Heed these tips to get started on the right financial path (and stay there).
While money can certainly buy plenty of things, it offers something far more valuable than tangible stuff: freedom and choice. The more money you acquire and properly pour into channels that can support you now and into the future, the more freedom you have to make choices based on desire — not financial obligation or necessity.
If you want the option to trade in cubicle life for self-employment, kick your roommates to the curb, or maybe even afford oceanfront real estate in Naples, FL, financial freedom clears a space for you to seriously consider your options. But getting there means ditching all the not-so-great money habits you’ve acquired and picking up the good ones you’ve been avoiding. Here are a few things that could be inadvertently stripping you of your ability to grab financial freedom by the horns.
1. Not knowing your cash flow
Money management can seem complicated and, in some respects, it is. But one of the most important steps to taking control of your finances is actually quite simple: mapping out and understanding your cash flow. Without this, you’ll never be able to formulate a stable financial plan.
“Once you understand the flow of money, you can better control the expense side,” says Eric Roberge, certified financial planner and founder of Beyond Your Hammock. “The goal here is to consistently have ‘extra’ money at the end of the month that can be put toward your goals of saving, paying down debt, traveling, investing, et cetera.”
2. Not treating your savings like a bill
If you’ve ever been told to “pay yourself first” and been puzzled at the prospect, here’s the gist: Contribute to your savings goals (both short- and long-term) just as you would any other bill.
Treating your savings as a holding ground for monthly leftover funds means your discretionary spending will likely be far higher than it should be and your savings rate far lower than it could be. Removing money from your available spending bucket at a predetermined rate on a predetermined day each month ensures your impulse spending doesn’t get the extra padding your savings should be getting.
3. Not taking a big-picture view
There’s a reason fad diets don’t lend themselves to sustainable weight loss: Extreme action plans require more willpower than most of us have. Lifestyle changes with a big-picture view — in weight loss and money management — are more likely to result in lasting change and better overall results.
Pam Capalad, a certified financial planner and founder of Brunch & Budget, sees this as one of the biggest hurdles people face in achieving financial freedom. “Because you didn’t put in the time or work to change your habits gradually, you are constantly fighting your willpower to maintain the lofty goals you set for yourself,” she says. “That’s why it’s better to start small when it comes to habit change.”
4. Not seeking financial knowledge
The personal finance world is complex and filled with lots of opinions. Unfortunately, most of us weren’t schooled on how to get a mortgage or how to create a sustainable budget — these are things we must learn, either through expensive trial and error or by seeking out information on our own. If you aren’t a regular knowledge seeker, it’s easy to resort to inaction or act in a way that is harmful to your finances in the long run.
“By having a basis of financial knowledge and a clear understanding of your goals, you’ll be able to navigate through all the noise and choose the advice and knowledge that works best for your situation,” explains Capalad.
5. Not setting financial goals
You probably wouldn’t jump in a cab without knowing your desired destination. Establishing a financial plan without goals in mind is the same thing. Roberge is a firm believer in financial goal setting. “It’s amazing how writing down specific financial goals can act like a compass for the actions you take,” he says, and adds that saving a certain amount per month towards a target down payment is a great example. “You may or may not achieve the goal by the date you set, but I guarantee you will be further along the path to financial freedom if you take the time to create the goals in the first place.”