Steps to achieving financial freedom

Finances impact all areas of our lives, so ensuring that you have a good financial plan in place is essential. For many people a key factor is to build up a good level of wealth to enable a particular lifestyle to be enjoyed, whilst making sure there’s adequate to cover life’s essentials. Ultimately a strong plan, which is built around your personal objectives, can help you achieve financial freedom in later years.

What is financial freedom?

The concept of financial freedom is different for each and every person, so it’s important to take some time to work out what financial freedom means to you. When considering don’t forget to think about all aspects of your life – from the property you live in, and want to own, to your children’s education, retirement goals, and whether you want to provide financial support for grandchildren or other members of your family. You might also want to build in certain lifestyle aspects such as travel, cars, holidays, experiences, and charitable donations or a legacy when the time comes.

Financial freedom vs financial independence

There is a marked difference between financial freedom and financial independence. Financial independence gives you the option of being financially secure enough to retire (perhaps even early) and the ability to maintain your chosen lifestyle without needing to work again. For most people, financial freedom is a step beyond this, enabling you to enjoy a lifestyle and any chosen future without having to worry about financial responsibilities.

Achieving financial freedom 

In the journey towards achieving financial freedom there are a range of steps to consider. It’s important to be realistic and be guided by your income and earning ability. It’s also helpful to be consistent with your plans over the years, rather than chopping and changing how you save, where you hold your investments and so on. And as you get started it’s worth remembering that once you are in control of your finances, you’ll enjoy significant peace of mind. In fact taking those first steps to decide what your goals are, and how you want your savings, investments and pensions structured is likely to give you a psychological boost. But don’t forget some of the fundamentals of finance, and the concept of budgeting – simply put, the key is to make sure that you spend less then you earn!

Setting goals

It’s useful to set some goals in your plan and prioritise what the key elements are for you; you might want to mitigate financial risk, save cost efficiently or optimise your affairs for tax. Once your overall priorities are set it’s important to put specific steps in mind to achieve what you want to, for example you may want to set a monthly amount which you dedicate towards investments and increase that amount at the turn of each year by 5%. You’ll need to consider your existing financial commitments, such as a mortgage, school fees and regular monthly bills and build in some contingency plans – the much quoted ‘rainy day’ fund! And don’t worry – your goals don’t need to be set in stone; a good financial plan is an ongoing process which needs review, especially as your priorities will change over the years. Usually, an annual check with your financial adviser is a useful course of action and allows you to review progress too.

Controlling your finances and tracking spending

Controlling your finances by tracking your spending is the most basic way of taking control of your finances. There are lots of ways of getting to grips with this, including simple spreadsheets and Apps, as well as more complex financial programs. Ultimately these can help you increase your awareness of how and when you spend your money, and in which areas you can take control of your financial habits, and adjust them to suit your longer-term plans.

Short-term strategies 

Over the short term it can be useful to set yourself a monthly budget. This allows you to cap any spending and prioritise longer-term strategies like savings and investments. The first step in any good financial plan is to tackle and reduce debt; for example, it can be beneficial to consider mortgage overpayments to allow you to build in some contingency and pay off your term early to save interest. From a savings perspective, a good approach is to start early, and go slow and steady – this embeds good habits and means you’ll have that emergency, or rainy-day fund, if needed. In turn this will give you a safety net to build your longer-term savings onto.

Creating additional sources of income

Once your building blocks are in place, investments can be worth considering. When approaching any investment, it’s vital to take into account the level of risk you’re comfortable with and the potential reward which is available. Past performance shows that any results are largely dependent on a combination of the level of risk taken and the time your money has had in the market. So, for example, stock markets have tended to perform better than cash over the long-term, perhaps due to the fact that standard savings accounts, which may have low interest rates, can in turn be impacted by inflation. Investing may mean that your money gets the chance to work harder over the years.

There are lots of options when it comes to investing, including managed funds if you’re unsure where to start, which can be set up based on the level of risk you are comfortable with. As always don’t forget to retain some money for short-term needs; investing is best considered as a longer-term approach.

Investing in your future

An important element of any financial plan is looking ahead to the future and ensuring that the right levels of funds are available for retirement. Pensions and investments form the cornerstone of this part of financial planning, and it can be even more important to address this area given life expectancy rates, and possible care costs. Think about what you’d like your retirement to look like, when you’d prefer to retire and how much you’ll need. It’s worth taking time to think about your ‘wish list’ here; you may want to travel extensively or frequently, enjoy time in a second home overseas or make some one-off purchases for yourself and your family. Our guide to planning for retirement can be a helpful resource.

As part of investing in your future, remember that the correct insurances are vital to protect your income, especially if you are unable to earn for a period of time.

Achieving financial freedom with The Fry Group

We work with clients to define what financial freedom means to them, put in place a financial plan that will help them achieve it and work with them to make sure the plan stays on track.

Our network of global offices and long heritage means that we have a solid understanding of working with individuals and families, and our award-winning teams are skilled at setting up and managing robust and appropriate financial plans.