How to achieve financial freedom: 7 key habits to follow

Most of us spend the majority of our lives trying to learn new things, hone our skills and get better jobs that pay us better money. This is important, obviously, since we live in an increasingly competitive world, and we get left behind when we don’t keep up with it. Unfortunately, we don’t spend half as much time learning about finances and what to do with money once we get it, which is why most of us, despite earning enough, end up falling short on finances when it’s time to retire or in case of an emergency.
Ask yourself this: how much effort have you really put into learning about personal finance or saving or investment or financial planning? If you haven’t put in much so far, that’s okay, but that needs to change because your wealth isn’t defined by your income, it’s defined by your habits.
It can be overwhelming to dive into personal finance, so let’s start small. Here are 7 habits you need to achieve financial freedom:
1) Make a budget and try to stick to it
Budgeting is the most basic part of financial planning since you need to know how much income you’re working with and what your expenses are before you can set any realistic financial goals. Calculate what your major expenditures are, like food, rent, commute, etc. and set goals based on how much of your income is left. This way, you can make sure that you’re never spending more than you can afford to.
2) Give future you a timely pay cheque
It’s definitely important to pay your bills and spend money on daily expenses but your chances of reaching financial goals, like a holiday to Thailand, increase drastically if you put aside money for those goals before you spend money on expenses like commute and groceries. You can set up auto debit so that your money is channelled to your savings right after you’re paid. Think of the money as belonging to future you, not present you.
3) Pay off your debts
Debts can be all-consuming if you let them get out of hand since the interest that needs to be paid on debts is generally high and compounds over time. The thumb rule is to pay off debts as quickly as you can afford to, even if you have to sacrifice some of the things you want. In the long run, though, your credit score improves as you pay off your debt and you get better cash flow so you can channel money towards your savings and investments.
4) Stop indulging yourself
We live in a world that is constantly going to be telling us that our lifestyle is not good enough and that we need material things to complete us. Just remember than looking wealthy isn’t as important as building wealth, which can only happen when you have more savings, which you can then channel into appropriate investments. Before you buy something, ask yourself whether you want it or need it? If that fails, remember that you’re not paying for it, in the future you are paying for it.
5) Save smart, invest smarter
Investing well is the single most important factor in building wealth, which is what leads to financial freedom. You might think that you need a large lump sum of money in order to invest but the truth is that investing a small amount of money consistently over several years yields better results than sporadic investments whenever you have the money for it. Don’t take any risk that causes you to lose a night’s sleep.
6) Find yourself a side hustle or start one
COVID-19 has taught us that nothing is for certain and relying on a single stream of income can be risky since you never know when it might be compromised, which is why it’s important to have multiple streams of income. Working another job isn’t appealing to anyone so the best way to get a side hustle is to take a hobby and monetize it so you’re passively earning income while doing something you enjoy. This additional income is padding that can supplement your savings.
7) Spend money on things that make money
Here’s a statement that might shock you: if you’re only saving money, you’re losing money. The average savings account or Fixed Deposit will give you an interest rate of 3-5% while the average inflation rate, year on year, is between 6-8%, which means you’re actually losing money. Spend your money on things that become more valuable over time, like investing in equity and debt funds or international stocks, rather than things that depreciate over time, like cars or watches. You can only do this by studying what makes an asset worth spending money so invest time in doing so before investing money.
Bottom line
Remember, this is just a starting point. There are loads of other financial habits and tips that one can take up in order to build wealth. Hopefully, you will be able to work your way up to those after mastering the ones listed above.