Welcome back; I hope everyone is having a good August. Today I want to discuss the direct relationship between financial awareness and financial freedom. I promise I am not veering off the subject because, after all, what is the point of being financially aware? Why is it so important that it needs a day in August just for itself and a whole month in April (Financial Literacy Month)? Well, the whole point is to have the knowledge you need to achieve financial freedom, right? Let’s take a look.
I want to start by defining financial freedom, which is simply having enough savings, investments, and cash on hand to afford the lifestyle you want for yourself and your family. Financial freedom also includes growing a nest egg allowing you to retire or pursue any career you want—without being driven by the need to earn a certain amount each year.
This is an important goal for most people, and it isn’t a pie-in-the-sky dream. Most of us aren’t out to make the Time magazine list of billionaires; we just want to avoid struggling to provide for our families and give them, and ourselves, a comfortable life.
The reality is that many people fall far short of financial freedom. Even without occasional financial emergencies, escalating debt due to overspending is a constant burden that keeps many Americans from reaching their goals. When a major crisis—such as a hurricane, an earthquake, runaway inflation, or a pandemic—completely disrupts all plans, additional holes in safety nets get revealed. Trouble happens to nearly everyone, but I will give you seven ways you can put yourself on the right path. In fact, you may have even read about some of these habits in The Millionaire Next Door by Thomas J.Stanley, mentioned in my blog last week. Hint hint…
- Define financial freedom - Start by deciding what financial freedom means to you. You can get a jump start by writing down what you would need for a financially free lifestyle, how much you think you should have in your bank account to make that possible, and what age you want to have that amount saved by. This can put things into perspective and take dreams and make them more tangible.
- Make a monthly budget and stick to it - Doing this ensures your bills are always paid and on time and keeps you in continual awareness of your financial state of affairs.
- Pay off credit cards in full each month- This one needs no explanation.
- Pay yourself first - This means doing things like enrolling in your employer’s retirement plan and making full use of any matching contribution benefit, which is essentially free money. It can also mean setting up automatic withdrawals into an emergency fund, which can be tapped for unexpected expenses, as well as an automatic contribution to your investment accounts.
- Invest now and stay invested - Bear markets can make people question the wisdom of investing, but historically there has been no better way to grow your money.
- Continually educate yourself on financial issues - In other words, make sure you are financially aware.
- Live below your means - The phrase “you can’t take it with you” seems to be a justification for spending money foolishly, but what if you flipped that and saw it as encouragement for getting your finances in order and working for you now by living a life of more with less? Again, The Millionaire Next Door.
Happy discovering; keep sending me your tips and the resources you use to stay financially aware, and I’ll be back next week with some websites that can help increase your financial awareness and prowess.
Until next time…
One last thought, I believe an educated investor is an empowered investor. If you like what you’ve read and think your friends and family can benefit as well, please share.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.