That house on the beach paid in full. Traveling anywhere in the world your heart desires. The ever-present knowledge that the bills are taken care of, dining out without ever having to check the price column of the menu. Whatever form it takes, whatever the name you’ve chosen to give it – “the dream, “one day, “fuck you money” – it all essentially comes down to financial freedom.
The result is all too familiar – maybe because we as a generation have been collectively fantasizing about it for most of our existence – but the long and disciplined journey towards it is a detail many neglects to familiarise themselves with. Typically, financial freedom follows a progression of these stages:
Dependent – as you are financially dependent on others, your only options are generally short-term. Solvent – AKA “survival mode,” your earnings exceed your expenses, begin to meet financial commitments.
Stable – you consistently meet your financial commitments, begin to pay off debts, and begin to save (but you’re not debt-free just yet). Security – you’ve accrued some funds to fall back on, perhaps successfully manage your wealth, begin investing, and build a solid investment base.
Independence – the end goal is in sight; you have some solid long-term investments, which are enough to fund your lifestyle. Freedom – the moment you’ve been waiting for, everything is practically taken care of, i.e., basics, comforts, luxuries, etc. Abundance – the ascended level above ‘Freedom’; you now have far more investment income than you need, so much so that you should probably think about beneficiaries.
1. Define your short-term & long-term goals
There’s no use in living someone else’s dream. Think real hard, and don’t rush the process – what do you want out of life? Maybe it’s forty acres of farmland to grow pineapples, a barn full of rescue puppies tucked away in a corner. Maybe you want a taste of that James Bond life – flying up the front, great threads, unrestrained nights. Maybe it’s hell simple – continue going to work, day-to-day, commuting in a [whatever dream car].
Goals – both short-term and long-term – make your objectives concrete. They outline commitments and encourage you to push through when no one else will bother to pay any meaningful attention. Without goals, there is no purpose, and without purpose, you cannot develop consistent financial habits. So grab some sticky notes, think of a number, and display it on the fridge. Say it with me, “We’re doing this.”
2. Budget with your “survival number” & “comfort number” in mind
The best way to gain clarity with your finances is by tracking them diligently. From here on out, your financial status is a goddamn fortress. Not a single dollar comes in, and not a single dollar goes out without you knowing who, what, where, when, and why.
In addition to your goals, your budget will be the foundation of the game plan. Figure out your “survival number” – what you need to keep the lights on. Figure out your “comfort number” – what you need to enjoy the niceties of life. But more importantly, figure out: anything you don’t need and can feasibly cut out—anything you do need to save by a rough deadline for your next play, i.e., investments.
There are endless apps that can facilitate your budgeting endeavors. While it may sometimes be difficult to anticipate what may be required, human existence is inherently unpredictable. But it’s a start; sometimes, a start is all we can ever really hope for in this lifetime.
3. When shit hits the fan…
As we mentioned before, human existence is inherently unpredictable. At the drop of a hat – God forbid – a loved one could fall ill, the world economy could collapse, and an endless cloud of uncertainty could hang over your head. Or, in the case of 2020, all of the above.
The antidote to the unpredictable is rigorous planning. Again, refer back to that “survival number.” What do you need to get by, and how long is it sustainable? Take a look at your budget, and set aside a portion of your savings for a rainy day. If you ever need it, it’s there. If you never need it – great; you’ll still have some savings to play around with.
4. Protect your neck (both figuratively & literally)
Emergency funds only provide some reassurance. You can’t live off a finite amount of money this early on. Not free of certain issues and the odd obstacles inevitably popping up down the road, that is. This is why it’s necessary to protect your number one asset – you. More to the point, your earning potential.
Income protection. Injury/illness protection. Permanent disability cover. Life insurance. Depending on where you are in life, you may want to consider these safeguards to help ensure that in the worst-case scenario, not only will you be able to access some funds, but your family and loved ones will be offered some protection. Remember, it’s not always solely about you.
5. Invest in assets
This section is an area rich for exploration. It deserves an entire article dedicated to the broad and often nebulous topic of investing itself. But to keep this brief, tight, and digestible, let’s focus on the basics.
Money in a savings account is all very well and good. Money in a super fund is just obligatory. But as for the rest of that spare capital? Unless it’s tucked away for something pressing and of the moment, that money isn’t living up to its fullest potential. Naturally, every financial adviser from here to the Cayman Islands will probably tell you to invest in some assets – preferably ones that don’t depreciate nor come attached with too many ongoing costs.
Property and land have been the traditional option for many, as have commodities and savings bonds – but do you want to spend all your time researching these? However, the recommended course of action will likely involve a diversified share portfolio. What it has over all the above – under the right circumstances because nothing is guaranteed in the 21st century – includes the chance to build your wealth on the go, the opportunity to hold your assets just the click of a button away while also being far more liquid.
What do I mean by ‘liquid’? Try offloading 50% of a house before lunch and get back to me. The usual advice often prescribed includes doing your research, speaking to the experts, and playing it how Warren Buffett would play it – aim to sniff out intrinsic value from something you can comprehend with long-term potential.
Courtesy: Boss Hunting