As we draw towards the end of the year, it is important to take time and reflect on the first half of the year and what went right and wrong with regards to finances. Did you have new year resolutions and maybe set short-term, mid-term, or long-term financial goals? Having financial goals is an important step toward becoming financially secure and if you aren’t working toward anything specific, you’re likely to spend more than you should. You’ll come up short when you need money for unexpected bills, not to mention when you want to retire.
In as much as we can never fully prepare ourselves against crisis, as the world learned in the pandemic; what thinking ahead does is give you a chance to work through things that could happen and do your best to prepare for them. If you have never set goals before, take the opportunity to formulate them so you can get- or stay-on firm financial footing. This should be an ongoing process so you can shape your life and goals to fit the changes that will inevitably come. Here are Money Nuggets that are key steps to financial freedom that financial experts recommend.
- Invest 10% or 20% of your Net Income
Net Income refers to the amount an individual or business makes after deducting costs, allowances and taxes. If you run a business, subtracting your business expenses from your total revenue gives you a picture of your business’s profitability-that is how much you are earning after paying to operate your business. Experts generally recommend setting aside at least 10% to 20% of your after-tax income for investing in stocks, bonds and other assets (but note that there may be different rules during times of inflation-pros say.
- Create an Emergency Fund of up to 3 months living expenses and where possible 6-12 months. Life WILL happen, be prepared.
An emergency fund is money in a bank account that’s set aside for unplanned expenses, such as medical bills or automobile or home repairs. An emergency fund can also help you weather a loss of income, resulting from job loss or extended illness. Using funds earmarked for unexpected bills can reduce the need and the costs associated with high-interest credit cards or personal loans to pay them. An emergency fund is an essential part of a solid financial plan. It can help pay unexpected expenses, alleviating the need to use high-interest credit cards or taking out a loan. It’s an assurance that you have money when an unexpected expense happens.
- Who you marry is the biggest money decision you’ll ever make.
To say it more succinctly, your spouse is the most important money decision you’ll ever make. Why? Because in your career, your home life and especially your finances, your spouse has to be deeply and aggressively supportive of your thoughts and decisions and they have to be willing to meet you halfway. After all, financial disagreements early in relationships can be a leading predictor of divorce. Your spouse can make or break you, selecting a spouse who is smart with his or her finances can establish a solid foundation. Together, the two of you can make investments, save for the future, plan trips and encourage each other to make intelligent decisions.
- Invest in yourself. Knowledge, Health, and Education. When the market fails, you can always rebuild.
As Warren Buffett said, “The best investment you can make, is an investment in yourself. The more you learn, the more you earn.” Investing in yourself will boost your confidence in your own abilities and have positive impact on your self-esteem. As well as equipping you with new knowledge and skills, focusing on your personal development will help you get to know yourself even better. Evidence shows that, on average, each additional year of education boosts a person’s income by 10% and increases a country’s GDP by 18 per cent. Some researchers estimate that if every child learned to read, around 170 million fewer people would live in poverty.
- Fall in love with collecting Assets. Spend recklessly where possible. Assets will always have your back. Good financial planning decisions extend well beyond where and how you invest. Investments in Assets for instance, could enhance sustainable lifetime income on a risk-adjusted basis.
- Don’t purchase often, purchase once on quality
- Attain Financial Freedom for yourself so you can live on your terms. This will keep you from staying in toxic relationships/marriages or environments for the financial benefit.
- When you spend on family or friends, spend what you can so you’re not entitled to be paid back.
- Adjust your Network upwards EVERY YEAR. If you owned a house in 2021, that asset is documented as a 2021 achievement. Let 2022 have its own target (even if it’s a $20,000 target in liquid Assets). That way your wealth creation Portfolio speaks for you, for every year worked.
- Lastly but not the least, be honest with yourself and take a plunge into reality. Financial Freedom can only be attained when you decide to live life for you on your own terms other than pleasing everyone.
Now that we are set for the next half of 2022, here are key takeaways:
- Proper financial and retirement planning starts with goal setting, including short-, intermediate-, and long term goals.
- Key short term goals include setting a budget, reducing debt, and starting an emergency fund.
Medium-term goals should include key insurance policies, while long-term goals need to be focused on retirement