Simple steps for people who want financial freedom

Do you have a budget, insurance, pension or savings for an emergency? It's never a bad time to get your finances in order.

Below is some useful information to help you on your road to financial freedom.

Growing money

Financial goals

To become financially healthy, don't underestimate the importance of setting financial goals. If you fail to do so, financial stress can consume you and this can make you feel like money controls your life. Money should be a tool used to maintain and support the lifestyle you want to live, not your main worry every day.

Financial health is not about how much you earn, but rather a state of financial well-being and how you use your money. This is different for different people, but the principle remains the same. Becoming financially healthy is not a once-off event, it's a series of small financial steps and decisions, which over time become valuable.

Everyone has their own financial goals and because we are all different, someone else's goal might not make sense if you are unable to relate.

Save

Save towards financial goals- the sooner you start the better. Save in accounts where you earn interest on the amount invested and see your money grow. Identify the savings account and what you are saving towards to keep you motivated. You can save towards a holiday, retirement, emergencies. Be mindful however, of the effects of inflation, which can make your money loose value. Careful investments might be another good alternative to saving, but speak to a financial expert before you do that.

Create a money plan

Create a money plan

What do you want to do with your money and by when do you want to do it?

Decide what you want and then work out a plan on how to spend your money and what you have to do to reach your goals. When you create your money plan, make sure to split your goals into short, -medium- and long-term goals.

Reduce expenses

Cut down on costs as much as you can, try to negotiate lower prices and save where you can. To avoid overspending and to get a good idea of your spending habits, create a budget and track your money. Keep a record of money that comes in and money going out of your account.

Manage credit well

Using credit wisely and responsibly is an important aspect of gaining financial health. Before taking out credit, make sure that you understand how it works, the charges you will incur and the best ways to pay it back. Calculate the total cost of credit when deciding if you can afford it. Also make sure that you know how credit affects your credit profile and know the difference between things like simple and compound interest, debit, and credit, etc. Being clued up on financial terms is a good step in the right direction, so get educated on that.

Consider these two methods of paying your credit off and decide which is better for you:

Snowball method

Once you’re ready to commit to the debt snowball method, start with these four steps:

List all your outstanding debts.

Arrange the list from the smallest outstanding balance to the largest outstanding balance.

Tackle the smallest debt first, regardless of how much the interest rate is. Be sure to make at least the minimum monthly payments on all accounts, then put any extra money toward the smallest debt.

Keep the snowball rolling. Continue making extra monthly payments on the smallest debt until it’s zero. Then, move to the next smallest debt. Again, keep making minimum payments on your other debts. But now, assign the extra money to the new lowest debt.

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The Debt Avalanche

The debt avalanche is another system for repaying your debt. With this strategy, you again take stock of all your debts and list them out — but this time, you’ll order them by interest rate.

List them out in order from highest interest rate to lowest (regardless of balance). Then you’ll work to repay the balances in that order, taking out the loan with the highest interest rate first, then the second highest, and so on.

The only difference from the debt snowball is the order in which you repay your loans. The biggest advantage to the avalanche is, from a mathematical standpoint, you come out ahead because you’re getting rid of your most costly loans first. Because you’re knocking out loans by interest rate, you’ll gradually pay less in interest over your repayment period.

Consider these key elements of financial health:

Security - Control your daily and monthly spending (spend less than you earn. -Develop the ability to cover financial emergencies without having to make debt. (Example repairs, Medical, temporary job loss). Freedom - Capacity to save towards financial goals without neglecting current financial obligations. - Freedom to make choices that help in enjoying life.

You can also read my blogs on Daily habits of most successful people , 10 Things I wish I knew before 30 , 16 Important financial terms everyone should know but don't understand.

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Disclaimer: I am not an affiliate of Capitec and do not receive any reward for referring to their site. The purpose is merely to aid better understanding in the topic.

The information provided does not replace advice from your financial advisor. Use it as a guide, but if in doubt, rather follow the advice of a registered advisor if you can afford to have one.