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8 Steps to FInancial Freedom

Financial freedom may mean different things to different people, but we all agree that to be truly financially free is to know that should your world crumble around you, that the last of your worries would involve money. 

Very simply, is more money coming in than going out – are you living within your means?

Step 1: Set financial goals
Any trip requires a map with directions – a start and an end point. The road to financial freedom starts with a map and it’s important to understand the journey you are undertaking and why you are doing it. 
Step 2: Get out of debt
Shit happens – if you fall off the rails one month, it doesn’t mean that you should give up. But, the best way to pre-empt such problems is by having a plan in place. Speaking to a financial adviser will also assist you if you are unsure of where to start. www.arktotalwealth.com.au

This has to be a conscious decision and one made in the planning phase. Your plan should outline the ‘bad’ debt you plan on paying off first i.e. clothing accounts, credit cards, overdrafts, etc.

Your plan should also include the order in which debt will take longer than other debt to settle, and when you will start and complete paying off each sum.

Start paying smaller amounts off first as those can be allocated at a later stage to pay off bigger debts. Pay the debts which have a higher interest rate first and whatever extra money you have left over after paying off these amounts, use towards decreasing the longer term debts you may have e.g. car or home mortgages.

Step 3: Start saving

Doing this will benefit you in the long run.  (In fact you should look at consolidating your debts with lower interest rates. see www.liquidityfinance.com.au

If you are tired of having more month than money, it’s time to re-evaluate your spending habits. Yes, we all know how easy it is to overspend one month, stop living beyond your means with the inability to pay back what was spent.

Therefore, if you have paid up all your ‘bad’ debt, then work towards paying extra on your longer term debts which have investment assets against them (Investment Properties or Portfolios).

No matter what your debt is standing at, start paying yourself first. An easy way to ensure that you keep to this self-promise is by opening a savings account that you don’t have immediate access to and save monthly – even if it is $100 for now. 

Step 4: Track every cent you are spending
Place a stop order on the account into which your salary gets paid. This means that the savings amount that you have allocated will go straight into your savings account without you having access to that money. This way, while you are paying off your debt, you are saving and as the debt becomes less, you are able to save more.  

Keep track of every cent that comes and goes. Tracking your spending habits helps you understand exactly how much money comes and goes, as opposed to what you think comes and goes. There are various tools available on the web that can help you do this.

You could also keep a cash log book. This would require you to keep every slip that you get and track it against what you have budgeted. Make this a habit.

Step 5: Draw up a budget

Tracking every cent you spend works hand-in-hand with your budget. Draw up a monthly budget of your income versus your expenditure to track your budget. What you want to accomplish in the long run is to spend less than what you earn especially when debt is involved.

Once your debt is paid up, continue tracking your spending habits and budgeting as they will remain fundamental tools to manage your money.

Step 6: Before investing – do your homework

Before you invest your money in any investment that promises you an unrealistic and quick return – be wary. Good things come to those who wait. There are convincing sales people and con-artists out there. Instead, speak to a registered and accredited financial adviser regarding possible investment options and portfolios available on the market. www.arktotalwealth.com.au 

Step 7: Protect your wealth

It’s vitally important to protect the wealth you create from events that might destroy it, for example, premature death, illness, relationship breakdowns and taxes. Good estate and tax planning will help preserve your wealth and speaking to your financial adviser is key in getting insurance that protects your wealth. www.arktotalwealth.com.au 

Step 8: Set aside for retirement – Build up your Superannuation

If you are young, the last thing on your mind is retirement. However the power of compound interest lies in the secret of your youth – the younger you are the more compound interest favours you. This as opposed to an older person starting to save for retirement at an older stage in their life.

Retirement is an important aspect as you would like to be self-dependent when you retire. A realistic figure that you should be saving is 15% of your salary.

Achieving financial freedom is not rocket science; it just requires determination, focus and a little commitment.

Posted on February 11, 2013

One response to “8 Steps to FInancial Freedom”

  1. The article was up to the point and described the information very effectively. Thanks to blog author for wonderful and informative post.
    SMSF Adviser

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