwhelming. If it feels that way to you, you’re not alone. According to a study, 77% of Do-It-Yourself investors said they didn’t have the time or investment knowledge to be confident in their investment decisions. Be involved, work with your Financial Advisor towards your financial objective. A financial advisor can help you make decisions about your investment strategy, Rebalance your funds regularly so you minimize your risk, and create a realistic plan for what financial independence looks like for you.
Look at Money Positively, you’re going to need to look at money as a tool to help you achieve your dreams, fuel your energy, and live a stress-free life you can enjoy. Because if you view money negatively, you’ll subconsciously sabotage your chances of making it and keeping it
Financial freedom can help you take ownership of your finances and, more importantly, your life. It’s about living within your means, being a bit frugal, and making sure that money is spent on things you really need like food, shelter, and yes even vacations (relaxation is important too, you know). By following the financial freedom tips in this article, you’ll inch closer to achieving the financial freedom you deserve. So take a look at those finances, build additional streams of income, pay down that debt, and before you know it you’ll be free.
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