To some, financial freedom is some unattainable concept that entails having wads of money in one’s bank account, owning a slew of sports cars that is parked in the garage, and making it rain. On the contrary, financial freedom is actually much simpler than that and can be achieved through discipline, knowing the right information on how money works, as well as setting goals and deciding to go for them.
Here are six steps to help us along the way:
Increase cash flow
It would be hard to achieve financial freedom if one is just living from paycheck to paycheck. This is why it appears to be hard for many to fulfill their dreams because they are not able to work efficiently and effectively.
Let us maximize our productive hours. We have heard of Filipinos based abroad pulling off two or three shifts in a day. I had a friend whose daily routine one time was work in a department store, attend class in a community college, and go to his other job at night. And despite his packed schedule, he even had time to take care of his parents who were staying at another place. If people like him can do it, sure we can as well.
In our local setting, we can have part-time work that can be done outside of the office or at home, do freelance projects, or set up a simple buy-and-sell business online. Opportunities abound everywhere if we just look around.
When Justin Bieber sings that you must “love yourself,” I like to think that it means this. And by this, we mean, have the breadwinner (or any income-generating member of the family for that matter) insured.
A lot of financial gurus—and financial institutions themselves organize talks about this as well—advice that families get life insurance. It is good to see ads on TV, on posters, and even online, encouraging us to get one. All we have to do next is to determine what kind of protection suits us most.
A good financial advisor would not just shove a product on you just to make a sale. Instead, they would get to know your family and lifestyle, current financial standing and capacity, goals and dreams, as well as your risk appetite. They cover all their bases to make sure they recommend the right solutions for the clients.
It is all about not incurring debt, but if it is necessary, make sure that the outstanding balance does not balloon and that one should not fall into the debt trap or the spiral of debt. It is of no use if a person earns in hundreds of thousands and still finds himself in the red.
Whether one has outstanding debt or not, living within one’s means – no matter how cliché that sounds – is applicable to either instance.
Have an emergency fund
Aside from having insurance, this is one of the most highlighted topics in talks about personal finances. A simple rule is to set aside three to six months’ worth of liquid cash to be used in cases of unforeseen circumstances.
If a family has already put this up, then I believe they are more than ready for the next step.
Build assets through wise investments
Conversing with clients and random people, one misstep that I notice most individuals take is jumping right into riskier forms of investments for the promise of a good windfall, without considering building a solid financial foundation first. And once they suffer losses, they get stressed, fearful of the future, and later on develop a negative outlook, not just in finances, but in life as well.
Now, steps one to five do not have to be taken in linear fashion, but they can all be done at the same time, provided that their financial advisor can give practical solutions and offer a variety of products that meet those solutions.
Preserve your estate
Other than retirement, this is one of the most overlooked aspects in personal finances since this is so far ahead. It is disheartening to find out that all the hard work a person puts in during his lifetime does not, in the end, benefit the intended loved ones as beneficiaries just because the person did not prepare for one eventuality: estate taxes.
A cynic might say, “What is there to preserve if I have not accumulated any assets?” I say, that is a wrong way of looking at it. If this is you, then I believe we have to go back to step one and assess why you are at your current state.
Personal finance is not a one-time thing, where you attend one seminar or read articles about personal finance from websites like MoneyMax.ph and that’s it. It is a continuous process of education, discipline, and what we recommend to our clients —having a regular financial check-up.
John Paul Abcede is a licensed insurance agent and is currently undergoing training for accreditation as a Certified Investment Solicitor.
JOHN PAUL ABCEDE