*Six steps to achieve your financial freedom
What springs to mind when you hear the words’ financial freedom’? Swimming in a spring of cash like Scrooge McDuck, or simply having enough money not to need to work.
While most of us would love to have billions in the bank, it means the latter. We all want to accrue sufficient savings and investments to spend our lives as we please.
Due to the amount you need to tuck away – which, according to some calculations, is at least 20 to 25 times your annual expenses – achieving financial freedom has never been easy. However, the cost-of-living crisis is making it harder to reach than ever before.
Research by Rest Less, an online community for the over-50s, found significantly more people over 70 in the workplace today than a decade ago.
“We see many older workers today finding it difficult to make ends meet within the cost-of-living crisis, with insufficient retirement savings meaning they must work to survive financially.”
What is financial freedom?
Financial freedom means a state of financial independence where individuals have the resources and ability to live life on their terms without being constrained by financial obligations or limitations.
This means having a dependable cash flow without worries about how to pay your bills or unforeseen expenses.
Step 1: Make a plan
Unless you’re lucky, achieving financial freedom isn’t something you can wing.
Just as you should avoid running a marathon without months of training, you can’t expect to retire on your terms without saving hard and making sacrifices during your working years.
The great news is that you can decide what the plan looks like. Perhaps more importantly, you get to define what financial freedom means to you.
The key is to set clear and achievable goals and work towards them as soon as possible.
So, what should these goals look like?
They include:
- Deciding how to spend your free time
- Working out how much money you need to live the lifestyle you want (it’s wise to include a breakdown of essential and discretionary spending) and how much you need to save to get there
- Where will this income come from
- The age you plan to stop working
- Where you would like to live
This exercise may be more straightforward for those closer to retirement as your plans will likely have firmed up at this point, but there’s real merit to starting planning when you’re young.
Remember, it’s your plan, so you can shore it up even if your first draft is rough.
That leads us nicely to the following key point.
Step 2: Review your plan, regularly
Every robust financial plan needs regular care and attention. As we’ve seen recently, economic factors such as inflation, interest rates, and stock markets change over time—often quickly and sometimes sharply.
These can affect whether your plan stays on track.
Your circumstances will also shift, giving you scope to save and invest. You might start earning more money, inherit a windfall, or have children.
It’s essential to check where your plan is about your financial goals frequently.
This should happen at least annually but could be six-monthly primarily as retirement draws closer.
Taking stock of your situation will enable you to make the necessary adjustments to keep your plan on track.
This might mean switching savings into riskier funds to increase growth potential, rebalancing drifting asset allocations, increasing the amount you save regularly, or paying in lump sums to make up for lost ground.
You should avoid constantly switching funds to the newest and most exciting investment opportunities.
This is because constantly buying and selling investments to capitalize on market highs and lows can do more harm than good.
Step 3: Start saving and investing now
You will want to reach financial freedom as quickly and efficiently as possible.
Whether you’ve recently entered the workplace or are fast approaching the age you want to retire, the action you take right now will make the most significant difference.
If you’re in your early 20s, retirement is probably the last thing on your mind – unless you’re part of the FIRE (Financial Independence, Retire Early) movement, who aim to save aggressively to retire before 40.
Socializing, traveling, and buying a house will take priority for the rest of you, and understandably so.
When you start saving early for retirement, it becomes helpful. The longer you invest, the more you will benefit from compound growth.
There are other benefits, too. When you start a new job, your employer will enroll you in a pension and pay at least 3 percent of your salary – sometimes, a lot more – if you spend 5 percent.
Making the most of this may enable you to retire earlier or help you accrue a much bigger pot.
What’s more, you get tax relief on everything you pay in, and any growth is free from tax, too, giving your savings an additional boost.
It’s equally important to use other tax-efficient wrappers, such as ISAs (Individual Savings Accounts), which will give you more options.
Learn more: What are the best savings accounts for those over 60?
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Step 4: Prioritise becoming debt-free
If you have outstanding debt such as mortgages, credit cards, and loans, achieving a life free from money worries can be a challenge.
As we’ve seen recently, interest rates can change quickly, and once manageable, debt can start taking a more significant chunk of your monthly income. This can not only affect your lifestyle but also your well-being.
This doesn’t necessarily mean you should direct all your disposal income towards paying off your mortgage during your working life.
It would help if you also considered maximizing other areas of your finances, such as your pension.
But paying off debt before you intend to stop working is financially prudent and can give you peace of mind that every penny of your income is yours.
Step 5: Don’t rely on your elders
I appreciate that it’s hard to ignore an earmarked inheritance when planning your financial future.
Baby boomers are collectively sitting on trillions of pounds of wealth right now, largely thanks to soaring house prices.
And over the next two to three decades, this wealth is set to pass to their offspring.
However, relying on a future windfall to achieve financial freedom is risky. Not only do you have no idea how long your parents will live, but due to rising care costs and the growth of products such as equity release, there’s no guarantee there will be anything left for you to inherit once your parents pass.
Therefore, it’s wise to consider any potential inheritance from your parents or grandparents as a bonus, enabling your financial future to remain in your hands.
Step 6: Seek expert advice
We all need help from time to time when managing our finances.
The financial landscape can be complicated, and making the right decisions isn’t always easy.
Regulated financial advisers are experts in helping you achieve the future you want.
They will take the time to learn about what financial freedom means to you, assess your current situation, and put together a bespoke plan to help you and your loved ones achieve your life goals.
The service qualified advisers provide includes adapting your plan as time progresses to ensure you continue to make the most of all the options available and that your plan stays on track.
Final thoughts
Achieving financial freedom may seem like a lofty goal, but it is within reach for many people with careful planning, discipline, and wise financial decisions.
The steps summarized in this article are designed to help you take control of your finances and secure your financial independence.
While the journey requires commitment and perseverance, the rewards of financial freedom make it well worth the effort.