The word “Financial Freedom” has been thrown around, yet not entirely understood. Majority of us have the goal to be financially free, however, only a few of us attain this goal. One of the reasons for this is that we say we want to be financially free; we know we want to be financially free, yet we do not know why we want this for ourselves.
This article aims to assist you in finding your why:
Financial Freedom, in a traditional sense is the ability to cover your expenses with an income that you do not actively work for. However, the key to financial freedom is understanding the reason or motivation to attain this. For example, if a relative says that they are investing and saving their money so that they can be financially free, their “motivation” may be that they want to take ownership of their finances and be able to make big life decisions without having to stress over money. Contrary to your motivation, which could be that you want to regain control of your “time” or want to be independent and not depend on your salary being the only means to provide for you.
This makes the term so real. The motivation makes it personal, allowing you to base your goal on your understanding of it, instead of using an umbrella term that you would like to be “financially free”.
Financial Freedom starts today
Thinking about financial freedom, allows you to investigate the future (15-30 years away) to visualize where you would like to be. Your understanding of financial freedom will assist in bringing that goal closer to the present reality. Your motivation does not have a time limit or date of expiration, which should only motivate you to stick to the process every single day, by basing your current financial decisions on your understanding, which will create good financial habits. The saying “old habits die hard” is true, however with time you will find it easier to make better financial decisions. After all, there is euphoria in accomplishing what you said you would.
We have compiled a few practical tips to help you understand how to create a future where expenses are covered by passive income (income from investing or saving):
- Create a simple, spending plan – Begin by taking your after-tax income, save and invest about 10-40%. This way, you can spend the rest on your necessities and wants without feeling guilty. After you have put your savings aside, create a budget and stick to it so that your money and spending have purpose.
- Reduce your debt – The sooner you pay off your debt, the sooner you can start putting money towards savings and investments.
- Automate – Your savings and investing amount should come off your accounts before you can even think about spending it.
- Live below your means – Make small adjustments by distinguishing between the things you need and the things you want.
- Start investing now.
Knowing your motivation and then executing on the how is the winning combination to help you achieve financial freedom. While any aspiration towards being financially free is great, finding the why and how makes the goal feel more realistic and achievable and the journey towards financial freedom becomes easier.
Our financial experts have been unpacking and providing practical advice on the best ways to preserve your financial freedom. Contact our financial advisors to ensure that you are receiving shariah compliant finance advise.
Anglowealth is an Authorized Financial Service Provider (FSP Number: 46755)