Achieving financial freedom should be a goal, not a dream. So you need a plan to back it, and your plan should include a timescale and a budget. Your plan doesn’t have to be perfect and you should never think of it as set in stone. You can amend it as you go, but it should follow sound principles. Here are some tips.
Keep a reliable track of your progress
The first step on the path to financial independence is to assess your current situation honestly. This will determine your next steps. For example, when you first decide you want financial freedom, you may have a lot of debt. Usually paying this off will be one of your top priorities. Becoming debt-free is an important step on the path towards financial independence, but it’s not enough on its own. You also need to ensure you have a liveable income, so you’ll need to update your plan to reflect this.
Hone your budgeting skills
You can get yourself a long way down the path to financial freedom by honing your budgeting skills. The way to approach budgeting is to plan as far ahead as you can. This reduces the likelihood that you’ll get caught out by expenses you could have predicted.
For example, every time you buy something, ask yourself when you’re likely to need to replace it. Make a note of when contracts are due to renew and schedule time to shop around for the best deal. Plan your regular shopping so you only buy what you need and always use everything you’ve bought.
Aim to live at least somewhat below your means. Never let yourself be disheartened if you can only save small amounts. Over time, those savings really will add up.
Actively look for ways to save money
Start by tracking your current spending. Look at your receipts rather than your bank statements. These will show you, in detail, exactly where your money is going. Choose one of your major outgoings and research ways to save money on it. You can find plenty of inspiration online. Then put your research into practice and see how you get on.
You’ll probably find that some money-saving tips work for you and some don’t. That’s fine. Just implement the ones that do and enjoy the savings. If this seems like a lot of hard work, remember, once you achieve financial independence, you can retire early!
Make sure you’re covered for emergencies
Before you start tackling any existing debt, make sure you’re not going to be saddled with any more. That means you want a combination of cash savings and insurance policies. Cash savings will cover you for small expenses and your insurance excess. If, however, there’s a chance of you running up a major bill, then you need insurance.
Tackle your debts in order of priority
There are basically two ways you can prioritise your debts. One is to start with the most expensive debt. Tackling this first can save you the most money if you can stick with this approach. It can, however, take a lot of discipline.
The other is to start paying off the smallest debt. This may not save you quite so much money (although it may), but it can motivate you to keep going. It also lets you close off accounts once you have cleared them.
Whichever approach you choose, remember that you must continue to make the minimum payments on all debts. These need to be paid in full and on time, otherwise, you will breach the terms of your contract and this will probably have an impact on your credit score.
Taking care of your credit score
Your credit score serves many purposes. One of them is to help lenders decide whether or not to lend to you at all and, if so, how much to charge you for finance. The more you can improve your credit score, the better your chances of being able to move existing debts onto more affordable products. This will help you to clear them more quickly.
Several factors can influence your credit score. The main one, however, is quite simply your track record on handling credit.
Get a proper financial education
Clearing debts and building cash savings is generally a case of applying basic financial common sense and discipline. After this, your focus will usually switch to building an independent income. This could mean starting your own business, or investing in property or stocks (or a combination or all of these).
This can be a lot more complex and some people may benefit from working with a financial advisor. You can also do a lot to prepare yourself for this transition by making the most of the high-quality free financial advice at reputable websites.
How we can help
If you’re interested in finding out more about how to achieve financial freedom, then get in touch with the financial experts at GoCardless. Find out how GoCardless can help you with ad hoc payments or recurring payments.