5 Steps to Financial freedom in 2019
Whether you need financial freedom to achieve your goals this year, or whether financial freedom itself is one of your goals, it might not be clear where to start. Perhaps it feels like you’ve tried it all before, and failed. But maybe your problem wasn’t with the what, but with the why. In this two-part series we help you assess what has and hasn’t been working for you, and guide you to take action. Here are the first 3 steps on your road to financial freedom:
1. Get real
The problem with most financial advice is that, well, it’s so ‘financial’. Where’s the fun, the joy, the pleasure? Achieving financial freedom requires discipline and a calculator, but you are not a calculator. You are a human being, on this planet to live the life that has been given to you. Most budgets fail because budgeting feels like a killjoy process – nobody likes a plan that tells them all the things they can’t do. So, when you create a budget (see Part 2), remember to leave space for stuff that makes you happy, otherwise you’ll never stick to it. But also, be honest with yourself. What are the other reasons your financial plans have failed in the past? Why are you in more debt than you’re happy with? What are the choices you’ve made (especially the ones that you seem to keep making) that have landed you where you are? And what drives those choices? The courage to really look at what makes you tick is the first authentic step towards financial freedom.
2. Get excited
You might get really turned on by seeing numbers in your bank account, but sooner or later you will need those numbers to turn into something meaningful to you. Understand what that it is. Spend proper time identifying what you want from the next phase of your life, and dream big. Ask yourself, ‘what would I do if money was not an issue?’ and start there. Yes, some of those dreams may seem crazy, but more than likely they’re not. ‘Most people overestimate what they can do in one year and underestimate what they can do in ten years,’ said Bill Gates – play the long game and anything is achievable, especially in saving and debt reduction, where you can leverage the power of compound interest. Make note of your dreams. Paste pictures on your wall. Start a pinterest board. However you do it, hold those dreams in mind – they will keep you focused and motivated.
3. Get the picture
Dreams and self-reflection are powerful, but they’ll only get you so far. You need a plan, and every plan starts with an assessment. Where are things at right now? Begin by looking at your spending over the last 3 months. You could use tracking tools like 22seven, or you could just create a spreadsheet with categories of spending and the values of transactions. It won’t take you long to find where you’re bleeding cash. You won’t always like what you see, so be brave and be honest. Spending R2 000 a month on double caramel chai lattes? Cool, you can change that, but not till you accept it. Without that intention, this will be a waste of time. Then, once you’ve mapped out your spending, be honest again. What do you really need to spend money on? For important fixed expenses like home loans and life insurance, can you shave some money off your premiums while getting the same, if not more, value? Is there anything you could sacrifice? If you were to give something up, what would you lose and what would you gain? Do you need support in giving something up? Where could you find it? This is tough stuff, so be kind to yourself – you’re really showing up.
Feeling inspired to follow through and liberate yourself? Okay then, it’s time to get brave. Brave enough to examine the real causes of your questionable spending habits, brave enough to make a real change. This is the important stuff that comes before spending assessments and budgets and planning for that beach holiday. If you don’t know why you behave a certain way financially, you won’t be able to make any changes.
Above, we laid the foundation for your move ahead in 2019. Now we step into the action phase:
4. Get ready
The next step is the one you’ve been dreading: the budget. We’ve all done this in the past, and most of us know what it’s like for a budget to fail. The thing is, there is no one-size-fits-all type of budget. We are all individuals, and we all have our own budgeting styles. Most people set a budget and then rely on willpower to stick to it. Then, when they don’t stick to that budget, they beat themselves up for not having the commitment and staying power. From there it’s a short hop to total surrender. But few people question willpower itself. Everyone has it, but it is a limited resource, and nothing drains willpower more than making decisions – that’s why it’s easier to ignore YouTube in the mornings. So, make it easier on yourself. Take decisions away (can’t rack up more credit card debt if your card’s locked in your drawer at home), and be realistic. You’re more likely to stick to a budget if it includes an incentive. Take Ramit Sethi’s budget guidelines, for example: he suggests allocating 50-60% of your income to fixed expenses, 10% to investments, 5-10% to savings, and 20-35% to ‘guilt-free spending’. The exact balance will vary from person to person, and we would include 5% for unforeseen events, but the key point is: budget for things that make you happy. Happier people have more willpower and, well, you see the pattern.
5. Get curious
So, you’ve done the hard work and you’re on the road to financial freedom, but there’ll be difficulties on the way. You’re going to drop the ball sometimes, and even if you budget for them, there will be unforeseen expenses that threaten to break the bank. As far as possible, remember: be curious, not judgemental. Once a month, re-assess where you stand, and if you’ve made mistakes, accept them and move on. This is a process – usually much longer than one year – so give yourself some space to learn and grow. Take heart from your wins, and reward yourself every now and again for your good work. With that mindset, you’ll get a lot more out of this than just a good-looking bank balance.
Need more detail or info? Want to share your success stories? We’d love to hear from you on our facebook page. Otherwise, keep tuned to Simply Money for more financial advice you can actually work with.