Very few things would prove to be as important to the quality of your life as your finances because we will need money for many things. Without money, it will be impossible to purchase life-sustaining food, care for our health, and have suitable accommodation or clothing. With money, we can even buy those things that, though they are not strictly necessities, make us happy.
There is little wonder, then, that many are concerned about financial freedom, what it truly means, and how we can achieve it. This article will answer these questions. In addition, you will learn why you need a financial freedom plan and how an investment advisor can help you attain it.
What is True Financial Freedom?
Financial freedom means various things to a lot of people. Humans are different, and their unique goals and needs largely affect how they view economic liberty. Nevertheless, an individual can only be said to be financially free if he has enough income to service his goals and needs.
Hence, many economists define financial freedom as having enough residual income to cover all your living expenses. We can even further describe it as having enough residual income to meet your needs and goals. What amount of income that means will largely depend on your aspirations.
Long-Term Investment: The Key to Financial Freedom
Investments that you hold for more than a year are called long-term investments. These could range from stocks, bonds, or even a retirement account; typically, an asset should be capable of racking in more money than you bought. Long-term investments are crucial to financial freedom because they come with special benefits that short-term investments do not normally possess.
Long-term investments can reduce rollover risks for investors as they have more time to mature and yield good dividends, while short-term investments can be volatile and carry more risk for the investor. Additionally, many long-term investments are often subject to compound profits, which means your investment grows at an astronomical rate the longer you own them. This rapid income growth could be a major precursor to your financial liberty.
How to be Financially Free: Seven Ways Worth Exploring Today
Being financially free is very important if we wish to have the best quality of life possible, but achieving it can be challenging. Fortunately, there are several ways you can attain financial freedom, here are just a few:
Have an Understanding of Your Financial Conditions and Needs
As we already know, financial freedom means different things for different people, so the first step you can take is to have an in-depth understanding of the economic situation and needs. This study usually involves comparing your regular income with your routine expenses. If your recurring expenditures exceed your steady income, you may need to strategize how to make more money or cut down on costs.
Adopt a Simple Lifestyle
Very few things tank your finances as living above your means. An indulgent and extravagant lifestyle is expensive and will quickly drain you no matter how much you earn. A frugal life helps you keep as much of your income as possible intact and prevents you from getting into unnecessary debts.
Be Prompt About Paying Off Debt
Allowing debt to linger far beyond its due date has several downsides. Bad debts attract late payment penalties, give you a poor credit score, and increase the amount owed(if it comes with compound interest). It is much better to pay off debt on time, as a debtor can never truly be financially independent.
Have Sufficient Savings
In many cases, financial freedom is not the product of how much you make but how much you keep. The funds you hold can be crucial in the form of emergencies and future projects and investments. Saving up at least 20% of your income as long as your necessary needs are being met can help you on the path to financial freedom. Most banks come with an auto-debit option that allows you to automate savings.
Prepare an Emergency Fund
Emergency funds are useful because life is so unpredictable. You could lose your source of income, fall ill, or have to make a necessary purchase. An emergency fund makes dealing with these unforeseen events possible without derailing you financially.
Creating an Investment Portfolio
Of course, savings will only take you so far. To gain true financial freedom, you must acquire land, bonds, stocks, etc. Note that you should always start with small-risk investments if you're a beginner.
Increase Your Income Stream
It is almost impossible to have true financial freedom if you have only one source of income alone. If you have sufficient time and energy, you should try running a small side business in addition to your regular job. That way, you can have more money to work with.
Why You Need a Financial Freedom Plan
A financial plan is a guide that helps you control your earnings, expenditure, and savings. A good financial plan will also dictate how you invest your income and, thus, would play a critical role in your journey to financial freedom. Some benefits of a good financial freedom plan include the following:
- It will help you attain your financial goals.
- It makes you more able to handle emergencies.
- It would help you improve your financial understanding.
- It eventually enhances your financial security and standard of living.
How An Investment Advisor Can Help You
Investment advisors are professionals who track your financials and give you important information about investments and how best to manage your income. Financial advisors are important as many people will not always have the time to monitor their finances. In addition, they can craft a personalized financial plan to help you effectively manage your finances.
Financial freedom is the state of having enough to take care of your needs and goals. It is a state that many people aspire to attain but ultimately struggle to achieve. One of the key ways of reaching financial liberty is managing your finances and making sound, profitable investments. You can also do well with a good financial plan and a professional financial advisor like Diddel & Diddel who will track your finances and give you the best advice.