3 steps to fast track your way to "financial freedom"

Posted July 2020

Two people enjoying beach sunset

Start living your best financial life with these financially savvy tips...

Do you ever ponder your financial future?

You know, that far-off day when you can finally spend less time at work, and more time with your family or friends...or maybe even follow your passion projects?

With some smart forward planning those halcyon days of living financially free could be closer than you think. Today we’re exploring three proven steps that’ll speed up your journey toward financial freedom, including:

Let’s get started...

1. Work out what living financially free means to you

A New Zealander creating a flower display as a hobby

Before you can achieve financial freedom, you need to work out what that looks like to you.

The thing is, financial freedom means different things to different New Zealanders. Usually, you’ll find it’s more about freedom of time rather than wealth.

Ask a handful of Kiwis and you might hear them say:

  • Don't live from payday to payday.
  • Do spend time however you choose.
  • Do pay yourself first.
  • Don't be forced into a job you hate, just so you can pay the bills.
  • Don't worry about a roof over your head, repaying loans, or paying basic bills like visiting the dentist.
  • Do live within your means.
  • Do have savings or investments so you have flexibility to stop work, or go on a long holiday.

So...what does financial freedom look and feel like to you?

Many people aiming for financial freedom choose a ‘freedom figure’ as a goal. This is the sum needed that, when invested, generates enough income to live on. Calculating this figure is a useful exercise to get you thinking about the future, and what compromises you may have to make.

Now you know what your end goal is, take stock of your current financial situation and start making a plan to close the gap. These steps include:

  • Spending less.
  • Earning more.
  • Investing the surplus.

2. Live "minimalist" and start spending less

New Zealanders downsizing their lives with a garage sale

The quickest way to save money is to spend less of what you already earn.

We know this is easier said than done, so here’s a few tips to get you started:

Review your expenses

Have you analysed your outgoings lately?

It’s surprising how, over time, many Kiwis allow small unnecessary expenses to become part of everyday life; another subscription, a fancier food, a designer bag.

These incremental expenses can quickly accumulate, so check your bank statement for any unessential extras and put an end to those unnecessary recurring payments.

Live off the smell of an oily rag

Do you want to reach financial freedom in a shorter time frame?

Then consider reducing your outgoings to the absolute minimum.

Living this frugal lifestyle doesn’t have to be hard. Thrifty living can be turned into a fun challenge for the whole family, including challenges like reducing waste and recycling.

If you need more help, there are lots of resources available online to live off the smell of an oily rag full of simple money-saving ideas for every area of your life.

Stash any extra income into savings

What happens when you get a pay rise?

Do you save that extra income…or do you upgrade the car, shift to a better neighbourhood, or splurge on a shopping spree?

Similar to the golden handcuffs syndrome, where the allure of more perks keeps us handcuffed to a job - as your income increases, so to do your expenses. Instead of spending extra income that you previously managed without, consider putting it straight into high-interest savings accounts and fixed-term investments.

If you’re a two income household, for example, could you minimise expenses so that you live on one income and save the other? This could prove to be a useful exercise if one of you becomes ill or you start a family.

Downgrade and save

Rather than continually upgrading your house, car (and phone!), consider downgrading.

A smaller living environment or an older car can mean fewer debts. Not to mention less time cleaning, maintaining and servicing. That equals more free time to do more meaningful things.

Buy only what you need

Spend money on necessities, not on what you ‘want’ or what savvy marketers convince you that you need. Is a second car, phone, or fridge necessary? Last year’s jeans are seriously okay to wear this year!

Pay with cash

Decide to start paying with cash or a debit card. Being debt-free is a crucial step toward removing the ‘financial load’ and living financially free.

Or use a card that works for you

Not all credit cards are created equal. Some charge exorbitantly high-interest rates and fees, while others offer low rates and 0% Balance Transfers that can make tackling your debts, easier.

Compare your credit card options and find one that helps you reach your goals.

Own less stuff

A famous line in the movie Fight Club says:

“What you own, ends up owning you.”

If you own a boat for example, then that incurs time and money spent cleaning, anti-fouling, marina berth fees, maintenance….and so on.

The less things you own, the freer and lighter you’ll be in both your pocket and head space.

Set up an emergency fund

Life can sometimes go pear-shaped very quickly.

Having money squirreled away in an accessible savings account can be a lifesaver when the car breaks down or the dog gets sick.

Pare your lifestyle to the bare essentials if a financially free lifestyle appeals to you. Reap the rewards of not only living within ‘your means’, but well within your means and saving the rest!

3. Make money while you sleep and increase your earnings

A New Zealander working from home

Once you've cut your spending, it's time to ramp up your income.

You can increase your day-job income with a ‘side-hustle’ or second job. Whether it’s renting out a spare room on Airbnb or walking the neighbourhood dogs, there are opportunities to make extra cash with some proactive thinking and action!

If your vision of financial freedom involves spending less time in a job, there are many alternatives to the equation of trading time for wages.

Smarter solutions involve leveraging investments, or creating a passive income that generates income without huge time involvement. Passive income is a source of money that is generated without any hands-on effort. You literally make money ‘while you sleep'.

Setting up a passive income stream initially takes time or money (or both), but eventually, the aim is to step back while the money rolls in. Examples include dividends, rental income, and many automated web-based businesses.

Financial freedom is in your future

A financially free lifestyle doesn’t have to be a far-away dream. A simple lifestyle combined with leveraging your income could provide you with the means to achieving your financial goals - whatever that means to you!

Want to know your options?

Try our personal loan calculator.

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The article published on this page is not financial advice and should not be relied upon as such. The opinions published in this article is not those of Unity Credit Union.