Virtually everyone dreams of financial freedom. They may picture spending days at an exotic beach sipping a piña colada on white sands with the blue sea at their feet. Others simply want to get through the month without going into debt, while still others dream of the day when the amount they spend on a loan or car payments is less than their monthly rent. Whether you are a high net worth individual, or feel you were barely staying afloat, it’s never too late to step onto the road of financial freedom.
At the outset, it is important to know that there are no quick, foolproof answers, and that just as getting into a financial mess took time and unintentional effort, so getting out of the mess, earning your wings and taking flight requires time and patience. Just as a workout routine and a healthy diet require repeated effort every day until positive habits develop, you need practice and repeated motivation to develop constructive financial habits that can lead to financial freedom and peace of mind.
Get Out of Debt
Many people wonder how they are ever going to get out of debt. With college tuition sky high, many young adults begin their professional lives with tens of thousands of dollars of debt. In addition, the credit card culture encourages buying things one can’t really afford and promising oneself that payments will be made. The question, “How am I going to get out of debt?” should be replaced with the exhortation “Get out of debt!” Reframing the way we think about debt is essential to avoid the mistakes made by so many people and even many countries. Stop thinking about debt as normal and put aside money each month to eliminate debt as soon as possible.
Track your expenses
When you get out of debt, the way to stay out of the loan quagmire for the long-term is to stop being in denial about how much you spend. If you write down everything you spend in a given day from that cup of coffee at the corner café to your new smartphone cover that has a snazzy design, you may be shocked to discover that you are wasting money and you will no longer wonder why much of what you earn disappears. Once you train yourself to be super disciplined about spending and start to save money, you can eliminate your debt and then save and invest.
Save for Retirement
It is never too early to save for retirement, and you should save early and often. It’s also not too late to save for retirement even if you waited until the age of 40, although in this case, you face significant, but not insurmountable, challenges. Put aside money consistently and set a minimum every month. Don’t touch that money and consider putting it in an investment vehicle such as a 401(k) or a mutual fund. You can also manage your investments, but keep in mind that you will have to do research and keep current with your portfolio. You may opt for an investment advisor or a fund, such as that managed by Warren Stephens CEO.
Diversify your Investments
Many people are excited about investing, but typically they may want to focus on just one or two areas such as stocks a real estate. Long-term investors need to diversify their portfolios because markets are unpredictable and major changes can happen from one day, year or decade to the next. For instance, if someone owned only real estate, their investments most likely would have been wiped out during the housing crisis. Those who insist on concentrating on stocks to the exclusion of other investment vehicles will suffer if there is a stock market crash.
You should have a portfolio that contains stocks, bonds, real estate, commodities, and precious metals. Having more than one form of investments is essential for your financial security. In addition, one part of your portfolio may serve as a hedge for another part. For example, if the stock market is weak, your real estate holdings may offset those declines. If you are managing your portfolio, experts recommend dedicating an hour a week for each investment you own. You should research your holdings on investing sites and read financial news every day. If you feel you don’t have the time to devote to researching your own assets, look for a mutual fund or hedge fund to manage your investments for you.
Financial freedom, like optimum health, is the condition the can be reached rarely through sheer luck but most often through developing positive financial habits early and making prudent decisions. One of the best gifts you can give your children is to educate them about managing their allowances and resist the desire to buy everything they want. If you have been lax in this kind of discipline, incorporate healthy financial habits into your lifestyle by eliminating debt, tracking your expenses, saving for retirement, and developing a diversified investment portfolio that will provide you with solid returns for many years.