Financial independence is the ability to live comfortably off one’s savings and investments with no debt whatsoever. Sounds attractive, doesn’t it?
It’s also easier than many people think. Basically what it takes is planning, self discipline and a bit of solid financial guidance.
Build wealth! Spend less than you earn
Most people believe the key to wealth is a high-paying job. It may be easier to amass wealth if you’re on a huge salary, but at the end of the day the formula is the same for everyone: spend less than you earn and your wealth will grow.
Commit to setting aside a percentage of your gross income for saving or investment. Consider having a percentage of your paycheck automatically deposited into a savings account, or salary sacrificing into your super fund. However you manage it, the key is getting into the habit of living off less than you earn.
Budget! Take control of your spending.
We know that the idea of spending less than you earn is going to sound hard for many people. The most important first step is to take control of your spending.
Our Senior Financial Advisor, Brendan Hoy says the first step to taking control is to work out how much money you actually need each month, establish a realistic plan and then set up banking and personal finance software to make saving easier.
Watch this video to learn Brendan’s full 4 step plan for taking control of spending.
Make sure the whole family is on board!
There is no point setting up a budget, if your partner (and anyone else with a credit card) is not committed to the plan. As well as including family members in the budgeting process, Brendan also recommends a monthly meeting to review monthly spending. This enables ongoing negotiation and discussion about spending priorities and ensures that every member of the family gains an understanding of how their spending is affecting family wealth and freedom.
Avoid sudden losses! Have smarter safety nets.
There’s nothing more disheartening than seeing months of savings swept away because the car broke down or the house was flooded. As much as possible it’s important to ensure that you have the right safety nets in place so unexpected expenses will not threaten your financial freedom.
We recommend that you speak to a financial advisor about the most appropriate insurance coverage for you and your family.
Buy assets that generate income
If you use all your savings to buy a beach house or a new Mercedes then you sacrifice the opportunity to have your wealth work for your financial freedom.
No investment is foolproof. But when choosing your investments, select assets that will make money over the long haul. Don’t forget about the tax implications for different investment types.
We recommend that you read widely on different asset classes, and seek the advice of a financial planner before investing.
Invest in your financial education
We do not advocate placing 100% of your trust in the recommendation of a financial advisor, not matter how good he or she may be. It’s important to become financially fluent, so you can ask the right questions and make decisions with confidence.
To fast track your success keep reading books, going to seminars, watching DVD’s and learning from people who’ve already achieved what you want to achieve.
Our team of financial and tax advisers are here to help. If you are committed to achieving financial independence and need some guidance and support to get there, give us a call on 6652 8788.