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.