Attaining financial freedom is a daily endeavor. It depends on the financial choices you make every day. For instance, you can choose to have a big party to impress your friends, or you can choose to save or invest that money into something profitable.
Do you need that new pair of shoes? Or do you want it because it’s trendy? We are not saying that your journey to financial freedom has to be an extremely frugal one. Of course, there’ll be a time when you need that new pair of shoes, bag or home appliance.
At that point, it is your choice of financing option that becomes crucial. Financing with buy now pay later, or BNPL offers you a flexible instalment payment plan at zero interest rate. It is a pivotal tool that can assist users who are smart in financial planning to expedite their journey to financial freedom.
Learn the following to know how you can attain financial freedom:
1. Set realistic goals
Meeting your financial goal will lead to financial freedom, but you must first have a clear vision in mind. Make sure your goals are quantifiable and achievable. If you’re still paying off your school debts, don’t commit to becoming a billionaire next year.
Instead, consider realistic short-term, mid-term, and long-term objectives that you can accomplish in a year or two; mid-term, two to five years; and long-term, five years or more.
Make a note of how much money you’ll need for each goal and divide it by the number of months you have until you’d want to achieve it. Then you can plan your monthly spending and save all the money you are not spending, guaranteeing that you’re slowly but steadily achieving your financial goals.
2. Organize your spending
You should begin cleaning up your expenses after you’ve begun managing your account.
That means whether you have pending debts on your credit cards, auto loans, or school loans, it’s time to start paying them off in bigger portions as soon as feasible.
This too will require high financial discipline and smart planning. Personal loans and credit card debts are two of Malaysia’s most prevalent types of bad debt.
You should have your whole income at your disposal if you wish to achieve financial freedom.
After you’ve paid off all your debts, you can begin laying the foundation for your path to financial freedom.
3. Have a spending and saving plan
Without a budget, it isn’t easy to attain financial freedom. This is where you keep track of your income, expenditures, and debt to fulfil day-to-day needs while also saving for long-term objectives.
A good rule of thumb, housing expenses (i.e. rent or mortgage) should account for 25-35% of monthly income, with food accounting for about 20% and debt accounting for 10-20%. Savings should ideally be about 7-10% of your income.
Many individuals underestimate their expenditures, which may be affecting your monthly savings. Keep a close eye on the money going in and out of your accounts and commit to saving a specific amount before spending on discretionary items.
The entire amount spent on all expenditures should not exceed 60% of your overall revenue. You are probably living above your means if you spend more than 60% of your income.
You’ll need to keep meticulous records of your spending to figure out where you might save money. It’s not about reducing your quality of life; instead, it’s about limiting your expenditure on things that don’t bring you joy.
Tools such as BNPL will help you to plan your monthly spending wisely so that you don’t overspend at the expense of your financial goals.
4. Use credit wisely
Credit, whether in the form of a credit card, a student loan, or a house mortgage, may provide flexibility to your financial planning and offer a lifeline during an emergency. Still, it can also create severe financial difficulties if used recklessly.
Debt is the greatest obstacle to financial independence for many individuals, so utilize credit responsibly. Examine your credit report and credit score to see how much debt you have and if you need to take steps to improve a poor credit score, which may affect your interest rate on future loans.
Credit counsellors may assist you in better managing your debt and credit, and you can discuss debt consolidation with your financial institution through a second mortgage or line of credit.
5. Make future investments
Financial freedom isn’t only about having enough money now; it’s also about knowing you’ll be taken care of in the future. It may be the time to consider diversifying your income via various kinds of investments after you’ve established an emergency savings fund and are making progress toward short and medium-term objectives.
What are the best investments for you? It all relies on your priorities, risk tolerance, and life stage. If you’re a young investor with stable employment, you may want to explore higher-risk assets like stock funds, which can provide greater long-term returns.
However, you should always bear in mind the risks and opt for lower-risk investments if you want to have something that is more manageable within your capability.
At least 20% of your salary should be saved or invested. If you’re an employee with a 23% or higher EPF contribution, you should strive to save another 20% of your salary from reaching a savings or investment rate of 40% or higher.
There are many factors to consider when it comes to financial independence, but the key is to keep learning!
Financial literacy is a lifelong endeavor, and the more you learn, the closer you’ll come to sound financial management. So, create a strategy, jot down some ideas, and never stop learning.