Financial independence or also known as financial freedom be every human’s dream. Not without reason, this allows us to freely make decisions without thinking about the impact on our financial condition. This can be done thanks to a sufficient number of assets, such as savings and investments.
Achieving financial freedom is definitely not an easy thing. But this does not mean we can not achieve it. However, we need special plans and strategies to manage finances effectively. The following are financial rules that can be applied from now on to increase opportunities for financial independence in the future.
1. Use money wisely
illustration of people managing finances (pexels.com/Karolina Grabowska)It is natural that we have a long wish list. Unfortunately, our resources are quite limited, at least for now. Spending money wisely therefore becomes so important. To make it easier for us to map out financial allocations, we can do budgeting or budgeting.
Place basic needs as a top priority and allocate 50 percent of income to meet them. On the other hand, managing finances does not mean you have to put the brakes on your desires. You can use 30 percent of your income specifically for the things you want. Well, the remaining 20 percent must be set aside for savings and investment.
2. Focus on paying off debt before saving
illustration of paying off debt (pexels.com/Monstera)Paying off debt is one of one’s obligations as a borrower. This is especially true for debts with high interest rates and debt already exceeding 35 percent of total income.
The rules for paying debts on time are even stricter if you borrow from a financial institution, such as a bank. Of course this makes you unable to move because if the debt is overdue, you will have track record negative ones. This of course makes it difficult for you to apply for a loan in the future.
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2. Have an emergency fund
illustration of calculating a budget (pexels.com/Karolina Grabowska)Continue reading the article below
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This is a very important financial post. The goal is none other than to meet urgent needs. Ideally, the amount of emergency funds collected reaches 6 to 12 times the expenditure. This can be adjusted according to various factors, one of which is whether you are single or have a family and are sandwich generation.
Therefore, it is important to calculate the average expenditure each month so that you can determine the percentage of funds that need to be set aside for an emergency fund. In addition, make sure you save your emergency funds in a savings account that is different from other posts.
4. Start investing
investment illustration (pexels.com/Anna Nekrashevich)Everyone wants to have passive income, where they don’t have to work hard to earn money. This can be made possible by investing, you know. But don’t be tempted by the lure of investments that offer doubled profits in a short time, OK?
Before starting to invest, you must understand the basic concepts and techniques of investment analysis in order to make the right decisions. The reason is that in addition to offering benefits or return, Investment also carries various risks. It departs from the principle high risk high returnwhich means the profit is directly proportional to the risk.
To minimize losses, you can diversify your investments or allocate funds to different instruments. For example, let’s say you use 50 percent for mutual funds, 30 percent for bonds, and 20 percent for stocks. Of course, this percentage can be adjusted according to needs, yes.
5. Increase your source of income
illustration of people working (pexels.com/Andrea Piacquadio)The profits that come from investing, of course, can only be reaped in a long time. Therefore, you can’t just rely on this to increase your income. Instead, you can have extra income by doing a side job or what is often referred to as side hustle.
You can start a small business, become a freelance writer or graphic designer, or dive into the world affiliate. This activity can be done to fill spare time on weekends or add a few hours to the workday. However, you still have to keep work life balance to maintain good physical and mental health.
Although difficult, financial independence is not something impossible to achieve. It takes commitment and high discipline in trying to achieve this freedom. Therefore, you can start applying the financial rules above so that you will be financially free in the future.
Also read: 5 Myths about Wrong Financial Management, Don’t Be Fooled
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