5 Steps to Financial Freedom
What is financial freedom? It’s different for everyone, but methodologically, I consider financial freedom to be when your passive income, from your own business or assets, exceed your expenses —allowing you the freedom to achieve your ideal life and no longer need to work for income!
As a professional, you’ll soon realise that earning a good pay packet won’t be enough to achieve financial freedom. Sure, it’s easy to purchase a flashy car these days, buy a house and a few Aussie shares, but that decision may not put you on a solid path towards financial freedom.
Imagine being able to afford your dream home, live in your ideal suburb and tick items off your travel bucket list — without having to get out of bed every morning to join the daily grind and make small talk around the water cooler with colleagues about your weekend.
Here are 5 simple steps for you to follow, to help you climb the financial freedom mountain!
Step 1 – The Foundations
Clarify your 10 year, 3 year and 12 month goals, motivations and have a positive mindset that you can achieve financial freedom. Have an automatic cash flow and bank account system that includes a budget to identify your discretionary expenses, non-discretionary expenses and savings plans. Be happy in your job and personal life, as this can help you reduce rash emotional spending. Update your goals and strategies as your life and goals change over time.
Tip: My 90 minute Discovery Meeting applies the 10-3-now formula (Live Love Learn Legacy) to help you clarify your goals. I also provide Money Coaching as a standalone service or incorporated within the financial planning Wealth Program. Use My Wealth Portal to automate your budgeting and cash flow and the 28 Day Challenge to identify where your money is going. A psychologist or accredited life coach can help with managing your money blocks too. Regular exercise, yoga and eating healthy can also help your money mindset.
Step 2 – Plan B
As your journey towards financial freedom is unlikely to always be smooth sailing, create a safety net to protect you and your loved ones in the event of permanent or temporary illness and disability or premature death. Allocate a portion of your cash savings into an emergency fund of approximately 3 months of expenses (depending on your situation such as whether you have a mortgage).
Tip: Personal insurances include income protection, life, total and permanent disability and trauma insurance that considers previous health issues, insurance needs and cash flow affordability. I can assist with your risk management strategy by recommending the right products for you that are affordable and tax effective.
Step 3 – Going, going gone
Pay off consumer debt such as non-tax deductible high-interest credit cards and personal car loans. There are various strategies to help pay off this debt sooner.
Tip: I can advice on the best repayment method for you. Alternatively, you may wish to seek help from a financial counselor.
Step 4 – Invest for passive income or reduce good/ok debt
Investing can be done within superannuation or outside superannuation. Investment asset classes generally include cash, fixed interest, shares, and property, with varying growth and income potential.
Alternatively it may be in your best interests to reduce your mortgage (ok debt) or investment debt (good) debt to reduce liabilities and increase net wealth before investing in other assets.
When devising your investment strategy some things to consider are investment risk, portfolio construction, liquidity, investment time-frame, debt, personal risks, diversification, asset protection, preservation rules and tax. Review, monitor and adjust your investment strategy regularly or when required.
Tip: As a qualified financial planner, I provide advice on investment strategies or to focus on debt reduction first. I also help you determine your investment risk profile and which mix of assets is right for you. I also help you manage risk in your portfolio. If you wish to invest in equities or managed funds, I collaborate with investment managers to devise the optimal portfolio for you. If you wish to invest in property, I can provide modelling, debt exit strategies and advice regarding which entity to hold the portfolio in. A strategy meeting including forecast modelling is conducted with my clients, before I finalise their Statement of Advice to ensure they will be comfortable with the investment strategy. Seeking advice from investment experts and a financial planner can ensure you’re educated and informed about your options, to reduce the risk of inappropriate, costly decisions.
Step 5 – Protect your wealth
Manage your wealth modestly, without overspending or being too generous with your money. Have adequate asset protection measures in place too. Review, monitor and adjust your investment portfolio regularly or when required. Ensure you are financially well organised with a financial strategy that remains up to date as your life and goals change over time.
Tip: A trusting, ongoing relationship with a financial planner will track your progress towards achieving your goals, manage risk, review your investment portfolio and its performance, and update your goals and strategies as your life changes. I also collaborate with an accountant, mortgage broker and lawyer on your behalf to assist with protecting your wealth and ensure you are on track to achieve your ultimate goals in life.
This information is not personal advice and you should not act on it unless you have received personal advice from a licensed adviser as these 5 steps may not be right for you. Gianna Thomson and Thomson Wealth Pty Ltd ACN 626 920 161, trading as Gianna Thomson, are authorised representatives of Fitzpatricks Private Wealth Pty Ltd, ABN 33 093 667 595, AFSL 247 429.