Saving enough money for your financial freedom is a huge challenge with few solutions. Do you earn more, or get a promotion or a second job? Or cut back on your spending and lifestyle? Perhaps invest in risky get-rich-quick schemes? Two of the key things to know are where you are heading and what you want. This blog will help you get there.
Who is in control of your life right now, today? Is it you, or is it your lifestyle? The amount you spend every month, your mortgage, store cards and credit card payments? Think about it for a moment.
If you wanted to get off the treadmill, even for a while, would your financial lifestyle and spending soon overwhelm you and sink your ambition?
Financial freedom means independence. It means choices. It produces calmness. If financial freedom is your goal then you need to get in control of your life, fast.
Start with the end in mind
Before you do anything rash, the first and most important thing to consider is – what are you trying to achieve? If you can’t nail this from the get-go, you probably won’t get what you want.
Not only that, you need to define when you want to achieve financial freedom. There’s no point being vague and woolly. After all, you are the easiest person to fool.
There are many paths to take, two of which are well trodden. Earn more money and maintain your lifestyle, or reduce your expenses and simplify your life. Both paths are littered with failure. Nobody claims that financial freedom is easily obtained without a struggle.
Who are you? What are your strengths and weaknesses? Ignore your self-image of who you are; instead, think hard about what you do, not what you say you will do. Words are cheap and soon forgotten.
Everyone has weaknesses, flaws and shortcomings; that’s normal. What you need to be clear about is which of your flaws are most likely to hold you back or lead you astray? Why are you spending too much (if you are)? Is it for pleasure or as a reward? Perhaps it’s due to envy, fear or impatience.
Is it impossible for you to pass a warm and welcoming patisserie on the way to work without popping in for a fancy pastry and a skinny latte? It all adds up financially. If this is you, then simply change your route and avoid the temptation. Avoid the sensual stimulation – the window full of pastries and the aroma of roasted coffee. The extra daily steps will do you good.
What is your ‘why’?
If you don’t have a defined reason and purpose for gaining financial freedom, what you might call your life goal, then the chances of success will be slim.
The strongest and most positive emotion is for you to be running towards something (your goal), as opposed to running away from something (your job). Running away means that success could be anywhere in any direction, as long as it’s not your old workplace. This potential wilderness is not ideal.
For the ‘why’ to be a powerful attraction, it must be something that you are passionate about. What does financial freedom give you that you don’t have right now? Can you visualise your new life in your mind’s eye?
Your life, examined
Strip yourself bare. What do you earn, after all taxes and deductions? What do you spend every year on average (look back five years)? Include everything. Where do you live; how much spare money do you have? What do you own, and have you stored ‘stuff’ in a garage, shed, loft or storage facility?
Some basic living costs are essential – heat, light, hot water, food, rent/mortgage, insurance, that sort of thing.
Some costs are in the ‘nice to have’ category – lovely seasonal clothes, holidays abroad, eating out in trendy spots.
Other costs are luxuries – the spa days and the sleek weekend sports car.
If you had to trim your costs, what could you cut out while still maintaining a good life? Don’t forget that for every £100 saved, you can reinvest at least £100 towards your financial freedom: an immediate pound for pound gain.
The alternatives are to get a pay rise, a second part-time job or a new higher-paid career. In this case, for every £100 earned, you need to deduct income tax and National Insurance, plus possibly an auto-enrolment pension contribution. After deductions you will have fewer pounds in your hands. It’s a much slower climb, unless you can double your income overnight, of course. Many people who get a bonus, salary hike or promotion tend to increase spending to the new ceiling, and do not save the difference.
10 steps towards your financial freedom
Don’t forget, capitalism is out there, ready to pounce. The pull of commerce is strong. By following even some of these steps, you can make progress toward your own life goals and financial freedom.
1. The Sales
It’s a trick. The 20% off discount for a £100 coat still involves spending £80. Do you really need that coat right now? The same goes for things like restaurant coupons and discounts. They do work, and they pull people in. But did you really want that pizza and bottle of prosecco last Thursday night? Yes, it was fun, but it still cost you £35 and you had had a meal waiting at home in the fridge anyway.
Why drive a 16-mile round trip for a free coffee and cake in a store every month, when you will invariably buy something else there on impulse? A good plan would be to unsubscribe from this type of marketing and disconnect.
If you need something specific, go ahead and buy it. Going kayaking with friends at the weekend? Then, yes, the waterproof outdoor jacket is a must. That’s you being in control and making sound decisions; much better than the shop window of a faceless corporation luring you in with discounted bait.
Resisting temptation is a life-long struggle.
2. Share your mission
Don’t go solo and don’t keep your mission a secret. Following your plan may actually inspire others, and wouldn’t that be great?
If you use social media responsibly, put your story out there. Tell your family and your work colleagues. Hopefully they will support you. A note of caution, however: your aim to become financially savvy and change your life may be seen as a challenge to others.
Instead of the fortnightly Thursday cocktails with your gang, maybe you could invite them round and make a meal together, along with supermarket wine. Twice the fun at a fraction of the cost.
3. Keep a mission log
There’s nothing worse than not tracking your progress. That’s why pedometers are so popular. People like to check their progress throughout the day. If they are under, they can adapt their behaviour to meet their goal, by, for instance, taking the longer walk home because they like the success of hitting their goal.
Open a different bank account. Call it ‘financial freedom’ (or ‘a home in the sun’ if that’s your goal). Or get a large glass container (it’s a better incentive if you can see cash piling up). This is a 6.2 litre biscotti jar from www.globalfse.co.uk. Make sure you keep it in a safe place.
4. Reduce your debt
You might have a mortgage, or credit cards and other loans. One of the UK’s leading credit card providers has a representative APR (annual percentage rate) of 19.9%. This YouTube video from Which? explains APR in simple terms.
The interest rate on your bank savings will vary by the lender and the amount you have saved. A leading comparison website is currently showing interest rates of 1.8% on some ‘notice’ accounts. The majority of ‘high street’ accounts are often below 1% interest.
If you can build up savings by trimming your lifestyle, it makes sense to use the savings to repay expensive debts. Doing this will speed up your ability to save money.
Do you have a Sky, Netflix, Now TV, Amazon Prime or Spotify subscription? That’s a lot of monthly outgoings just to keep you stimulated. Why not have a family meeting to agree on what you need, and then strip back to squirrel away some money.
5. Avoid boredom
Boredom can be expensive. You can’t be bothered to cook, so you order a takeaway. That’s not a great financial move. You sit on the sofa and surf the net. Before you know it, you have ordered something online that you didn’t really need. You drive to the indoor shopping centre for a wander and something to do. You treat yourself to lunch in one of those nice and friendly food chains. And so it goes.
Treat yourself to a sandwich maker. Learn how to cook and bake. Not only will it be fun and interesting, at least you know the exact ingredients. And it prevents boredom.
6. Tell the Joneses that you’re done with them
According to a www.love.money blog, the Harpenden and Hitchin region is in the top 20 for the highest earnings and income tax payments to HMRC. You can see lots of Teslas, BMWs and Mercedes on large driveways.
There are beautiful roads with £1m-plus houses, two or three expensive cars on the driveways, and bespoke Bulthaup kitchen conservatories. It’s only when you uncover their financial situations that you realise this lifestyle is all ‘show’ and window dressing. Huge mortgages and cars on monthly finances; a debt mountain.
You don’t have to ‘keep up’ with anyone or anything but your own ambitions, desires and goals.
7. Turn away from social media
Everybody now has more ‘friends’ than ever before. Social media is full of happy images – birthdays, trips, holidays, bars, restaurants, skiing and scuba diving. Happy, smiling faces.
You are being bombarded with the 1%, the icing on the cake, the very best bits. If a hundred friends post their 1%, then all you see is 100% icing and nothing else. Much too sugary and sweet. And it’s not real life because very few people post their bottom 20%, the pain, the misery, the doubt and dread. The loneliness and emptiness.
Get closer to your few real friends and spend time with them. Get real. Everyone has issues and nobody is perfect.
8. The virtue of patience
Capitalism and commercialism are immediate. You really can have it now, delivered to your door and left in your ‘safe place’. Or even better, have it delivered to your workplace.
Where’s the joy and anticipation in that? The good things in life are worth waiting for and working for.
Auguste Rodin is a famous sculptor, and perhaps The Thinker is one of his best-known pieces. The first plaster cast was made in 1880 and the final bronze statue was finished in 1902. There was no Amazon Prime for sculptures back then.
Your financial independence isn’t a next-day delivery. You are going to have to wait. But it’s worth it.
9. Big goals, small steps
So far, the common ‘make a budget’ step has been avoided. The reason? Nobody likes to sit down and analyse their financial life to the Nth degree. It’s dull and tiresome; the same as dieting. Eat this, don’t eat that, count the calories and the carbs. Yuck!
The goal in dieting is your ideal body form. Perhaps it’s also a health target.
Your big goal needs to be reasoned, thought through and written down. It should be made S.M.A.R.T. Specific. Measurable. Achievable. Realistic. Timely.
Your goal could be to run the New York marathon with your sister.
Specific – apply for, enter and run the NY marathon
Measurable – well, yes, 26.2 miles to be precise
Achievable – it is going to take a lot of preparation
Realistic – if you both train very hard
Timely – applying for 2020 in November, before your sis is 55
Your first tiny step? Put down that warm, buttery croissant. You can treat yourself to your next one at the Ceci Cela patisserie on the Lower East Side in 2020.
10. Make lists
There is a lot of deferred gratification involved in gaining financial independence.
When you have an urge to buy and spend, try this. Write it down – the exact description, the shop, the price, and why it is so important to you. Put the paper away for a month in a safe place.
Come back to it next month. Is the desire as strong? Has the passion faded? In many cases, you won’t buy it (put the money equivalent into your new account or into the biscotti jar). If you really still need it, fine, go ahead.
At Capital, we want to help you discover true wealth. Financial independence may be a key element. If you would like to learn more or want a second opinion, click here to contact us.