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When I first heard of people that were ‘retiring’ in their 30s and working a couple of hours a week from a remote Balinese villa, I was both inspired, and a little hesitant – surely the promise of living a life like that must be a scam? Could this concept of ‘financial freedom’ really provide an answer to everything I’d been looking for?
The internet is awash with resources on how you can also live a similar lifestyle – from illegal activities, to having a side-hustle-that-becomes-your-main-hustle, and you can bet that in the last two years since discovering this idea of financial freedom, I’ve tried an awful lot of the suggestions!
What is financial freedom?
There are a fair few different definitions of what financial freedom means on the internet. Dave Ramsay states “Financial freedom means that you get to make life decisions without being overly stressed about the financial impact because you are prepared. You control your finances instead of being controlled by them.”
Elsewhere, ETMONEY says “Financial freedom is having enough residual income to cover your living expenses. It is not about being rich and having tons of money, but having enough to cover your expenses so that you can spend your precious time doing what you like rather than doing things just to earn money.”
To me, Financial Freedom is forgetting when payday is, because you’ve organised your expenses and budget in such a way, you’re not at zero by the time the 25th roles around. It allows you to no longer trade time for money through the likes of compound interest and passive income, and it means you can afford to allocate more money to things that are important to you.
Financial Freedom – at least my definition of the term – will allow me to work smarter, not harder, and means that if my car fails its MOT, or my washing machine breaks down, I’m not going to have to turn to a high-interest credit card, because I’ve already prepared for such an eventuality. It doesn’t have to mean you get to a point where you can quit your stable job role that you quite enjoy, to flit between projects because you feel you have to semi-retire. No, instead, Financial Freedom is about giving yourself more choices, and the feeling of empowerment that comes with that.
For me, I found out about Financial Freedom when I was trying to work out ways to make extra bits of cash on the side. I was working full time at a job I loved, but which paid a pretty low salary considering I was living in Brighton (AKA London-by-Sea-without-the-weighted-salary). As you might be aware, travel is my main passion, and in order to see as much of the world as possible around my 9-5, I needed to work out how to get more money so that I could increase my Emergency Fund, and my Adventure Fund simultaneously.
So how can you work towards becoming financially free?
- Know where you’re at right now
- It’s SO important you analyse the state of your finances as they currently stand. You can’t make a plan, if you don’t know where you’re starting from. Grab a pen and paper and jot down your savings, your debt total, what your monthly incomings are, and what your outgoings are. What do you have left once that’s all been taken into account?
- Live below your means
- This is a crucial aspect of becoming financially free – there’s no point increasing your income, if you’re only going to increase your outgoings at the same time. Say your take home pay each month is £1500 – now try and live as though it’s actually £1300, and squirrel the £200 in to your various savings pots.
- Clear debt
- I certainly don’t believe all debt is bad – a lot of the time, it can be a means to an end and a better future. However, if your debt is subject to high interest rates, try and work on clearing this debt as soon as possible or moving it to a 0% credit card.
- Pay yourself first
- Instead of saving whatever you have left over by the end of the month, treat your savings pot as another bill to pay on payday. If you’ve calculated Step 1 and know what you have leftover, try and put the majority of this into savings straight away.
- Budget every payday
- I personally am a big fan of a zero-based budget, meaning I allocate a purpose to every penny I earn. Outside of rent, bills and savings (currently divided into saving for a house deposit, Emergency Fund, Sinking Fund, holiday fund and a Stocks & Shares ISA) I also allow myself a chunk of fun money. Once payday roles around, make a note of any birthdays or additional expenses that you might incur that month, and factor this in.
- Have a buffer in your budget
- The fastest way to fail at budgeting is to feel that your budget is too strict. My fun money allowance is actually a fair bit higher than it needs to be, but it means I have it there if anything crops up, or I want to treat myself. That way, if I want to buy a few books for my Kindle that month, I don’t need to touch any of my various savings pots (and incur that dreaded feeling of guilt for having broken my budget!)
- Avoid lifestyle inflation – more you earn, more you spend
- It’s true – once you see your income increase, you might have a tendency to up your spending relative to what it once was. If you secure a payrise, or your freelance gig goes particularly well, it’s so easy to find yourself making a few lifestyle changes in line with this increased income (you know the kinds I mean – buying a pricier wine to treat yourself when the cheaper one has served you well over the last few months, or looking at renting somewhere considerably more expensive than your last place, because your new wage means you can afford it). Instead, wherever possible, try and keep your outgoings the same as they always have been whilst your income increases. And then, of course, save the difference.
- Once you have an Emergency Fund in place, and can afford to, invest
- You should absolutely, without-doubt, focus on building an Emergency Fund first. Opinions differ on how much you should actually have within this fund, but anywhere between 3-6 months worth of income should be a good safety net, should something ever happen that requires additional cash. From car repairs, to replacing your washing machine, to dental treatment, and even to cover you during a period of job loss – just knowing you have this pot there behind you if you need it is incredibly empowering.
- Side hustle
- The mighty, mighty side hustle. I don’t think I can remember a time in my working life that I haven’t been doing something else on the side for extra cash, to build my savings pots – and most importantly, my Adventure Fund. From matched betting, to setting up a wedding hire business, to social media management, to surveys, to reselling, to a second job, to monetising a skill or hobby – I really have tried it all and I absolutely recommend you do too. If the worst were to happen, and your main source of income were to disappear tomorrow, imagine how less scary that would be if you had an additional stream of money coming in each month? You know what they say, never put all your eggs in one basket…
- Look for passive income
- The absolute holy grail of personal finance is establishing sources of income that are predominantly passive. Most of these aren’t passive to begin with, and require a big injection of cash and/or time, but once the process is set up and relatively automated, you can be making money whilst you sleep. From launching a brand of your own on Amazon FBA, to creating digital products to sell on Etsy, to leveraging compound interest and stocks and shares, this is definitely an avenue worth exploring.
- Visualise – know what your goals are
- I know, manifestation and visualisation are ‘in’ right now – but they’re in for a reason! There is a real power behind visualising where you want to be, and going for it. There are going to be times where you want to give up, but by refocusing on your goals, and remembering your ‘why’, it will have you back on track in no time.
- Build assets, avoid moneypits
- Say you come into a fair bit of money, right? What do you think most people are doing with that? They’re typically going on a holiday, having a good few celebrations, and buying a new car. In order to increase your wealth and make your money work for you, you instead need to focus on building assets. Whether that’s investing in yourself through a course (which I will always recommend), to getting on the property ladder, you want to make your money work for you, not the other way round.
- Enjoy the process – get satisfaction from seeing your freedom increase as your savings do
- I know saving money isn’t as sexy as spending all your money on a designer bag and brand new car, but I promise you, once you get going on your journey to financial freedom, nothing could be more empowering. Focus on where you want to get to, hustle until you get there and enjoy it as you go.
Through following the steps above, I’m certainly closer to my goal of financial freedom than I’ve ever been before, and the closer I get there, the quicker I want to achieve it.
I truly believe everybody should strive for financial freedom – and not the extreme quit your job and travel forever lifestyle (although, I’ve certainly got my eye on that). No, instead I believe everybody should work towards the security that savings and clearing debt brings you, because nothing causes lack of sleep and relationship breakdowns like stress over money.
If only they spent a little more time teaching this at school eh?