The 122nd Independence Day is just around the corner. As we celebrate our country’s independence, we at First Metro Asset urge you to set out on the path of financial freedom as well.
What is Financial Independence?
Financial Independence is defined as the status of having enough income to pay one’s living expenses for the rest of one’s life without having to be employed or dependent on others.
The benefits of being financially free are countless:
- Having more than enough resources to pay for your bills;
- Not having to stress out even if there is/are unexpected bill/s;
- Early retirement;
- Control over your time;
- Have a choice to pursue your passions;
- Take a higher degree of risks in terms of your investments.
Ultimately, financial independence means more options for you and the ability to live life to the fullest.
Here are 8 ways you can start your financial independence journey:
1. Figure out your finances at the moment
The first step towards financial freedom is having a clear view of your present status. This is where calculating your net worth comes in. Make a tally of everything you own and owe. Subtract your assets to your liabilities and you get your net worth.
Your current net worth is the overall assessment of your financial health at the moment.
If the difference is positive, you are on your way to financial freedom. Your assets overpower the amount you owe.
If the difference is negative, it means something has to change. You have more debt than the sum of the assets you own. There is a need to fix in how you are doing your day-to-day finance. And you have to start immediately. The earlier you address this, the closer you are to your financial freedom.
2. Understand how you manage your money
The next step is to understand your overall cash flow. You need to start a budget, if you haven’t done one. And in case you are already doing your budget, you want to be stricter to yourself in using it.
Give every peso a role. And, make every piso count!
Having a budget will help you understand how you manage your money. You will gain insight as to how much money is really coming in and how much is going out. The more you do this, the more you can assess which part you could cut back or do more.
3. Prioritize your debt
In order to become financially free, you need to eliminate debt as soon as possible. To do this, make a list of all your existing debts. This can go from credit card debts, salary loans, personal loans, car loans, home loans, etc.
Next, find a way where you can pay off your debt. Start by putting cash as your primary mode of payment. Because you see cash as the only option, you’ll diminish the amount of time you use your credit card to pay for everything.
Try to pay off the smallest debt first. It gives you a sense of accomplishment as you go along and manage larger debts.
Lastly, explore ways you can earn additional income so you can get rid of your debt faster.
4. Increase your knowledge and skills
Invest in your skills, knowledge, and education so you can maximize your earning potential. Take online courses or certification programs that will help you level up on your career. Doing this can lead to promotions or salary increase that can also help you navigate your daily budget better.
Take time as well to increase your financial quotient. Read books about personal finance in your free time. The more you understand about money, the more you will be able to achieve true financial independence.
5. Cut back on your expenses
If your expenses are so high that you can’t save and invest as much as you’d like, it might be time to cut back.
Take a look at your current monthly expenses and look for ways you can avoid the need to spend.
Cancel subscriptions and memberships you don’t use especially if they renew automatically. Prepare a list before you go shopping so you won’t overspend on items you don’t really need. Another way you can reduce your expenses is to find ways to save on utility bills.
Avoiding these regular expenses will improve your financial health and will help you in two ways – increase the amount of money you can save each month, and permanently decrease the amount you’ll need every month for the rest of your life.
6. Start saving money
The earlier you make saving money a habit, the earlier you can achieve financial independence. No matter how big or humble your salary, what matters most is the amount you can save from it. A good goal is to save 10% to 20% of your income every month. Automate this step so you won’t miss on saving for your future.
7. Start investing now!
Saving is only the first step to reaching a financially worry-free future. The next step is to INVEST. Consider investing to grow your money. Mutual funds can be a solid option for investing your excess funds.
How mutual funds can help you attain financial independence?
Mutual Funds have gained popularity in recent years as one of the easiest and most cost-efficient ways you can invest your money for the long-term.
In a mutual fund, money from different investors are pooled together to buy a collection of stocks and securities which are then managed by professional fund managers.
To put simply, investing in mutual funds is one way you can take the first step towards becoming financially independent. Mutual funds are a suitable avenue for investments if you want to fulfill your financial goals and create wealth for the future.
When you invest in a mutual fund you get the following benefits:
- Start investing for only Php 5,000
- Mutual fund is one of the low-cost investment vehicles which offers a potential for greater returns over time.
- Invest in a variety of stocks and securities that may span across industries.
- Let your money be managed by experts and experienced fund managers who do the investment strategy on your behalf.
8. Do constant financial review
Do you review your finances regularly? If not, make today your first!
A personal finance review is a good way to reflect on your current money habits. It provides you with a glimpse of your cash flow, from your expenses down to your liabilities.
A regular review helps ensure that you are reaching your goals and mapping out better financial decisions for the future.
As the month ends, do an evaluation of your finances. Here are some questions you can answer to get started:
- Are you on track with your saving goals?
- Do you need to add on your investments? And/or diversify in a new investment vehicle?
- How much debt have you already paid?
- Is your income still enough to cover your current lifestyle and expenses?
- Are you budgeting effectively?
Record the results and then plan your next actions towards financial independence.
The journey towards financial freedom is not that easy but is fulfilling. It is never a get-rich-quick process. However, there are choices you can make today that will help you get closer to that life dream. We hope the above tips help.