Financial Independence: Take that step now
Being financially independent sounds great, however many people have not yet figured out how to attain it. In simple terms, financial independence is about reaching a point where you can live your life the way you want to without having to work or to be dependent on other people. Getting to this stage is not easy and careful planning is needed early in our lives.
If you consider yourself illiterate in terms of finances, then you are not alone! It does not matter if you have just started earning or have been earning for a long time, every day is a chance to improve your financial position.
A study by the Financial Industry Regulatory Authority (FINRA) revealed that only 34% of individuals in the U.S. have a sufficient understanding of financial literacy whilst 46% of individuals lacked rainy day funds. These numbers are somewhat difficult to digest considering that the U.S. is one of the more financially mature countries in the world. This is an indication that there must be a greater effort from the average person to acquire an understanding of personal finances. Financially literate individuals are equipped with skills that help them make smart financial decisions for themselves and their future generations.
We now live in an age where young people are earning money through the rise of social media channels like Tiktok, credit is readily available and being offered by non-banks, investment options are unconventional (Cryptos), and spending is impulsive and easy, and driven by a YOLO (you only live once) mindset. Whilst the challenges of keeping your finances in check just got a whole lot more complicated, the 5 principles of financial literacy (earn, spend, save, and invest, borrow, and protect) are still valid today and should be clearly understood.
A starting point will be to emphasise the inclusion of financial education at an early stage in schooling. This is a great opportunity to instil the key fundamentals at an early age. This responsibility also lies with parents to invest time and effort to firstly, understand money matters better themselves and then impart this knowledge to their children.
As a start, there are many ways to practice good financial habits within your household. Tracking spending of all family members, introducing family saving plans for special events, setting up budgets, and even trying out mock trading games are simple ways to get the family thinking about finances. These activities can help you start getting a grip on how efficiently you are managing your money.
The next step will be to start planning for your future. Whilst most working people have some form of a pension fund, quite often this is insufficient to maintain the level of lifestyle you may have become accustomed to. This means you will need to look at making further smart investments to secure a pleasant future.
Choosing the right investment choice can be a daunting task for most people since the market is flooded with investment options.
At this point, you could consider getting the help of a financial advisor to guide you make the best investment decisions. These individuals are skilled in the various saving options, investment vehicles, and channels out in the market. They understand the risks and opportunities in the market by making use of popular investment research tools like EquityRT, Bloomberg, or Refinitiv.
Once you have a solid grip on your current spending and budgeting activities and have long-term investments in place you will be a step closer to being financially independent. Whilst the month of April is the month dedicated to Financial Literacy awareness, this should not stop us from talking about and encouraging the topic of financial literacy throughout the year.