When it comes to aspirational phrases, "financial freedom" is the kingpin. It's a powerful term because of the image it conjures up – of a life free from financial constraints. For some that might mean the freedom of paying off the mortgage or working for love, not money. For others, it might simply mean not having to go without.
Either way, financial freedom often eludes us. We might wish for it and dream about it, but that's where it ends. Without specific, actionable steps to start building wealth, we motor along one day at a time, accepting the status quo. Here are some quick, practical steps you can take right now to start shaping your financial future.
Financial freedom will not happen overnight, but it also won't happen if you don't change the way you think about spending and saving. Just like improving your fitness or getting a promotion at work, financial freedom requires a disciplined approach. You'll need to think hard about what short term sacrifices are necessary to achieve your goals.
You'll need an incentive to stick with this discipline over the long term. Tying your financial freedom goal to something emotional will keep you on track because you can draw on feelings of frustration, excitement and anticipation.
If your goal is to pay off your mortgage early, for example, think about what that means to you emotionally. Perhaps it means you can take a holiday to a place you've always wanted to go or you can spend more time doing something you enjoy. Print out words and pictures that represent this emotional goal and use these to keep you motivated.
- View your finances as a business
You wouldn't drain your company of its cashflow so why allow money leaks in your personal life. To build wealth, you need to create a surplus to invest so you can grow your money over time. But this surplus is hard to make if you're spending more than you're earning.
Think of your finances as a business. Ask yourself: what do I need to invest in this business to make it successful? Also start tracking figures like your net worth, which is how much money you are worth when you subtract your liabilities from your assets.
- Track where your money is going
A vital part of stemming these money leaks is to track where your money is going. You might think it sounds like a tedious task, but there are plenty of apps that make it a quick and easy process. Once you start, it won't take long to see where you can make adjustments to cut down your spending. You'll also find it makes you more accountable for your spending choices.
Paying yourself first isn't a new concept, but it is a powerful one. By moving a specific amount of money from each salary payment into your savings before paying anything else, you're prioritising wealth building. Whatever’s leftover goes to bills and living expenses. If you don't have enough to cover these, you work out how to cut costs, pick up a side income or build your skills to improve your career value. Try it for yourself and see how effective it is when compared to putting away what you have leftover each month.
Diversify your investments
Don't put all your eggs in one basket when deciding what wealth-building strategies to use. If you're investing in shares, spread your risk with a diversified portfolio. If you're investing in property, look beyond your neighbourhood to suburbs with high growth potential so you can snowball your wealth with compound growth
. Don't stop at one investment property; aim to build a portfolio. Have a cash buffer
in place so you can deal with unexpected events without ending up back at square one.