There really is no simple answer to this question because it is unique to each individual, but theoretically, financial freedom occurs when your passive income (from your own business or investments) surpasses your expenses… enabling you the flexibility to live the life of your dreams without working as an employee!
As you complete your education and potentially for the first time join the professional field, you’ll quickly realise that a degree, reading the Business Insider, and a nice pay cheque will not be sufficient to attain financial independence. While it’s easy to acquire a showy car these days, such purchase may not set you on a firm route to financial independence.
Consider being able to finance your dream house, live in your ideal area, and cross things off your travel wish list – all without having to drag yourself out of bed each morning to face the daily grind and engage in small conversation about your weekend with co-workers over the break room.
How can you achieve financial freedom?
To achieve financial freedom, you need to pay off outstanding debts, establish a safety net of savings, and generate sufficient cash flow via investment or business ownership to cover your present and anticipated future living expenses.
We are plagued by growing debt, financial crises, unsustainable consumer spending, and other issues that prevent us from achieving our most important financial goals. While such obstacles face everyone, the following practices will help you get on the right track towards financial health.
Financial literacy is the first and most critical step towards financial freedom. Therefore, educate yourself on personal and business finances.
The Fundamentals
Determine your objectives, motives, and maintain a positive mentality in order to attain financial independence. Have an automated cash flow and bank account system in place, including a budget to track your discretionary and non-discretionary spending, as well as your savings goals. Maintain a positive attitude about your work and personal life; this will help you remain motivated to keep to the plan and avoid reckless emotional expenditure.
Financial counselling may assist you in managing your cash flow, money values, and objectives. A certified financial advisor or counsellor can assist you in changing your mentality and overcoming financial obstacles.
Keep your personal finances separate from your business finances
It’s tough to establish a clear boundary between business and personal spending initially in a business endeavour. Payroll, for instance, may require you to sacrifice a paycheck in the initial periods in order to continue expanding the business. However, analysing your existing financial condition in both business and personal life enables you to set specific financial goals.
Financial freedom is accomplished with the same persistence with which you manage your business’s assets. To obtain personal wealth, it is necessary to first spend less than you make. Often, we operate our businesses with excellent cost controls in place, minimising needless costs in order to maximise revenue. In our daily life, the same idea is often forgotten. A well-structured financial plan may assist us in directing our savings and assets towards personal prosperity in order to meet or surpass our requirements and goals.
Independent Income
Independent income entails having a business, receiving benefits from the government, or receiving regular funds from other sources that do not need you to work (exchange your time for money). If you’ve grown your business to the point where you can step away from day-to-day operations, you can earn money irrespective of how much time you invest. If you own a rental home, you get rent monthly (although property management often needs property upkeep and carries the risk of leasing to a tenant who defaults on one or more payments).
If you have enough self-generated money to cover your living expenditures and desires, you are financially independent.
Save Save Save
Priority should be given to oneself. This is a common suggestion from financial professionals. Join your employer’s retirement plan and take advantage of any available matching benefits. Additionally, having an automatic deposit from your employer into an emergency fund (or an automatic transfer from your account) that may be used for unplanned expenses is a good idea. Moreover, consider an automated transfer to an Individual Retirement Account or KiwiSaver via a brokerage.
Regardless, bear in mind that the recommended amount to save is highly debatable, and the usefulness of such a fund is sometimes called into question under specific circumstances.
Here as Local Tax Agents we are committed to helping our clients and community to create time and financial freedom through their businesses, for themselves and their families.
