The key to financial freedom relies on your ability to fully comprehend and achieve what that means for you. Every person is different when it comes to their financial goals, but the fundamentals remain the same. It starts with education and sound actions based on informed decisions.
This article will illustrate some of the most important considerations to take into account as you journey towards financial success.
Looking at Your Current Financial Position
Knowing What Your Actual Disposable Income Is (After Tax and Expenses)
A good place to start is with your own potential and this can be done by looking at your earning potential. Any successful investor will draw you back to this fundamental step, which is to know who you are and what needs to be done.
Everyone would like to be wealthy, but not everyone can perform the same when they invest their money, nor will everyone follow the same path. Our needs differ, and we need to make investment decisions that address our specific financial strategy.
According to Bev O’Shea and Lauren Schwahn, your disposable income is always what you earn after tax. Being able to know how much you earn and how much of that can be put towards savings is a more practical way to start.
Everyone must start somewhere, and this relies on what you are able to put towards savings and investments.
Critically Evaluate and Distinguish between Essential and Wasteful Expenses
Modern lifestyle often creates a cycle of complacency and we become so distracted that we forget to do a little housekeeping when it comes to our finances. Although this might not be an exciting part of starting your financial literacy journey, it is needed.
We all need to be honest and determine how much we spend on what. People are often surprised when they realize just how much they spend on nonessential items such as dining out, expensive cars, smoking, drinking, or expensive holidays.
Always start by asking yourself if you really need it, or if the item is a luxury. Add this up and see how much you will save if you either reduce it or remove it all together. Often, people will ask themselves why they didn’t do this sooner.
Jesse from Best Interest gives an interesting perspective on this by explaining that we need to look at past, present, and potential expenses holistically. He further argues that by doing this, you avoid being uninformed as “Ignorance is stress”.
How You Could Potentially Increase Your Earning Potential
Being able to invest means that you have the funds to do so. Yet, for many of us, this might be a challenge, so we need to consider ways to boost our earning potential.
Here are some ideas to consider that can potentially boost your income:
- Education. Sometimes you need to acquire a new skill to grow your career. Some organizations incentivize their employees with higher salaries if they continuously study.
- Refinance debt. This goes without saying: the less debt you have the better. Short-term debt like store accounts or credit cards tend to charge much higher interest rates. A good way to see what your options are would be to consult your local back to see if you could perhaps consolidate your debt with a better interest rate and payment term that reduces your monthly expenses.
- Cook at home. We all feel the need to sometimes take it easy and order in, but this might be more costly than you think. Try to see how much cheaper it will be if you eat all your breakfast, lunch, and dinner meals at home. The outcome might surprise you and there might even be health benefits as well.
- Downsize your home or car. We often live in homes or drive cars that are not fit for purpose. This is easier said than done as our perceived value often clouds our judgement. Here it’s up to you, but there are often a lot of benefits if you live within your means.
- Renegotiate your insurance premiums. This is something often overlooked. Our insurance premiums go up with annual increases, yet very few of us contest it. Most insurance companies are very eager to retain customers by offering them better terms, if customers ask for it. Those who do not ask, will often not receive.
- Get a cheaper mobile contract or cable provider. This is purely subjective, but something we all need to ask ourselves in this consumer driven world. We often feel the need to have the latest and greatest phone or cable package. Here it is plain and simple; you need to ask if a cheaper option will still help you achieve the same outcome or not.
Sound Ways to Invest Your Money (Start with the Tried and Tested)
Retirement Annuities
This might seem old school, but there is a lot to say for tried and tested solutions. Although it’s not prudent to pay all your money into a scheme, this might just be a sensible part of your investment strategy.
Provident funds are often safer as there is diversification and specialist skill behind the way your money is invested. Some options also offer you better growth projections than that of fixed-term deposits.
Fixed Deposits
This is an option that used to be more familiar, but its abilities to produce a decent return has somewhat led to the fall in popularity. This is however something you should always look at, as there are backs that offer relative value for your money and it is also one of the safest ways to invest.
Trading in Securities and Shares
With almost all Stock/Security exchanges around the world now trading online, there are loads of options available. Some even offer very low conditions for entry and charge very small commissions.
Many banks now allow their clients to trade in shares through a variety of different stock/security exchanges, which gives you a trusted infrastructure to operate within. One key thing here is that you need to know that this kind of investment comes with risks and fluctuations.
Always keep in mind that you need to balance between speculation and long-term investments. Shares might go up and down, but long-term growth tends to yield the best result to a patient investor. Do not get caught up in the hype and rather follow a balanced investment approach.
Alternative Considerations for Investing Money
Peer-to-Peer Lending (P2P)
According to PQ Empire, there are loads of options available (including Viainvest!) to people wanting higher returns without the excessive risks associated. Here they help guide new and seasoned investors by giving them easy to understand P2P lending platforms that guide you on investment options.
The key to anything new is to start small and gradually expand your investments as you become more “literate” in the way it works. Looking at this is worth the effort as there are established payers in the market that offer returns of more than 10 percent.
FinTech Alternatives
Our money habits of the future are about to become more fluid and technology driven. According to Medium.com, they argue that based on the numbers, FinTech has unlocked a wealth of possibilities for new and seasoned investors.
Have a look at regional trends and upskill on tax laws or capital restrictions set by your local reserve bank to see how easy it is to trade in both your local market and internationally. As always, start small and be willing to lose what you have invested until you become more seasoned.
Always Diversify!
Although this might sound familiar, it is often overlooked once something exciting grabs your attention. This is probably the oldest advice any investor can give to someone new. First educate yourself, start small, diversify, and always keep your eye on the ball.
Networking and continuous learning is very important as it develops your financial literacy skills that will give you the needed experience to navigate your financial success journey going forward.
Some reads to boost your financial literacy:
- Jen Sincero “You are a badass at making money”
- Erin Lowry “Broke Millennial: Stop Scraping By and Get Your Financial Life Together”
- Robert T. Kiyosaki “Rich dad, poor dad”
- Cary Siegel “Why Didn’t They Teach Me This in School? 99 Personal Money Management Principles to Live By”
