There is a common misconception among the masses that only high-income earners can achieve financial independence.
In reality ‒ with adequate financial knowledge and the right strategies ‒ even the common man can look towards relishing the perks of a financially free life one day.
The journey may seem arduous at first, but we’ve simplified it into 8 simple steps to show that attaining financial independence is a realistic goal for anyone.
This article serves as:
a simple guide for those who want to have a clearer understanding of financial freedom
a motivational boost for those still striving towards financial independence
a helping hand for those who have tried but have been unsuccessful thus far
So let’s begin!
#1 Knowing Your Financial Situation
First and foremost, you’ll need to properly understand your current financial situation. Do you have savings at the end of the month, or do you somehow blow up your entire month’s paycheck time and time again? Is your money being wisely invested, or being spent unnecessarily on your endless list of wants? Understanding your financial situation means you’ll need to know how much savings you currently have, and how much money is coming in and going out of your pocket every month. You can start by listing down your monthly income versus expenditure. It’s of utmost importance that you know where your hard-earned money is going to – how else are you going to manage it?
#2 Start Budgeting
Once you have a clearer idea on your current financial situation, it’s time to start planning ahead and sticking to a budget. Elizabeth Warren popularized the 50/30/20 budget and it could be a useful reference guide for you.
According to the budget, 50% of your income goes to your Needs, 30% goes to your Wants and 20% goes to your Savings & Investments.
Needs (50%) = housing, utilities, health insurance, car payment
Wants (30%) = shopping, entertainment, hobbies, outings
Savings (20%) = pay down debt, building up your own savings
*note that the 50/30/20 rule is just a general guide, and you are strongly encouraged to save more than 20% of your monthly stipend*
#3 Plan For Major Life Events
If you foresee yourself living in a mansion with half a dozen kids, you will definitely need to save a lot more than someone who intends to apply for a 3-room BTO and live a simpler life. Planning for major life events early will give you a better idea on how to allocate your budget. It may be tough trying to forecast something 10 or 20 years down the road, but it’s good to start having a rough plan and calculating how much each of these major life events will offset you in the future (e.g. marriage, housing, children’s expenses, car). That way you’ll know how much money you’ll need to have at each major stage of your life. For your reference, here’s a rough guide:
#4 Spend Less Than You Earn
In order to have savings, your income has to be more than your expenditure. This is logical, isn’t it? While many Singaporeans do have savings at the end of the month, they only do so after spending a huge chunk of their paycheck. In fact, the first person you should pay after receiving your salary is YOURSELF. One should save a fixed and significant portion of their savings upon receiving their income, only then should the remaining money be used on expenditure.
#5 Live Frugally
In order to minimize expenditure and maximize savings, one should aim to live frugally. It doesn’t help that modern society is characterized by exorbitantly high rates of consumerism, but if you want to achieve financial freedom, it’s best to cut down on unnecessary spending. Finding cheaper alternatives is one way to tighten your purse strings. Instead of having 3 cups of Starbucks macchiato a week, you could cut down your intake to one. Or if you really need that coffee fix, how about switching to kopi-c-kosong instead? But hey, don’t mistake being frugal from being cheap – the two are very different.
It may be difficult initially, but if you forsake short-term gratifications and strive towards the long haul, your penny-pinching efforts will pay off someday.
#6 Start Investing ASAP & Grow Your Passive Income
One way to grow your wealth is to start investing and reap the rewards of passive income. Warren Buffett, one of the richest man in the world with a net-worth of about $85 billion USD, attributed part of his financial success to compound interest from investments. Here’s a simple illustration of how investing early can make your money work for you.
If you have close to zero knowledge on the types of investments like REITs, bonds and stocks, you can start by educating yourself at financial sites such as Seedly and The Motley Fool.
#7 Increase Your Salary
Increasing your monthly paycheck is a definite win-win situation for you. Not only is it a great way to increase your savings, it also enables you to enjoy life a little more as you get to be more generous with your expenditure.
You can start off by negotiating with your boss on improving your salary.
If that doesn’t work out and provided there are better money-making prospects out there, you can consider making a career switch too.
#8 Side Hustle
You can also supplement your main income with a side hustle. Setting aside time outside of your daily 9-6pm job to generate side income need not be a complicated affair. It could be as simple as selling your used and unwanted things on Carousell. If you find yourself being skilled in particular fields such as writing, photography or graphic design, you could consider working freelance for companies on a project to project basis.
Just remember to cater enough time for your family and loved ones, as there’s more to life than money.
Embark On Your Journey To Financial Freedom
It’s perfectly normal to be unsure or afraid as you embark on your journey to financial freedom as there are plenty of uncertainties and obstacles to overcome. Guidance from an experienced finance professional can set you on the right track by providing you with a solid foundation to start from. Financial Fortress, a program conducted exclusively by qualified Virtus Associates, is an educational program with the right formula to help others achieve financial independence. During this one-day seminar, participants will be exposed to 4 comprehensive modules aimed at helping them attain financial independence in a practical, realistic and systematic way. The main focus will be on understanding the fundamentals of good financial planning.
Remember that “the journey of a thousand miles begins with a single step”. As long as you have a clear goal in mind, have the discipline to stick to your budget and the resolve to see your journey through, you can expect to enjoy a financially free life in time to come! So click here to begin your journey to financial independence! Also remember to share this article with those you care about, so they can start taking steps to improve their financial situation!
Written in collaboration with our financial advisory partners at Virtus Associates.