Nine Habits to Reach Financial Freedom
by William Sabin - Retirement Strategies
At Focus on Freedoms (focusonfreedoms.com), financial freedom is one of our main goals that we teach. Financial freedom is closely aligned to health and the ability to volunteer and travel. In general, financial freedom means having enough savings in the form of investments and cash to live a life that we want rather than making life decisions solely based on money. Many times, decisions based only on money is a detriment to our families as well as our physical and spiritual health.
All too often, we are burdened with debt due to living beyond our means by not delaying purchases, not knowing the difference between wants and needs. Sometimes, financial emergencies can rock even the best plan. However, the following habits (as well as many others) should be able to mitigate the risk of not obtaining financial freedom.
Live on a Budget
Making a monthly budget and, most importantly, living on it, is the key and the foundation of financial freedom. This will help insure that bills are paid on a timely basis and, if referenced, will help you defer purchases that you cannot afford per your budget.
Pay Off Credit Cards in Full
Credit cards are a convenient tool and a great way to spend in a controlled environment. However, they can be very dangerous to staying on budget and can destroy your wealth building efforts. Pay off credit card balances each month with no exceptions. Remember, if you do not pay off your balances each month, you might be paying 22% or higher in interest. That’s not a great strategy!
Start Investing Now and Invest Early
Investing is key to grow your nest egg. Of course, the use of compounding can grow your money over time – the earlier you start the better. The more time you have the easier it is to reach your retirement goals – starting to save for retirement at 25 is better than starting at 45, for example. Get a brokerage account, understand at least the basics of stocks, bonds, money market accounts. Understand your risk profile – knowing how tolerant you are to volatility in your growing investment portfolio will provide great insight into the types of investment vehicles you might want to be invested.
Create an Automatic Savings Plan
Essentially, this is to pay yourself first. The best way that I know how to do this is to enroll in your employer's retirement plan and make sure you at least get all the matching contribution benefit from your company. There are some tax complexities to this, but in general, try and max out the contribution limits in your company’s 401(k), 403(b), IRAs, and Roth IRAs. You can also set up an automatic withdrawal from your salary and automatically build your nest egg at an investment firm. The key is money is going out to investments before you get your hands on it. Coupled with a budget, and you might find that you can put a lot of money away.
Keep an Eye on Your Credit Score
Your credit score is important as it determines what rate you will be given when you get a loan such as for a house or a car as well as other related transactions. Also, in the days of identity theft, it’s important to keep an eye on your credit report to ensure that there are no new credit accounts being opened in your name. Of course, I am an advocate to not have any debt at all and believe that individuals should work to being debt free if possible.
Live Below Your Means
As you live on a budget, you might find that you are not saving as much as you want. This should lend itself to a discussion that maybe you are living beyond your means. Do you really need to eat out four times a week, do you need that new car, can I skip a daily coffee? These are all small changes that can make a big difference in obtaining your saving goals.
While seemingly unpopular in the media, living below your means – spending less that you make – is a key factor to keeping financial stress low and to meeting your financial goals. Making small adjustments between needs and wants are key to creating good habits.
Negotiate
In many parts of the world, negotiation is a key part of most transactions. However, in the USA, most people do not take this tool with them into transactions. I’m not saying that you should try this at Walmart; however, you might be able to negotiate in many service areas. You might find that small businesses are more open to getting your business and especially your repeat business and will provide discounts.
Take Care of Your Health
With the cost of healthcare seemingly to know no upper boundaries, it is key to take care of your health. Not smoking and keeping your weight at an ideal range is very important to keeping you healthy and avoiding the risk of so many maladies.
Use Coupons
Back before mobile devices and the internet, if one was going to use coupons, it required keeping a book full of little pieces of paper, monitoring when they expired, etc. Today, the use of coupons is so easy. For example, if you go to eat at a restaurant, you might be able to use their internet to access their site. Once there, you can generally find a discount that you can use for dining right then. There are also many ways to get reductions in cost by looking at online advertising for the vendors you frequent.