Financial literacy is not taught in schools nor homes. Most of the time, it’s just self-thought. So if you know someone, maybe a friend who is knowledgeable about it, then this might be the perfect time to reconnect with him. Reality strikes; not everyone has that kind of friend. Luckily, the internet is already accessible for most of us to learn this quickly. While you would like to achieve this in a short time, you might also want to consider your current financial status, knowledge, and of course, be realistic.
What is Financial Freedom?
In layman’s words, financial freedom is just being able to do the more essential things in life without worrying about money coming in. Put it like when you would like to have a nice dinner with your family in a restaurant without having to look at the prices on the menu, shopping in your favorite retail store without looking at the price tag, or taking a blissful vacation probably outside the country whenever you feel the need to have one—or only showing your presence in very milestones of your family member without being tied to your corporate responsibilities.
I know someone who describes financial freedom as going to Thailand to buy the sweetest lanzones when she craves it. I guess lanzones is her happiness. She’s indeed a perfect example of someone who enjoys being financially free.
Why do you need Financial Freedom?
Being financially free is, of course, more than buying material things. It’s about enjoying life and not having to worry about anything related to money. If you already have a family of your own, then being financially free is giving your child a quality education. Another example is when you, or any member of your family, become sick, and then you can still be confident that you can get the treatment you need and eventually bounce back to where you left. While money is not the most essential in life, it’s good to know that most of the things we want and need require it.
5 Simple Steps to Achieve Financial Freedom
These are the recommended steps by Randel Tiongson to achieve financial freedom from his book “No Nonsense Personal Finance.” If you are looking for a guide, this can help you be in the right direction.
1. Improving Cash Flow
The first step toward financial freedom is to improve your cash flow. Earning more is not enough, so that’s why you must also spend less. That’s a problem if you earn more and spend more. Now, you might be asking how you can earn more? Well, you can look for jobs that pay more, try selling online, offer your services, sell homemade goodies, or get a part-time job. Always try to find something you can earn and enjoy.
2. Getting out of Debt
The next step is to get out of debt as fast as you can. Having debts loaded with the hefty interest rate is bad for your financial health, primarily those debts you got from consumer products that don’t add value to you. The best way to get out of it is to list them down from biggest to smallest and try to pay the lowest first as they are easier to settle. You’ll be motivated as your debts become fewer.
3. Setting Up Your Emergency Fund
An emergency fund is a liquid fund you can easily access in times of great need like a sudden loss of a job, or when you need immediate medical care, or when you face any financial disaster. Having this fund means you are ready to face them head high when it happens; also, you don’t want to be on the act of mercy of your family and friends because you don’t have something to lean on, right?
4. Getting Protected from Life’s Risk
It would be best if you got yourself insured. This step is the most neglected part of all, being followed by setting up an emergency fund. It may be hard to swallow the benefits of life insurance, but remember that you don’t get it because you’re going to die; instead, it’s for the future of your loved ones should anything happen to you. It will not make them rich, but it will prevent them from going poor. Lastly, it prevents your dreams for them to die with you. After all, you’re not working hard only for yourself, so don’t forget to seal their dreams with life insurance.
5. Investing for Your Future
It is commonly mistaken as the first step by many toward financial freedom, but guess what? It’s not. First, you need to build a strong financial foundation by following the first four steps before diving into investing. Why? Because what if you encountered financial disaster along the way? Would you be able to take it if you only have your investment, especially in your early years of investing? That a firm no, right? That’s why you need to have a contingency plan.
Investment can be stock market, foreign exchange, commodities, bonds, securities, etc., i.e., if you are a risk-taker and would like to maximize the potential of your money. If you are relatively new to this, you may consider getting a UITF offered by banks and a mutual fund from insurance companies that are diversified and easier to maintain.
How to Get Started?
Some can do all the steps all at once, but it can be overwhelming to do for others. Try doing the first step, which is improving your cash flow. After that, gradually do the remaining steps until you reach the investing part. If you’re already done with the first few steps, then you may jump to the most appropriate level for you. Honestly, these steps are just recommendations, and you can shuffle them if you find them more effective. But I recommend having the steps in order because they are designed to support each other in that way.
Financial freedom is not just about having money and making it grow. It’s about removing money from the equation, as often it becomes a hindrance to your personal growth and enjoyment. Remember that when money is not a problem, then that’s the time you can truly enjoy your life and pursue your passion.
Federico is an electronics engineer, financial blogger, insurance agent, and a certified investment solicitor. A multi-awarded financial advisor with clients ranging from lawyers, doctors, engineers, accountants, business owners, company directors, and OFWs to minimum wage earners had sought advice from him in achieving lifetime financial freedom.