Saving for financial freedom

These habits and tips can help you live the life you want.

Financial freedom means living comfortably without having to worry about debt or paying the bills. It's having a safety net to cover emergencies as they arrive.

It’s having choices about where you live, where you travel and the experiences you provide for your children, if you have them. And it can even mean retiring early to spend more time doing the things you love.

If that sounds good to you, these five steps can help you reach your goal.

1. Create a dynamic budget

A journey starts with knowing where you are, where you want to go and how you can get there. When your destination is financial freedom, your roadmap is a budget.

The process of creating a budget will help you to understand your spending patterns so you can prioritise where your money goes. Then, if you review your budget every month, it will become a dynamic money-management tool.

Simply incorporate changes, such as a pay rise or additional expenses as they happen, and you’ll be able to see at a glance exactly where you stand. You won’t waste money on things like unused subscriptions and you’ll quickly spot opportunities to save.

Living within your means is the basis of financial freedom, and a budget is the key to staying on track.

2. Avoid ‘bad’ debt

Investing in a home, shares or education is known as ‘good’ debt because, over time, it can bring in more money. Borrowing to pay for things with no long-term value, such as a holiday or clothes, is known as ‘bad’ debt. This is something to avoid, or clear as quickly as possible.

Misusing a credit card is one of the most common ways to get into debt. Even relatively small purchases can quickly add up to a balance that’s too high to clear at the end of the month. So now you’re paying interest, usually at quite a high rate, which – let’s face it – is money down the drain.

It’s vital to draw a line under your borrowing so it won’t continue to increase. You can then make debt repayments a priority in your budget.

3. Create an Automatic Savings Plan

The easiest way to save is to make it regular and automatic. Arrange to have a fixed amount transferred from your salary the moment it hits your account and you’re much less likely to miss the money.

It’s also a good idea to review the options for saving regularly to ensure your money is working as hard as possible. For example, once you’ve achieved a certain balance, you might be able to earn more interest by talking to a Financial Advisor about investing. A reputable financial advisor can explain different financial products and how they can help you make the most of your money.

4. Clarify your savings goals

Financial freedom is your overall goal – but having smaller, achievable goals along the way may help you to stay motivated and focused.

For example, your plan might be to pay off your credit card or car loan, or save for a home-loan deposit then pay your mortgage off as quickly as possible.

One popular strategy is known as SMART – making sure the goals you set are Specific, Measurable, Achievable, Realistic and Timely. Follow this formula for every goal you set and you’ll be on the path to success.

5. Could you earn more to boost your savings?

If you’re motivated to reach your goals as quickly as possible, you could look for ways to increase your income.

For example, you can build your skills or gain extra qualifications by continuing your education. You could take on a second job, start a side business or make money from your hobbies.

As long as you’re sticking to your budget and steering clear of ‘bad’ debt, the more you earn, the faster you could be financially free.

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