6 Best Secrets of Financial Freedom for Young Adults
Have you ever wondered how your finances will be after retirement or an unfortunate job loss today without notice?
Financial freedom is hard for most people who depend on a monthly salary. A Slight disruption like a layoff can run you into debt and financial problems with lenders. In case of emergencies, like medical bills, it can make your family bankrupt. So how can you live a life of abundance and financial freedom?
This article will provide you with seven tips for creating and protecting wealth. If you follow them, you can attain financial freedom, stay free of debt, and live in abundance. These seven tips are: –
Research, Increase your finance Knowledge
To escape financial struggles, become financially literate.
The best tip is to keep learning consistently. It will keep you updated on personal finance trends for informed decisions and financial empowerment. The best financial topics to learn for beginners and young adults are budgeting, savings, and investments. Others as you grow more are credit, insurance, and buying stocks, among others.
Below is a list of the cheapest sources of financial literacy information In Kenya.
- Online courses in personal finance
- Self-education through self-help books
- Educational blogs and magazines
- Social forums and discussion groups
- YouTube videos and channels
- Financial podcasts and audio content
Set your financial goals
Deciding on practical financial goals is the most important step in this process.
You will have to set the top objectives of where you want to be financially and how to get there. The SMARTER model is your ultimate guide in financial goal setting. Your wealth goals should be Specific, Measurable, Achievable, Realistic, and Time-Bound. Besides, remember to Evaluate your progress, and Revise if necessary
Examples of personal finance goals you can begin with are:-
- Repaying your student loan in 5 years.
- Buy home by age x.
- Build an emergency fund equal to 6 months of your net salary, etc.
Budget your income
Budgeting your income includes three key areas. Planning for your expected income, tracking your expenses, and adjusting it accordingly.
You will need to make a list of all your money sources such as salaries and family gifts and the amount of income you get from each. Similarly, list all the areas that you spend money on such as housing, utilities, and savings. Finally, compare your earnings against expenses. You can either have a budget deficit or a budget surplus.
- Budget deficit; when you spend more money than your income or revenue. This shortfall is typically covered by borrowing or using reserves. You may also need to diversify your income sources and reduce some costs.
- Budget surplus; When you earn more money than you spend. This surplus can be used for savings, debt reduction, or other financial goals
The table below has the typical income and expenses for young or working adults in Kenya: –
You can make a budget for a week, a month, or a year. You can use personal financial apps and spreadsheet templates for budgeting and tracking your funds.
Repay your debts.
Repaying your debts will reduce your available cash for use. A bonus tip is to settle them at the earliest time possible. You will then have extra money to save and invest, helping you to create more wealth. The very best debt management method is to pay the least expected amount of each loan you have. Use any additional money you have left towards a priority loan to complete it earlier than expected.
Financial experts propose two methods of fast loan payments. Repay the short-term debts first. Or settle the most expensive debts with the highest interest rates first. The first method will motivate you by canceling debts off your list. The latter one is cheap for you in the long run.
Build an Emergency Fund.
Life is full of uncertainties. For example, you can lose your smartphone, have your car engine break down, or unexpectedly lose your job. How would you survive? To keep afloat, maintain an emergency fund.
Finance experts propose an emergency fund equal to 6 months of your monthly expenses. If you are in self-employment or consulting, have a bigger one of 9 -12 months.
Use the risk funds in case of an emergency event only. Replenish it as soon as you are stable. Keep those funds in cash or liquid instrument like savings or checking bank accounts. These have easy access, unlike the fixed-rate and equity-based properties.
Invest your wealth.
Consider this step after you have set a sound risk fund above. Invest any available cash or savings in an income-generating asset to create more wealth. Your investing goals are in cash liquidity and solvency in the short-term, medium-term, and long-term. This way, you can afford a new home, car, or master’s degree in cash with no debt.
Consider at least three types of investment retirement or pensions, future needs like a new home or car, and income-generating ventures like a business.
Reward (pay) yourself.
The plan above can take a long period before you can live happily and in abundance. The secret to keeping you going is enjoying small wins as often as possible. Have a personal reward account to save funds to motivate yourself. You can go for a safari, an annual holiday to the beach or going for a hike. Take this time to review your life and the financial goals you set up in step one. Celebrate the winnings and update the plans for another winning financial year ahead.