How to be Financially Free and Not Just Debt Free
- What does it mean to be financially free?
Being financially free may mean different things to different people depending on their own personal circumstances. For most being financially free means not having to worry about whether or not you have enough money to pay the bills but more importantly to have accumulated enough to know that your expenses are always going to be covered. In addition, you should have investments that are paying you a regular income and that you have a positive cash flow – in other words, your income is greater than your expenses.
2 What do you consider to be the main obstacles to financial freedom?
It's a mentality that prevents persons from being financially free.
- The “Poor” Mentality”- People generally spend money they don’t have to support a lifestyle that they think they deserve right away without making any initial sacrifices or putting in the work to get there. They are living pay cheque to pay cheque and therefore have to carry on working to support that lifestyle and repay debts.
- The “Rich Mentality”- The Rich Mentality, on the other hand, is focused on acquiring assets rather than liabilities. Not buying things you don’t need. Generating passive income rather than spending the rest of your life working for ‘the man’.
3 Is it important to be debt-free or is there a positive to debt?
‘Debt, in general, tends to be perceived as a negative, but it can in fact be positive. “Good debt” can in fact help you work towards a more financially stable and secure future.’ However, it’s not the debt itself that is the important aspect – it’s how well you manage to pay it back. Essentially, what you’re looking to do is to build up your borrowing history and showcase that you’re a responsible debtor who is able to pay back the money they owe in a set time-frame and without any problems. Doing this boosts your credit score, which lenders look at when you apply for loans to buy something substantial.
4 What is the best method to pay back debt?
This comes down to efficiency
- Salary deduction (deduction directly from your salary) which doesn’t require the client to be physically involved in the transaction.
- Direct debit (deduction from your bank account) which doesn’t require the client to be physically involved in the transaction.
- Cash/linx payments requires the client to visit either the JMMB Express for linx, JMMB Bank for cash or Surepay for cash/linx
5 Is it better to pay back debt or save money first?
This is dependent on your need or size of the loan, in most cases, once budgeted well you can do both.
We will share with you 6 key points to help you become financially free
- Set Life Goals
What is financial freedom to you? A general desire for it is too vague a goal, so get specific. Write down how much you should have in your bank account, what the lifestyle entails, and at what age this should be achieved. The more specific your goals, the higher the likelihood of achieving them.
Next, count backward to your current age and establish financial mileposts at regular intervals. Write it all down neatly and put the goal sheet at the very beginning of your financial binder.
- Make a Budget
Making a monthly household budget—and sticking to it—is the best way to guarantee that all bills are paid and savings are on track. It’s also a regular routine that reinforces your goals and bolsters resolve against the temptation to splurge. Download our budget tool here
- Pay Off High-Interest Loans in Full
Credit cards and similar high-interest consumer loans are toxic to wealth-building. Make it a point to pay off the full balance each month.
- Create Automatic Savings
Pay yourself first. Enrol in your employer’s retirement plan and make full use of any matching contribution benefit. It’s also wise to have an automatic withdrawal for an emergency fund, which can be tapped for unexpected expenses, and an automatic contribution to a brokerage account or something similar. Ideally, the money should be pulled the same day you receive your paycheck, so it never even touches your hands, avoiding temptation entirely.
- Start Investing Now
Open an online brokerage account that makes it easy for you to learn how to invest, create a manageable portfolio, and make weekly or monthly contributions to it automatically. You can contact our JMMB Investments team at 229-5662 or via email at infott@jmmb.com for advice.
- Live Below Your Means
Making small adjustments by distinguishing between the things you need and the things you want is a financially helpful habit to put into practice.