Have you ever wanted to take a vacation at the spur of the moment? How about finally quitting that 9–to–5 job to do something you love – full-time podcaster or professional chase tag champ? (Yes, that’s a real thing!)
Being able to make these decisions and build the lifestyle we want for ourselves without having to worry about money is the financial freedom that many of us would love to have.
While it’s easy for us to daydream about a life where we could do all the things we want (and when we want), actually achieving financial freedom takes effort and hard work.
Hey, we’re not trying to be a wet blanket here – promise! All this means is that with a little patience, planning and discipline, you could put yourself on the path to financial freedom.
Read on as we take a look at five money habits that can help you get on your way.
Just as money can mean different things for different people, the idea of financial freedom, too, can vary from person to person. An important question to ask yourself at the beginning is: What does financial freedom mean to me?
Besides the general idea of being able to do the things you want without having to worry about money, it’s important to get specific. In other words, what goals would you want to achieve with your financial freedom?
Whatever your goals are, write them down. It’s usually not enough to just think about them in your head – we wish it were that simple! Writing down your goals (and being super specific about them) can help improve your chances of achieving them. By clearly spelling out what it is you actually want to achieve, you can then begin to set deadlines for yourself and work towards your goals in a tangible and measurable way.
To have the financial freedom you want, it’s important to have your finances in good shape. After all, a big part of financial freedom means that you have enough in savings and investments to live the lifestyle you want without having to worry whether you could afford it. In other words, money concerns won’t necessarily have to dictate every life decision you face if your finances are in good shape.
Having a budget and the discipline to stick to it each month is a great way to help you control your spending and stay on top of your savings goals.
If you’re not saving as much as you want right now, take a look at your monthly expenses and see if there are areas where you can make adjustments. For instance, are there certain recurring purchases or subscriptions you could do without? Are you being mindful of lifestyle inflation?
And these adjustments don’t have to be big, dramatic cuts, nor do you have to take on a minimalist lifestyle (unless you want to!). Remember, even small changes in your spending habits could make a big difference in your savings over time.
Keep in mind, too, that being mindful of your spending isn’t a one-and-done exercise because your financial situation is usually never static. Your income and your needs could always change, so it’s a good idea review and update your budget and spending habits on a regular basis.
Saving as much and as often as you can is another way that could help you reach financial freedom. How much you’ll need to live comfortably will vary from person to person. But a great way to help boost your savings is to automate your finances.
By putting your savings on autopilot, you won’t forget to pay yourself first whenever payday comes around. By automatically transferring a portion of your paychecks to your savings account, it could help you stay on track to reach your savings goals.
Don’t forget you can also automate your contributions to your retirement accounts as well. If your employer provides matching contributions, consider contributing as much as you can during each pay period. You might be surprised at just how quickly you can grow your nest egg by putting money aside consistently.
Good habits can take time to build, but with the help of automation, sticking to them can feel a lot easier.
Using credit responsibly is an important step in your journey towards financial freedom. While credit cards can be convenient, they can also cause a lot of headaches if you don’t pay your balances off in full and on time each month.
One reason why cards can be a hurdle to financial freedom is that debt from high–interest credit cards can impact your ability to build up your savings. The more you have to put towards making interest payments each month, the less you’re able to put towards your savings.
Interest payments aren’t the only thing to be wary off. Making your payments on time is also critical. Late payments or defaults can really put a dent in your credit score, which could limit your ability to borrow at competitive rates down the road if you ever want to make a big purchase, like a home or something special to celebrate a personal milestone. (We all probably have a special purchase in mind for whenever we achieve financial freedom.)
Financial freedom can feel like a distant dream if credit card debt is dragging you down. And if you are in a tough spot in managing your debt, keep your head up. There are various ways to help get it under control and pay it off.
The financial world comes with a lot of definitions, concepts and rules to wrap our heads around. That’s why having a solid foundational knowledge of personal finance topics such as savings, investing, debt management and credit scores is essential to attaining financial freedom.
To be able to live the lifestyle you want, you have to know how to make good financial decisions. When it comes to deciding what to do (or not do) with your money, there are many options you could consider. But how can you make the decisions that are right for you if you don’t have a basic understanding of those options?
Let’s talk about investing as an example. Investing is an important component of personal finance, but to start investing (and do so with confidence), you have to first understand what you’re getting into. For example, you’ll want to look into the different advantages and disadvantages to investing in things like stocks, ETFs and bonds. What are the potential rewards and risks? And what are the different roles they could play in your portfolio?
The bottom line: Having a knowledge of personal finance basics can help empower you to make money decisions that make the most sense for your financial goals. Having a strong money know–how could also give you the confidence to stay calm in uncertain or volatile times, helping you avoid making financial decisions out of fear or desperation.
The financial world is constantly changing because there’s constant innovation, so it’s a good idea to stay on top of your financial literacy. Not to brag (ok, we’re bragging), but Marcus has more articles like this on our resource page to help you get smart on various money topics.
Financial freedom can mean different things for different people. Your idea of it may involve early retirement; someone else may see it as being able to take unlimited vacations throughout the year.
Whatever it may look like to you, one thing is for sure: Financial freedom is something that many of us want, but not everyone may achieve. It will take hard work and dedication. These five money habits won’t guarantee financial freedom, but they can at least help put you on the path towards it.
Keep in mind that you don’t have to take on this journey on your own. Talk to a financial advisor if you want professional help in creating a personalized financial plan that could bring you closer to the financial freedom you’re dreaming of.
This article is for informational purposes only and is not a substitute for individualized professional advice. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of Goldman Sachs Bank USA, Goldman Sachs Group, Inc. or any of their affiliates, subsidiaries or division. Goldman Sachs Bank USA is not providing any financial, economic, legal, accounting, tax or other recommendation in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA or any its affiliates. Neither Goldman Sachs Bank USA nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.
Investing involves risk, including the potential loss of money invested. Past performance does not guarantee future results. Neither asset diversification or investment in a continuous or periodic investment plan guarantees a profit or protects against a loss.