I realised the importance of financial literacy and wanted to achieve financial freedom a year back when I first graduated with my diploma. Because I wanted to change my major, and with the diploma that I had, I needed to go to a private university. I did not have the money to support myself.
My parents were unwilling to pay for my studies as they did not fully support the idea.
I would need to pay off everything by myself, and I did not have savings. It seemed impossible.
It has been almost a year, and I consider myself on track to my own financial freedom. I have 6 months of emergency savings, fully paying off my own insurance and investments. I will be starting part time school, fully funding it myself without a loan. While I am not entirely financially independent, I would say that I am definitely on track.
Here are the top 10 money habits that helped me and I genuinely hope it would help you guys out too.
Have 6/12 Months Of Emergency Savings
It was only after a good 6 months of scrimping and saving that I could plan for school and other luxuries if I wanted to go full time or part-time. As I was more relaxed and could afford to have emergencies because financially, I was secure.Â
Having emergency savings would give you a peace of mind for emergencies and a peace of mind is so important especially in situations where you need to think.
I can afford to resign now without having to worry about how I need to pay off my liabilities for at least 3 to 4 months down the road. If my computer broke and I needed to repair it, I have the means to do so and it wouldnât affect my lifestyle too much.
Live Within Your Own Means
I cannot stress this enough. If you are not happy with the pay that you are getting now (considering that the pay is high enough to finance your life), you will not be happy with a higher income. It is so important to live within your limits and what you have.
And this could also translate to, if you canât even manage your salary right now, you wonât be able to manage a bigger amount. Jay wrote about this topic sometime back. While itâs not a direct translation, I think it clearly explains what it means to live within your own means. You can check it out here.
This leads to my next point
Budgeting
Budget budget budget. Calculate your loans and debts, your living expenses, any other liabilities that you might have. That credit score is yours and you have to make your own financial decisions.Â
When you know how much you spend every month, it helps you to control your spending and could save you more money. It can also help you see the decisions youâre making. When i started budgeting, I realised the reason why i didnât have savings was because I was spending weekly on clothes I didnât even wear. Stopping this habit helped me âsaveâ $50/$100 almost every week.
Pay Yourself First
Pay off any debts or loans that you have before spending. This way you donât rack up interest rates and you know exactly how much you have at the end to spend for the month. This is to make sure everything is paid for before you make new commitments or want to spend on other things. This also gives you comfort as you wonât have to worry if you have enough to pay your bills.
Different Accounts For Different Things
I started a recurring transfer to my savings account so the moment my salary comes in, there would essentially only be $500 in my spending account every month. Back then, I didnât really feel like I was saving a lot, but a year later, there I was looking at my savings account with nearly 10k inside. That feeling? Surreal.Â
It was the push I needed to make that made me want to save more and spend less.
So if you can, set aside your bank accounts for savings and spending. That way itâs easier to see how much you have saved and spent. There is also a lower chance of overspending as you will know when you have to transfer over the money, and that does not feel good.
Get A Trusted Financial Advisor
A financial advisor is the best person to go to when you need your money sorted out, as essentially you get to learn more financial tips and they would help you sort out the basics of anything financial.
But of course, itâs important to get a good financial advisor so you arenât scammed into buying things you donât need.
I spoke to 5 different advisors before deciding on two.
One for wealth accumulation and the other for wealth protection.Â
My sessions with my financial advisors made me realise how important it was to get my insurance at my age now and how I could start investing without a big captial. He also explained the importance of how insurance works and the importance of investments at a young age. They help me with managing my money should I lose my income, and help me to grow my money.
But ultimately I listen to their opinions and decide accordingly. Be picky about the person you choose. This is the person you will be sharing sensitive information about such as your annual income etc.
Invest Invest Invest!
Compound interest is a very real thing. Here is an article by seedly. Notice the difference with the yearly interest of 0.5% vs 5.0%?
I started to invest while saving for my emergency savings because I want to achieve financial freedom as soon as possible. I started investing as little as $50 per month into a Robo advisor and after a year it has accumulated. It forced me to understand a little bit more about the importance of investments and what investments are about.
While some may say that it is risky, I only invest the money I can afford to lose. In this case, instead of spending money on clothes, I used it to invest. The current inflation is also about 1.79% currently and bank interest rates are clearly not enough. If you arenât beating this inflation, youâre losing out!
Take a look at this article to help you get started with investing!
Plan Your Finances
Itâs all part of budgeting to planning your finances, knowing how much you spend makes all the difference. I lowered my monthly expenses by about $200 just by planning my expenses for the month. This can be as simple as making a list before you do your grocery runs or planning for things you want to buy long term. Make use of the interest-free instalment plans around.
By planning your finances you have a clearer idea of what youâre spending on. A good money habit to cultivate if you ask me!
Donât Touch Your Bonus
I have this habit of not including my bonuses into my spending or even count it as salary. All extra bonuses go directly into my savings account. You can choose to set aside 10% of your bonus as a little reward to yourself but thatâs about it.
You will be surprised how much money that becomes!
Track Your Progress
A year later in this journey, I took a step back and took a look at how much I have accumulated. I realised I became a more frugal person who could actually save money. I also took care of my things better as that meant I did not have to replace them as often. While I know there is still work to do, this small step is a big achievement for me!
A year into this journey, I am definitely more confident about planning for my future financially. I hope these tips will help you achieve financial freedom slowly but surely too!
