Financial freedom is an ideal that everyone should aspire towards. Having the finances to be able to do whatever you want may feel like a far-off dream, but there are ways to make your situation more comfortable.
Implementing strategies that work towards your financial goals can be tough initially. You need to be dedicated and militant about your spending habits, but the result will be worth the effort. Here are some strategies to think about which can boost your financial freedom.
Budgeting basics for wealth creation
Whatever your income, tracking your incomings versus your outgoings is a good habit to get into. Doing this helps to prevent overspending as well as identify any area where you can cut back if you need to save more.
One of the ways to keep an eye on your spending is to create realistic budgets. Start by factoring in your essential spending, such as mortgage payments, bills and food. You will then be left with a discretionary fund which can be used for fun and savings. Budgets are a great way to help you avoid debt as you know exactly what is being spent and where.
The power of compound interest
Compound interest sounds like a really complex financial term, but in reality, it is fairly simple. There are two main types of interest: simple and compound. Simple interest is earned on your original sum of money only.
Compound interest works the same way in the first year, but it differs in subsequent years. After the first year, your bank account will add interest to your original lump sum as well as the interest you have already accrued.
Different bank accounts and investments will pay interest at different periods, such as annually or monthly. If you want to utilise these accounts, use a compound interest calculator to see if it would be financially beneficial.
Diversifying investments for stability
Investing comes in many different forms, each with its own risks and rewards. Stocks, bonds, mutual funds and real estate are all popular choices depending on your situation.
It is advisable to start with smaller, low-risk investments. This is to help you gain your confidence without risking too much money initially. Once you feel able, you can invest more or opt for riskier options.
Remember to keep your investment portfolio as diverse as possible. This ensures that you have a continuous flow of income. If you keep your investments strictly in one sector, you risk being affected by external factors such as weather events, the economy and governmental policy changes.
The role of professional financial advice
As with any major financial decision, it is prudent to seek professional financial advice. Not only will financial advisors be able to guide you in your first investments or aid you in choosing the right compound interest rate, but they can also support you in larger decisions.
Finding the right financial advisor is crucial. Make sure you are fully onboard with their plans for your money and that you feel comfortable before signing any contracts.