7 Money habits to help you achieve financial freedom

Published on 3rd March, 2021 at 07:12 am

Achieving financial freedom is a goal for many of us. Unfortunately, too many fail to take the steps needed to achieve it. Here are the seven habits to adopt today to put you on the right financial path.

#1: Establish what financial freedom means to you

Financial freedom sounds great, but what does it mean to be ‘financially free’? While many have the misconception that financial freedom means being rich or earning a lot of money, this is not necessarily the case. “To me, financial freedom is spending less than you earn, being able to financially survive any unexpected event that may come your way, and being at a point in your life where you don’t have to work for money because your money works for you,” says financial planner Keagan Phillips at Adjuvo Wealth BlueStar, authorised by Sanlam. Understanding what financial freedom means to you will help you set your financial goals accordingly. “Remember, people who are living on a more modest income can most certainly also achieve financial freedom,” Phillips adds.

#2: Evaluate your current financial situation

You can only start to improve your financial situation by knowing exactly where you are now. The first step to becoming financially stable is to access your current financial situation. “The saying ‘prevention is better than cure’ applies to your finances. Many people make the mistake of avoiding their situation until it’s far too late to fix it,” says Phillips. Calculate your total monthly income and expenses as well as all your debt. Don’t let this step scare you. This is the first start to taking control. “By tackling your finances proactively, you can find and resolve potential problems before they turn into real problems,” adds Phillips.

#3: Go through your bank statements

Good money management begins with tracking your bank statements on a regular basis. “When you list every single thing going off the bank account you will quickly see where you can save money,” says Nicki Blignaut, a senior financial planner and principal at 2one2 BlueStar, underwritten by Sanlam. Although it may seem daunting or tedious, there is no better way to analyse where your money goes each month. “Start with baby steps by checking your debit order list and challenging anything suspicious,” suggests Phillips. “You may find expenses you can cut, like a subscription for that app you never use.”

#4: Set up a budget and stick to it

Creating and managing an effective budget is key to reaching financial independence. “A budget ensures you do not overspend,” says Blignaut. “However, they key for a budget to work successfully is be completely honest with yourself when making it. It doesn’t help if you say you’ll budget R2 000 a month for food and R2 000 a month for savings when you know you usually spend R3 000 a month on food.” A budget help you decide which categories you want to spend more money. Take an hour a month to go through your budget and determine how much you need to use for bills, savings, and then how much you get to spend however you want. Use this budget template to set the right foundation for a budget that works for you.

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#5: Set up a rainy-day fund

“A rainy-day fund is simply the money you have saved for an emergency situation, such as a retrenchment or a long-term illness,” says Phillips. Many of us don’t like to think about the possibility of something bad happening, so we avoid having to save for unexpected expenses. But being prepared for unforeseen costs such as an expensive car service, or a home or medical emergency will provide you with peace of mind when you need it most. “Never has the need for a rainy-day fund been more visible than in the ongoing COVID-19 pandemic, with so many having lost their jobs and income as a result of lockdowns and restrictions,” says Phillips. “I would recommend that you save enough to cover your basic living costs and debt repayments for six months. Start building your fund right away so that you can face these emergencies without the added financial strain,” suggests Phillips.

#6: Monitor your credit and pay off debt

As you make more money, it’s tempting to spend more and live larger and larger. The more debt you have the more interest you pay, and paying interest is a waste of money. Remember, credit cards are regarded a debt. For example, when you apply for credit for something big – like a house or a car – if you have access to R80 000 in your credit card, the bank adds this to your liabilities, explains Blignaut. “Paying credit cards off quickly will save you a lot of money in interest, as the rates are often high,” adds Phillips. “Paying on time every month also improves your credit score because it proves that you are reliable and can be trusted with credit, while missed payments do the opposite.” Another common mistake is using your full credit limit. “Your credit score is also based on the percentage of your limits you are using,” warns Phillips. “If you’re always maxed-out on your credit card, it creates the impression that you rely too much on credit or that you don’t use your credit facilities responsibly.” Having a high credit score becomes very important when applying for credit for major life investments, such as buying a home, starting a business, or sending your children to university.”

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#7: Thinking about investing? Speak to a financial planner

Investing can be intimidating for someone with no experience or knowledge of investing. It can also be risky; you could fall victim to investment scams and lose money you’ve worked hard to earn. A financial planner will not just help you choose legit investments that are right for you and your goals, but will take the time to educate you on the basics of investing so that you can feel empowered to make smart and informed investment choices.

“Investing is for everyone, no matter your status or how much you have to start with, but you need an financial planner to protect you from misinformation and emotional decisions,” says Phillips. “A financial planner should ask you a number of questions,” says Blinaught, “such as ‘Why are you investing?’, ‘How long do you want to invest for?’ and ‘What are your short- and long-term financial goals? Based on these questions you can decide on an investment plan together and your financial planner will help you reach your goals.” A study from John Hancock showed that 70% of those who work with a financial planner are on track or ahead in saving for retirement, compared to just 33% of those who don’t use a planner.

True empowerment comes from honest conversations with a qualified financial planner who can assess your financial situation and help you make decisions to put you on the right track to your goals. Book a meeting with one today and start your journey to financial freedom.