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How to achieve personal financial freedom

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 lay off can run you into debt and finance problems with lenders. In case of emergencies, like medical bills, it can run 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 to Increase your financial knowledge.     
  • Set Financial Goals.
  • Budget for your income
  • Repay your debts.
  • Invest your wealth.
  • Reward yourself.

Research-Increase your finance Knowledge

To get out of a state of low finances, get knowledgeable in basic financial topics. The best tip in becoming finance literate is to keep learning. It will build your know-how on the latest trends in personal finance topics for informed decision making.

You can enrol for a cheap online course in personal finance. Or you can teach yourself by reading, watching and listening for materials on it. You can get it from books, blogs and magazines. Others are social forums, YouTube Videos and podcasts. Which are the topics to learn? Consider budgeting, savings and investments. The rest are credit, insurance and buying stocks, among others.

Set your finance goals

Deciding on your financial goals is the most important step in this process. You will set the objectives of where you want to be financially and how to get there.

The SMART model is the best guide in goal setting for you. It means your wealth goals must be Specific, Measurable, Achievable, Realistic and Time-Bound. Review and revise them often based on the results.

Examples of personal finance goals you can begin with are:- repaying your student loan. Buy home by age x. Build an emergency fund equal to 6 months of your net salary, etc.

Budget for your income

Budgeting your income includes two key areas. Planning for your expected cash flows and second track your expenditure.

Make a list of all sources and the amount of income you can get. These include salaries, wages and remittances. Others are dividends, interest and profits or financial aid and loans from banks and other lenders.

The second step is to plan and track your expenditure. Typical expenses for young or working adult include: –

House rent, mortgages, utility expenses like water and electricity and shopping for food and groceries. Others are transport, telephone, grooming and health care costs. Then set aside cash for paying your obligations on student loans and credit card balances and making savings. Luxury expenses come last on your plan.

You can make a budget for a week, a month or a year. Many leading finance firms have developed mobile apps and spreadsheet templates you can use in budgeting and tracking your funds.

The bonus tips for financial success in budgeting are two. Diversify your sources of income. Reduce your cash outflows.

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 cancelling 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 breakdown, 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 account. 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 finance goals you set up in step one. Celebrate the winnings and update the plans for another winning financial year ahead.

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1 Comment

  • Informative

    12 May - 2022 at 10:13 AM
    Muthoni Reply