Learning Resources

Easy Ways to Fast-Track Your Financial Freedom

10 Jan 2022

Tips to Fast-Track Your Financial Freedom | Money Money Home | VI

"Are we just born into this world to study hard so we can get a good job and work for the rest of our lives until we die?" This is the question that more and more millennials and Gen Z have been asking these days.

The topic of "financial freedom" is more heatedly discussed today than it was two decades ago; and especially in the last few years, more and more people from the younger generation are jumping on the "fire your boss and start your own company" bandwagon – simply because it is seen as a faster way to achieve financial freedom while doing what they love.

Does it really though?

4 Stages to Money Management

Before we touch on financial freedom, some things need to be clarified. As children, all we were taught was to save as much of our pocket money as we can in our piggy banks. As adults, things are a teensy bit more complicated than that.

Be it as a business owner or a 9-5 employee, you still won't achieve financial freedom no matter how much you earn every month if you don't do the following the right way.

1. Earning

There isn't much to be said about the first stage, earning, as it is exactly how it sounds, you work to earn yourself a salary or you earn from your business.

2. Saving

In the "saving" stage, however, things get a little trickier.

When we were young, most of us were told by our parents to buy that lollipop or chocolate with our pocket money before saving the rest of it in the piggy bank.

This is, however, not in the right order because we really should be saving first (or you might have heard "pay yourself first," that’s basically the same). This way, you will have money saved up no matter what. After all, you did work hard for it.

In fact, it is best if you have two separate accounts - an untouchable account where all your savings are plopped in monthly, not to be taken out, and a spending account where all your monthly expenses should come out from. 

3. Spending

This stage needs no introduction. Indulging in delicious food or buying pretty things – it's probably one of the things people look forward to the most after a hard day's work. This is what makes the toiling and long hours so worth it, doesn’t it?

Unfortunately, many forget or don't realise that spending, well-deserved as it is, also needs to come with a plan, called a budget. A budget helps to keep you in check, i.e., how much you should be spending per day to last you for the month.

Sticking to a budget also helps you get your priorities straight; that thing you're looking at, with the amount of money you have at your disposal, is it a want or a need?

Financial Freedom | Is it a want or a need? | Money Money Home | VI

4. Growing

Most people think banks are the best place to stash and grow all the money they have, either on the bank's interest rates or fixed deposit (FD) schemes. The problem here is that FD returns are barely enough to cover the cost of inflation, let alone the bank's default interest rates.

The right way to tackle this is to instead use the money to find the right mentor, invest in yourself and your knowledge, before investing money in the stock market or other financial instruments. If you don't do that, you're likely to pay for "tuition fees" in the form of losses down the road. 

Tips on Fast-Tracking Your Financial Freedom

Ways to Achieve Financial Freedom Fast | Money Money Home | VI

Financial freedom is achieved when your passive income exceeds your expenses, and you don't have to worry even without an active income.

For those who'd never heard of these terms before, active income means income that you bring in by working, for example, your salary, whereas passive income means income that comes in even when you're not working and you don't have to keep working to earn them, for example, dividends from investing.

There is no magic formula to achieve this overnight. However, there are some things you can do to fast-track the process.

1. Keep your expenses low

The logic here is simple. The lower your expenses, the less passive income you need to generate.

If your monthly expense is $10,000, you will need to find ways to earn $10,000 in passive income monthly to be financially free. But if your monthly expense is $5,000, you will only need to earn $5,000 in monthly passive income to be financially free. 

2. Gain legit and proper investing knowledge

We've said this before and we'll say it again - before investing in ANY financial instrument, first invest in your own knowledge. It's an investment no one can take away from you and it helps you make wise investment decisions for life.

If you are to invest blindly or just follow the buy and sell of so-called "investing gurus" in the market without understanding the reasons behind it, you are at risk of losing money time and again.

These "gurus" have money they can lose. You don't. And each time you lose money, you'll keep getting off your financial freedom track. 

3. Start NOW

A lot of people, especially those who'd just started working fresh off university, tend to think they don't have to start investing yet because they are still young. They just need to wait until they're older when they have more money and invest then. This is, sadly, a misconception.

See also: 5 Investing Myths You Should Forget

Small as it is, the amount you invest actually matters less than the duration of your investment. The earlier you start to invest and compound, the more you'll earn by the time you're ready to retire.

As Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.” 

Many parents send their children to enrichment classes or brain development classes since young, hoping they'll turn out to be talented and an all-rounder when they grow up.

However, up until now, very few have thought of sending their children to money management classes and preparing them to handle the rat race better when they are older. And that should change.

Since money management was not taught in school, we should now take the responsibility to teach ourselves as adults and equip our children with the knowledge early as well. That way, they will be more prepared for the future instead of just following the herd in the rat race.

Catch the last episode of Money Money Home this week as Xianren and Daren teach their nephew to manage his money after he crashed on their couch – jobless and leeching off the couple for months.

Money Money Home is an edutainment series that takes reference from Malaysia’s TV programme of the same title.

Savings doesn't make you rich but not having any savings will definitely make you poor.

Do you have more money management questions you're looking for answers to? Join our free online masterclass on creating passive income for families and for more tips for money management.

DISCLAIMER

This article and its contents are provided for information purposes only and do not constitute a recommendation to purchase or sell securities of any of the companies or investments herein described. It is not intended to amount to financial advice on which you should rely.

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