3 ways to make your finances work for you
When you’re thinking about all of your personal financial obligations, it’s so easy to feel overwhelmed. Credit cards, car expenses, loan repayments, healthcare costs…. whatever bills you have, they can seem to control you each month.
Escaping these constraints may seem like an impossible dream – but with the right plan and discipline, you really can make your finances work for you.
Just imagine the freedom of being able to choose when to take your dream holiday; being able to change career to follow your passion; or buying the beach house you’ve wanted for years.
The great news is, it can be done. It all starts with understanding what you can achieve.
Here are the three ways you can achieve freedom from the financial constraints that may be holding you back.
1) Get freedom from cashflow constraints
There’s an old adage that positive cashflow is the building block of all wealth. And it’s been consistently shown to be true.
It’s impossible to get ahead if you spend more money than you have coming in. Yet equally, if you can work out a way to reduce your expenses to a level below your income, the power of saving, investing, compounding and using your assets to generate wealth can be a powerful way to change your financial situation for the better.
Achieving positive cashflow starts with having a clear budget – or in other words, a plan to manage your financial inflows and outflows. Start by carefully analysing your bills and the spending that you know is coming up.
Pro tip: To help you stay on track, make sure you include spending on some items that reward you.
Remember: to get an accurate picture, you should be very honest about your spending. It can help to break up your spending into categories to better understand where your money is going.
While you can easily put together a month-to-month budget yourself, involving a professional financial adviser could help you create a more detailed spending plan that takes into account your long-term goals – even if they might not currently seem achievable.
Once you’ve created your spending plan, it’s important to regularly check that you’re on track. Over the course of each month, keep track of the money you earn, as well as all of the money you pay out.
How much were you paid? How much money did you spend on cash purchases and bill payments? While you may need to make adjustments as you go, the fundamental principle remains that spending less than you earn is the foundation to achieving financial freedom.
2) Get freedom from debt constraints
Once you’ve understood your cashflow, managing your debt effectively is the next key foundation for ensuring your finances work for you. Putting your surplus cashflow to work starts here – yet you still need to carefully consider your approach.
Reducing your credit card, personal loan, and mortgage debt should be a priority. Think about starting with the debts that carry the highest interest rates.
Pro tip: It’s often possible to combine loans to take advantage of a lower interest rate. Just make sure you read the fine print before jumping in!
Personal debts and credit cards are generally used to buy assets that reduce in value and don’t carry any tax benefits, so you may have seen them referred to as “Bad Debt”.
On the other hand, “Good Debts” are those that help us to buy investments that provide income and increase in value. The interest payments are often tax-deductible.
Using cashflow to reduce Bad Debts can help you to start accumulating these types of investments, either by investing regularly or using Good Debt funding strategies. A financial adviser can help you to understand your options.
3) Get freedom from work constraints
Accumulating investments that provide you with an income outside your employment or business is the key to attaining many of your future dreams.
Pro tip: Controlling your tax obligations becomes more important as you build your investment portfolio. Seek guidance early on the best way to structure your assets – it may save you tax for a lifetime!
Your goal may be an early retirement, or to work less hours. You might be looking forward to an overseas holiday, or setting off in that boat or car you’ve long desired. Perhaps you’d simply love the opportunity to assist your family financially.
Whatever future goals you have, being able to rely on non-employment income can give you the choice of lifestyle you wish for, and the benefit of being less beholden to your employment obligations.
Like to know more about how you can achieve financial freedom? Talk to HM
Obviously it takes discipline and some expertise to bring these strategies together. Yet achieving financial freedom is well worth the effort!
If you could use some help with any of these areas, you’re welcome to seek advice from a professional. Just remember that the earlier you plan to make your money work for you, the better the results.
For your complimentary no-obligation chat, call us on 07 3229 3688 or use the simple contact form here.