Tag Archives | financial freedom

8 Steps to Financial Freedom Part 2

Financial Freedom Part 2

Last week we looked at the first four steps you need to take if you want financial freedom; something that most Kiwis aspire to. They were: (1) Spend less than you earn; (2) Join a subsidised superannuation scheme; (3) Pay off short term debt and (4) Set up an emergency fund. Here are the last four steps that will help you be financially free:

 

Step Five – Buy at least one house

To have a comfortable, secure retirement, it helps if you own your own house. The sooner you buy one, the more time you will have to pay off your mortgage.

 Step Six – Pay off your mortgage

Your mortgage usually has a lower rate of interest than other debts, so focus on getting rid of your high interest debt first. Pay off your mortgage faster by making fortnightly rather than monthly payments, voluntarily increasing your repayments and making lump sum payments.

 Step Seven – Set up a savings and investment portfolio

You’ll need two streams of saving; one for short and medium term goals such as holidays, a new car or home renovations and one for longer term goals such as retirement. Although strictly speaking it is better to pay off your mortgage than invest, it is good to get into the savings habit early so that once your mortgage is paid off, you find it easier to save.

 Step Eight – Protect your wealth

It’s important to protect the wealth you create from adverse events that might destroy it, such as premature death, illness, relationship breakdown and taxes. As well as insurance, good estate and tax planning will help preserve your wealth.

 Achieving financial freedom is not rocket science, it just requires determination, focus and a commitment to follow these eight simple steps in a logical sequence.

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8 Steps to Financial Freedom

Financial Freedom Part 1

Living from payday to payday is nobody’s idea of an ideal life. What most Kiwis aspire to is to have a comfortable life free of financial stress. There are eight simple steps that will help take you on your way to financial freedom and here are the first four:

 

Step One – Spend less than you earn

The ability to spend less than you earn is the one thing that separates wealth creators from those who stay trapped in the cycle of living from payday to payday. Decide how much you want to save each payday to achieve your goals, and set a budget that will enable you to live on what is left.

 Step Two – Join a subsidised superannuation scheme

One of the best returns you will ever get on your money is to enrol in KiwiSaver. You will be eligible for a $1,000 Government kickstart, a tax credit of up to $1,040 per year and an employer contribution. Some employers offer subsidised schemes that have equal or greater benefits when compared with KiwiSaver.

 Step Three – Pay off short term debt

Short term debt, such as credit or store card debt, usually arises because you either have unexpected bills or you are spending more than you earn. Stop paying interest and make getting rid of short term debt should be one of your top priorities.

 Step Four – Set up an emergency fund

Life doesn’t always go according to plan. Setting money aside for unexpected events, such as a drop in income through redundancy or sickness or increased expenses such as car repairs and dental bills, will help you keep out of debt and avoid paying interest.

 Next week we look at the final four steps that will take you to your goal of financial freedom.

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Secret Spenders

Secret Spenders

One of the advantages of being a single person is you can spend your own money on what you want, when you want. Of course, the downside is there isn’t another person to share the cost, so freedom comes at a price. Getting together with another person usually means setting agreed financial goals and this can lead to feelings of guilt when you spend money on anything other than what has been agreed. Just as there are people who eat chocolate bars when no one is watching, there are those who secretly spend. It’s what is referred to as ‘financial infidelity’. Secret spending can range from sneaking shopping bags into the house when no-one is looking to secretly clocking up debts on credit cards or gambling.

A recent survey of couples in Colorado, USA, found that thirty one percent of people surveyed who shared finances with a partner had been deceptive about money and more than half had hidden either cash or purchases from their partner at some point. Even worse, around 34% said they had lied about debt or income to their partner. In the same survey, 16% said their financial infidelity had resulted in divorce.

When two people come together, they should be willing to talk openly about their financial situation; that is, their income, assets and any debts they have. If a prospective partner is reluctant to share financial information, there is a reasonable chance that person will be a secret spender during the relationship.

It is important that each partner in a relationship has access to money that is theirs to spend on whatever they want. By having separate accounts for ‘pocket money’ into which an agreed amount is deposited every payday, partners can have a degree of financial freedom without resorting to spending in secret.

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Make Money While You Sleep

Make Money

If financial freedom is something that you strive for, then no doubt you’ve pondered on how to get there by creating multiple streams of income. Many people dream of being able to sleep soundly at night, knowing that money is rolling effortlessly into their bank accounts, enabling them to retire earlier, work less, or achieve their other goals faster. For some, the dream is a reality; for most it is a wish that is unlikely to be fulfilled.

 When you have a job, you are exchanging time and effort for money. There is a physical limit on how much time and effort you have available, and therefore your income is limited. With alternative income streams, you may have unlimited potential to increase your income.

 The number of ways in which you might develop multiple income streams is limited only your imagination. The internet has opened up a whole new world of opportunities. Some of the things you can do from home are:

  • Start an internet blog or chat room and earn money from advertising on the site
  • Write a book or an e-book
  • Write articles in magazines or on websites for money
  • Turn hobbies into income streams, for example by teaching classes or selling products
  • Set up an online business
  • Invest in a property or share portfolio
  • Rent spare rooms in your house

 If you own a business, franchising, licensing and developing new product or service lines are obvious ways to diversify your income.

 To make time for a new opportunity, consider reducing the hours you work in employment. If your opportunity requires a significant investment of money or resources, make sure you seek specialist advice before proceeding but also remember ‘nothing ventured, nothing gained’. Don’t be afraid to give it a go!

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