The holy grail of most people’s wealth-building goal is to achieve financial freedom. Financial freedom, or financial independence, is the status of having a dependable cash flow to pay your living expenses for the rest of your life without having to be employed or dependent on others. Just about everyone wants to achieve financial freedom […]
The holy grail of most people’s wealth-building goal is to achieve financial freedom.
Financial freedom, or financial independence, is the status of having a dependable cash flow to pay your living expenses for the rest of your life without having to be employed or dependent on others.
Just about everyone wants to achieve financial freedom – so how comes only a small percentage of us get there?
Well, when it comes to financial freedom, the name of the game is passive income. Also known as residue income, passive income is money earned without having to work a job.
Sounds like a nice theory, but…is it possible?
Financial freedom is not a myth. In fact, it is very achievable for most Australians, provided that you have what it takes: knowledge and patience.
Similar to growing a tree, the best time to start planning for your future is 20 years ago, and the second-best time is now.
This site is dedicated to helping people like you make smart money decisions. In this post, I’ll take you through the steps to achieve financial freedom.
Know How Much You Need
It would be best if you had some clarity around what you’re trying to achieve before even starting this process.
How much you need to be financially free or retire comfortably is different for everyone, and we’ve built a calculator for you so that you could have a ballpark figure in mind.
This calculator would give you the amount of net investable asset you need to be financially secure, enough to last until eternity.
With the amount calculated, you would be able to invest and receive a passive income without actively anticipating any income-generating work (assuming stable inflation, average long-term investment return and no tax).
Be aware that this calculator is general in nature and does not constitute financial advice. However, your financial adviser can help you set up your personalised financial goals – for free!
Know Where You Stand
Now you’ve got your financial goal sorted out, but a goal without a plan is just a wish.
You can’t start managing your finances when you have no idea where you stand financially. So, the second step is to start planning. And we will start with the baseline.
Looking at how much debt you’ve accumulated and how much savings you don’t have can be a depressing reality. But this is a big step in the right direction.
Start by writing down all the financial assets you own: your house, savings, investment and superannuation.
Minus all the money you owe: mortgage, credit card, student loan, personal and car loan.
What you get is your net asset, and it is the only thing that matters when it comes to your financial success.
Then subtract your home, car and other lifestyle asset value, and you will have your net investable asset – from here to your result in step 1 would be your journey to financial freedom.
It would help if you also found out how fast or slow your money is building up by doing a household budget. Click here to download a free Excel spreadsheet – this spreadsheet has been Australianised and should cover everything you need in different categories.
If you haven’t before, this would be the most adult thing you could ever do for yourself.
By now, you might have realised that saving alone wouldn’t be enough to help you become financially secure, so in the next steps, you will learn how to take action to achieve your goals.
Fix Your Weakest Link
If I can pick just one step out of this list that’s more important than the rest, it’s this one.
Before you move on to the big works, you need to find the weakest link in your picture.
For many Australians, it might be one or a combination of the following:
- Having expensive debt
- Rushing into buying a house when your finances aren’t solid
- Having little saved for a rainy day
- Not having your income protected
- Not having your estate matters planned
These weakest links destroy more Aussie families than anything – you must identify and have a solution for them. We help you with Plan A – wealth-building as well as Plan B.
Pay Yourself First
You may have heard this quite a lot, and it still holds: pay yourself first!
There are two types of people in this world.
The first type puts themselves AFTER everyone else: when they get paid, they try to pay all their bills, spend what is left and leave nothing for themselves.
The second type puts themselves BEFORE everyone else: they put money aside for themselves and their families’ future before paying others.
The first type saves money by relying on their willpower, and the second type saves money on autopilot, not because they have more willpower or are more disciplined than the first type, but because they have built a system that automates the hard work for them.
Willpower is overrated and hard to come by. More importantly, it takes too much mental energy, so it works against our human nature to stay lazy.
You can build a system that works for you to save more money on autopilot too – and it’s even easier than applying for a personal loan.
Get in touch to take advantage of your free initial meeting and fire away your best questions!
Get Ahead of Increasing Cost of Living
Imagine that you have saved $2,000,000 in your bank account, and you need $100,000 every year to live comfortably and feel financially free. While it sounds like a lot of money, the $2 million would run out in 20 years if you don’t make it work for you.
What’s worse, $100,000 pa may be enough to maintain your comfortable lifestyle now, but it might be nowhere near enough in 20 years when the cost of living rises to a new high. This effect is called inflation, aka “rises in the cost of living,” usually measured by the Consumer Price Index (CPI).
When McDonald’s first opened shop in Sydney in 1972, a Big Mac cost just 49 cents. It still looks and tastes the same today, but the average cost is $6.45 across the country, largely due to the rising cost of goods and services, among other things.
McDonald’s menu, Sydney Morning Herald, 1972
Source: Sydney Morning Herald, 1972
The only way to get ahead of inflation is by investing in a good asset; otherwise, your money will lose value in time.
Grow Your Wealth Efficiently
No, it’s not investing in property, not shares or ETFs either. Unknown to most people, where you invest actually does not matter as much as “who” is holding these investments.
For an individual, when you get paid from your work, your employer usually pays the tax on your behalf, so you only receive after-tax dollars – no tax savings or concessions.
For an investor, you would have more options, greater control and possibly fantastic tax savings along the way, and the most efficient way to build your investable asset is by focusing on building your superannuation.
Today, our superannuation system ranks number 3 in the world, has nearly $3 trillion in it, and its size is bigger than Australia’s entire share market. It is so big that it actually created a tax loophole, and the government had had to make laws to slow investors down.
You can’t afford to NOT invest it properly because it has 3 folds of tax savings (whereas you get zero on your normal investment), and it even helps correct human behaviour due to the long time horizon.
It is an investment on steroids.
A great financial plan will make sure that you’re poised to take full advantage of all of the options available to you, use every tax-efficient option that’s available to you, and take caution to avoid expensive mistakes down the line.
Learn the Nature of Investment
A golden rule in investment – there is a risk-return trade-off. Either you have a “safe investment” or you have a “profitable investment.” It is also achievable if you want both, but you need to have the patience to wait it out.
- Profitable and safe investments are generally slow;
- Profitable and fast investments are risky;
- Fast and safe investments have low growth.
If anyone claims they can get you a fast, safe and profitable investment, there is a good chance that it’s a scam.
Before putting any of your hard-earned money into investments, use free government resources and learn different investment types (at the minimum).
Here is what the risk-return relationship mostly likely looks like for Australian investments:
Souce: Monash University
Now you can decide how you want to invest:
- Start small
- Set up an automated investment plan
- Create a diversified portfolio
Investing isn’t a short-term activity. If you want to watch your money grow, you have to commit to it.
Try our free Investment Outcome Calculator to see the projected result of your investment:
We will be so excited to see the portfolio you’ve built and give you our thoughts on it – or help you build it from scratch. It’s entirely up to you!
Review and Update Your Progress Every Year
The last financial freedom tip is an important one. Financial independence is not an event. It’s an ongoing process.
Things will change. What you want to do may be different in 6 months. Specific investments that are good today may not be good tomorrow.
As you work towards financial freedom, you may slip-up, and that’s okay. It happens to the best of us.
Measure your net assets, home budget, and update your goals every year if your goals or the circumstances around your life change to keep yourself motivated and stay on track.
Life is happening, and your financial planning should be dynamic as well. The best-laid plans are useless without devoted annual follow-through.
Making small adjustments along the way can help you reach your ultimate goal of financial freedom.
Deciding to embark on the journey towards financial freedom that’s very much tied to delayed gratification isn’t always fun, but it’s worth it.
You’ll get there faster if you stick to your newly developed financial practices.
Dive in now, and the possibilities could be endless.
Hopefully, this article helped you out a bit. If so, don’t be a stranger. Get in touch to say hi and tell me your thoughts. I’m always happy to hear from you!
Attaining Financial Freedom is Possible, and We’re Here to Help.
If in doubt, ask for help.
We do a free initial consultation, help you build your goals and priorities, and offer a strategy meeting with a money-back guarantee.
How close are you to achieving financial freedom? Let’s have a chat!