As the old saying goes, money can’t buy you happiness…but being financially secure can certainly help.
Working hard to manage your money well provides you with the freedom to make choices you may not have had otherwise. After all, isn’t that why we work so hard to build our wealth? We want to have the freedom to make choices that will improve our lives – and the lives of our loved ones. Choices depend on your personal situation, but the ideal would be to be able to choose what’s right for you whether it’s the choice to retire, the choice to travel, the choice to spend more time with children or grandchildren, or the choice to lend money to our struggling adult children. The freedom to make these choices is what good financial management can enable. It’s not about the bank account. It’s about the freedom.
But how do you get there? Here are three proven strategies to help you reach your financial freedom:
1. Say Yes to Free Money
Try to take full advantage of any company plans that offer “free money”. That might be a matching retirement savings plan where the company offers to match part of your contribution. Or your company might share profits with you through a profit sharing plan. Your employer may also let you buy its stock at discounted price through an Employee Share Purchase Plan (ESPP), or it may match your purchase amount up to a certain contribution. No matter what the plan, do the most you can to maximize any program that helps you build wealth. These plans encourage you to save – and they throw in a little sweetener to try to entice you to participate. I’ve worked at many employers that have offered very generous matching plans or employee share purchase plans. I’m always shocked to hear how many of my colleagues are not participating. Look at your budgets and try to find a way to take advantage of these offers.
2. Make Do When You Make More
Just because you received a raise and start making more money doesn’t mean you should spend more money. You need to be able to differentiate between wants and needs. Do you really need a brand new car? Can a one year old vehicle with 20,000 kilometers at $10,000 less than brand new suffice? With real estate prices so high these days, do you really need to upgrade from your $1 million house to a $1.6 million dollar house? Would renovations be cheaper and more economical? Think twice before spending money on clothes that may end up sitting in your closet. Impulse buying is a problem so come up with a plan to defer any impulse purchases for 24-48 hours. You will be surprised at how often you will change your mind. All these decisions add up. Live frugally and you will reap the rewards down the line.
3. Down with Debt
Make it a rule to always, always, always pay off your credit card bills in full. Credit card debt has put many a family into crisis mode because of the high interest rates they charge. Credit cards can be great for convenience and even earning points towards travel or movies or goods – but only if they are paid off in full each month. Let’s look at an astounding example of how credit card debt can add up. Let’s say you buy a new computer at $3,000 on your credit card at a 22% interest rate. If you only make the minimum payment each month, it will take you 20 years to pay off that debt. You will pay a total of $7,377 for that computer – $4,377 in interest. If you really need to go into debt, find a low interest credit card or use a line of credit at the bank at a much lower interest rate.
While it may take more than these three strategies to reach your financial freedom, following them will take you that much closer to the freedom to make the choices you want to.