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12 Steps to reach financial freedom in South Africa

The journey to financial freedom isn’t a get-rich-quick scheme. Neither does financial freedom mean that you are “free” of the obligation to manage your money properly.

Achieving financial independence doesn’t just happen, it’s born out of hard work, sacrifice and time. The end result is worth it though!

Controlling your money starts with a comprehensive plan, and the will to commit to that plan. Here’s how to begin your own journey to financial freedom!

Step 1: Set life goals

Setting goals is the first step in your journey towards financial freedom. Financial freedom is the end goal but before you get to that, you have to know what financial freedom looks like to you.

How do you define financial freedom? What picture comes to mind when you think of financial freedom? For one person, success is an extravagant lifestyle, with a huge house and a posh car.

For another, it’s simply owning a business or having enough financial security to avoid constantly worrying about money.

For this reason, it’s important to define financial freedom in your terms as following someone else’s definition can be a recipe for disaster.

Set your goals with a clear picture of where you aspire to get to in life, but in doing this be realistic, specific and classify them as either long term, mid-term or short term.

All your goals should be achievable. Attach motives to your goals as this puts them in perspective and fuels your drive.

Always write down your goals because when you put pen to paper, your objectives become real and you can start taking steps to achieve them.

Setting goals, however, goes just beyond jotting down your hopes and aspirations for your financial future.

Always go big when you are setting goals but do this with a realistic picture of your current financial situation in mind.

This will help you set goals that are specific to your situation. For example, you can’t set to increase investment goals when you are drowning in debt, recognizing your financial situation will tailor your goals to your situation.

Couple that with a realistic idea of what you will have to give up to get where you need to go and a realistic assessment of the impediments in your path.

This will prepare you for the rough path ahead so when you reach those bridges, you are already psychologically prepared for it and ready to do what needs to be done

Step 2: Make a budget (and stick to it)

There is no point in drawing up a budget if you have not established your financial objectives.

Before you jump to this stage make sure you’ve done a superb job with setting your goals.

Budgeting is an essential part of good personal finance. It’s all about assigning purpose to every rand.

From every need to every want, the regular and irregular bills, the taxes and even charitable donations.

Each expense should go into your budget. With a budget, you give a name to every rand of your income and be able to account for every cent.

Once you add a rand value to your daily habits, you’ll become more conscious of how much you’re actually spending.

This will likely motivate you to make changes for the better. Most people who adopt budgeting as a lifestyle feel like they got a raise.

Financial independence is impossible if you’re living from paycheck to paycheck, that’s actually a recipe for disaster.

You can’t spend more money than you have, so a budget will help you know where you should cut back.

Wisdom is not saving what you have after spending but spending what you’re left with after saving.

Dedicate a substantial amount of your income to savings and then allocate money to the rest of your expenses, putting more priority on the needs than the wants.

Cut down on the things that you don’t really need and save wherever you can.

That, however, is not to say give up on those little pleasures you enjoy like your daily morning latte or all the things that keep you happy and sane.

Make room for your wants in your budget but don’t overindulge yourself, those little costs count, but budgeting goes beyond that.

People should think beyond the small expenditures and consider making major changes in their lifestyle to make an impactful change in their financial situation.

Creating a budget is not enough in itself, learn to STICK TO IT!

Step 3: Pay off credits in full

One wise proverb goes, “Credit is like a looking glass, which when once sullied by a breath, maybe wiped clear again but if once cracked can never be repaired again”.

You may have made some detrimental financial mistakes in the past but if you are looking to achieve financial independence, a clear credit slate is a great place to start. 

Paying off all your credit should be a priority. It’s time to get serious about getting rid of any debt like credit cards, car loans or student loans. Why?

Because while you owe money, your paycheck has someone else’s name on it.

If you want a chance at financial independence, you need your full income at your disposal, not bits and pieces that are left over after paying credit card bills and student loan payments.

Paying off debt is hard work, but nothing compares to the feeling of actually keeping the money you bring in every month!

They are different approaches to debt payment. From a mathematical standpoint, it makes more sense to start with the debt charging the highest interest rate.

However, some finance experts suggest paying off the debt with the smallest balance first as this builds momentum and fuels motivation.

The snowball or the avalanche method is more preferable to others but tackling debts one at a time whenever possible seems to be the most effective strategy.

Another way to fast-track your debt re-payment is to increase your income. Whether it’s asking for a raise, getting a freelance job on the side, getting a job during the evenings or weekend, but all that extra income towards your debt.

It’ll cut off years of repaying your debt, and also save you money on interest.

When you finally pay off a debt, don’t let the money you had been paying toward it get absorbed by your budget.

Instead, dedicate that payment amount to the next debt on your payoff plan.

Once you’re debt-free, stay there. For good! Having debt undermines your ability to build wealth and puts your financial future at risk. Steer clear of debt!

Step 4: Establish an emergency fund

If the COVID-19 pandemic taught us one thing, its how unpredictable life is. You can be out having the time of your life in one moment and in the next, something drastic just happens.

Sooner or later something will go wrong (even if it doesn’t, it’s better to be on the safe). Emergencies come in different shapes, just as life takes its peculiar turns for each and every one of us.

Financial hardship can come from unemployment due to a pandemic (as we learnt this year),  long-term health issues due to an accident, an expensive car repair for the car you need to commute, cyclone damage on your home’s roof only partially covered by your insurance.

Emergencies may vary in nature and scale but they have three things in common.

They are highly unexpected, have a highly negative impact on your personal finance and have a low probability of occurring. 

Having an emergency fund can be the difference between a small bump in your financial life and a complete disaster in your entire life.

Financial freedom entails being ready for the rainy days and knowing the hardest punch on your situation won’t send your finances crumbling.

Any stable household should have an emergency plan that includes an emergency fund. A contingency fund should at least have up to 6months of living expenses put away.

This ensures financial security as it limits the probability of having to dip into your investments nor get into debt every time you need extra cash.

Step 5: Start investing now

In the words of Warren, ‘if you don’t learn to make money while you sleep, you will work until you die”.

Investing is a critical part of financial freedom and one great way of making money while you sleep.

Waiting for a higher income to start investing may be damaging as you are letting yourself adjust to a bad custom.

Investing is a habit, it doesn’t matter how much you invest as long as you maintain consistency.

It’s not the amount but the habit that makes the difference so if you don’t start when you have little, then it’s not going to happen in the future.

If your circumstances don’t allow you to do the 10% investment right now, do 5% or maybe even 1%. Just be consistent and increase the amount as your income surges.

You are never too young to start investing, the sooner you start investing the better.

The good news is the sooner you start investing, the more time your money has to grow.

Investing is about using your money to earn more money. The larger your investment portfolio, the closer you are to financial independence.

Diversify your investments across several different asset classes. At least have a certain amount of funds invested in stocks, fixed-income investments, real estate, peer to peer lending, cash and natural resources.

This will keep you from suffering huge loses in the event any of those sectors crashes, while at the same time taking advantage of strong markets wherever they may be.

With extra cash and an appetite for risk, you can budget a small amount for higher risk but potentially more profitable investments.

Even then, stick to diversified, lower-risk investments for most of your wealth and seek trusted advice from a financial expert who can help you assess your risk tolerance and evaluate possible investments

Step 6:    Create automatic savings

Saving money may seem difficult at first, actually, for some, it never gets easier but automatic savings are a great way to overcome that challenge

With an automatic savings plan, you just have to handle the initial setup and the rest will take care of itself.

Automating the process takes the guesswork out of saving, so it’s goodbye to the struggle on whether to save 5% or 10% of your income in that month.

There is no second-guessing yourself so the process is effortless, the flow keeps moving and your savings grow unattended.

Setting up an automatic savings plan takes the guesswork out of saving each month. 

Using an automatic savings plan, you can put money aside effortlessly, and without thinking about it.

With an automatic savings plan, you handle the initial setup, and it’s hands-off the rest of the way.

Once you start automatic transfers, which might be made every week or two, you don’t have to give it another thought.

This can be helpful if you tend to second-guess your saving decisions, such as whether you actually need to save 5% or 10% of your income this month.

This way you can avoid doubting yourself and keep the savings flowing. Automating the process lets your savings grow unattended.

If you schedule the transfer around the time that your earnings arrive, the money for savings never really mixes with your spending funds.

If you want to pay yourself R8, 000 per pay period first, then whatever’s left over needs to cover the expenses on your budget.

Over time, you may get used to living on that smaller amount, making it easier to let your savings build.

In the case that you don’t have enough to cover those bills, then you’ll be forced to pick up a side hustle for extra income, to make up the costs.

By paying yourself first, you guarantee that saving is a priority.

Doing the opposite will destine you for financial doom because what’s left usually isn’t substantial enough to help you experience financial freedom.

Step 7: Negotiate

South Africans are a proud people, but sometimes our pride stands in the way of a great bargain. 

Many South Africans are hesitant to negotiate for goods and services, worrying that it makes them seem cheap.

Overcoming this cultural handicap may lead you to massive savings each year.  

And no, I’m not talking about negotiating a lower price at the marketplace where small traders are already struggling to make enough to restock.

Negotiate better deals with your suppliers and service providers, small businesses tend to be open to negotiation.

Bulk orders and repeat orders can also open the door to massive discounts.

Why buy something for a higher price if you can get it for much lesser? Try your best to save money and take necessary steps to find a better deal without being manipulative.

And yeah. If you are at a really bad place and can’t afford to pay all your rent, trading propositions can work incredibly well for you.

Negotiate with your landlord to find out if they need help with anything, and offer your help in exchange for a fairly reduced rental fee.

Ideally a successful negotiation is one where you can make concessions that mean little to you, while giving something to the other party that means a lot to them.

Step 8: Continuous education

The world is full of educated people but very few are knowledgeable on personal finance. The majority of people complete their formal education never having taken a personal finance class.

This constraint can make you your own biggest obstacle to financial success.

Succeeding financially in today’s world is enormously challenging without some knowledge about saving, budgeting, investing, debt avoidance and repayment and taking advantage of tax-deferred accounts.

Educational resources like podcasts and seminars can teach you strategies that will bring you to financial freedom faster.

The more financial knowledge you have, the easier it is to make sound money management decisions.

Stay up-to-date with financial news and developments in the stock market and hesitate not to adjust your investment portfolio accordingly.

Knowledge is your best defence against predators who prey on unsophisticated investors, have it in excess.

Step 9: Live below your means

This is the most important step because every other stage ultimately depends on this one. Unless you fully commit to mastering this one, everything else is done in vain.

You have to get used to delayed gratification, sacrifice smaller pleasures today to enjoy greater successful freedom in the future.

Perhaps the most easily identifiable tradition of self-made tycoons is the habit of frugality. Do you really need that brand new car?

Do you really need to eat out 5days a week? How about cutting down on the shopping sprees?

Remember that your money looks better in your bank account than in your wardrobe!

Rich people are careful with every penny and every rand, maybe penny-pinching might be the key to your dream for financial independence. 

You’ll probably have to cut out every expense in your budget that is not absolutely necessary, and if possible, you can even reduce those that are.

The reason it’s so important is it’s the single step that will provide most of the spare cash you will need in order to accomplish most of the other steps.

Learning to live beneath your means is one of the vital costs of learning how to become financially independent.

And if you have not mastered this skill in the past, doing so will range anywhere from uncomfortable to downright painful.

By spending less, two things work in your favour. Firstly, you’ll have more money to set aside for your financial freedom.

Secondly, you’ll learn that you actually need a lot less stuff to survive, which also helps you save more.

Step 10: Get a financial advisor

You’ve worked hard to lay the right foundation, so don’t leave anything up to chance.  Setting your investments on autopilot is not an investment strategy.

While the idea of actively making decisions about your investments alone may seem overwhelming, they is no reason why you have to go through it alone.

An expert financial advisor is a perfect partner for your journey towards financial freedom.

Their expertise will help you navigate your investment options and brave the ups and downs of the stock market.

Having the right financial advisor can go a long way toward helping you achieve financial freedom.

Expert advice not only helps you build savings but advisors can also offer advice on investments.

Choosing a financial advisor is a critical step that should not be rushed.

Be wary of those who promise “get rich quick” strategies. Consider using an advisor who is financially remunerated for helping you instead of one selling a specific product.

Step 11: Proper Maintenance

Assets are a good investment but without proper maintenance, they may prove to be a liability.

Taking good care of property makes everything from cars and lawnmowers to shoes and clothes last longer.

The cost of maintenance is a fraction of the cost of replacement, and definitely, worth the time, effort and money invested.

Property that is kept in good condition either accrue value or depreciates at a slower pace.

If you ever have to sell the asset, it won’t be at a fraction of the price you got it for but you can make a good profit from the sale. Proper maintenance safeguards your investments.

Step 12: Take care of your health

Taking care of your health is just as important as every other step in this road to financial freedom.

Of what use is immense wealth or the most luxurious standards of living to a man in poor health?

In fact, poor health may undermine all your efforts to achieve success in the area of personal finance.

Imagine exhausting all your wealth on restoring your health when you could have just properly maintained it instead.

Obesity and ailments make insurance premiums skyrocket and poor health may result in earlier retirement with lower monthly income.

Some companies have limited sick days, making it a noteworthy loss of income once those days are used up.

Invest in good health with regular visits to doctors and dentists, and follow health advice about any problems you face.

Many problems can be helped, or even prevented with lifestyle changes such as more exercise and a healthier diet.

Conclusion

The road to financial freedom might be a challenging one but it’s always worth it. Don’t put it off for tomorrow, today is all you have got so make the most out of it.

The future might be a better place for you thanks to the decisions you make today. What are you waiting for? Get started on your journey. GOOD LUCK!!

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