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Your behavior towards money dictates how long it takes to achieve financial freedom. Our spending habits since childhood greatly influence how we rationalize our needs and wants. Taking control of our money is easier when you have a clear understanding of how to make wise financial decisions. 

Savings goal

I had my first bank savings account on my first birthday. My mom made it a point that all money gifts I received for my birthday and Christmas were deposited into my bank account. This practice has made me realize early the importance of saving money.  No matter what your age, it is never too late to have a savings goal. But the sooner you start, the better off you'll be. 

To start, you need to determine your short-term and long-term savings goals. Short-term goals include vacation trips, emergency funds, and personal wants while long-term goals are major home improvement, new business venture, and retirement.

Next, you need to know how much is your savings goal and how long you plan to achieve it. Always set a reasonable amount and time frame. The reason  people fail to meet their savings goal is due to the unattainable amount. 

Most people follow the formula: "Income - Expenses = Savings" while others believe that "Income - Savings = Expenses" is better because you already have a specific amount of money you want to save instead of relying on what's left after the expenses.  The latter works for me. It allows me to control my expenses because I already know how much I want to save.

To loan or to wait

In an ideal world, you pay cash in full when you purchase a house or a car. In the real world, we need to apply for a loan to acquire our dream property or vehicle we could not afford. The questions you need to ask yourself are:

  • Do I need to make this purchase right now?
  • Can I afford to pay the principal and interest?
It is important that you know your debt-to-income ratio. Knowing how much your cash inflows and how much of it will go to paying your loan will spare you from future debt problems. This ratio is also a basis for banks and lenders in granting a loan.

According to Consumer Financial Protection Bureau, evidence from studies of mortgage loans suggests that borrowers with a higher debt-to-income ratio are more likely to run into trouble making monthly payments.

I am very mindful of the total interest I need to pay over the loan period. This makes me opt to wait a few more months and save up. By doing so, I will only be borrowing less money and pay less interest. 

Swipe that card

Do you really need to have a credit card? The answer is yes and no. Owning a credit card is a big responsibility.  I had my first credit card when I was 24. Although I always pay my dues in full and on time, I had the tendency to overspend. It was only when I realized I was not fulfilling the savings goal I set that I started to change my spending habits. 

A credit card should be used to make your life convenient. When traveling, it is safe to use a credit card instead of bringing a lot of cash. But you also have to make sure that you will not go beyond your budget. Also, you have to be mindful of the charges you may incur if you pay late, make cash advances, or go over the limit. 

Having a credit card requires a great deal of self-control. If you don't have discipline, it will be very difficult to handle your finances. Before you know it, you'll be buried in debt.

The road to financial freedom

How will you know if you already have financial freedom? If you have money in the bank, a passive income, no burdensome debts, and can live the lifestyle you want, you have achieved financial freedom. 

You might ask "Is it possible to achieve financial freedom for anyone?"

I left my corporate job at age 30. After college, I worked for 5 years in the bank and another 5 years in a trading company. It was during my bank years that I learned how to save and became irresponsible with my credit card. The next five years were when I started managing my finances and then I retired. Here are some tips on how to start your journey towards financial freedom.

Do not live from paycheck to paycheck.  Setting up a savings goal is crucial. Wouldn't it be nice to accumulate a huge amount of money to be able to quit your job forever and pursue your passion? Spend less. Avoid buying things that will just take space and not add value to your life. Instead, purchase a seat on courses about investments, money management, and finance.

Change your attitude towards money. Money is not the root of all evil. Never feel guilty about earning as much as you can or spending as little as possible. Money is good for you. It is a tool that opens doors of opportunities and enables you to live the life you dream of. 

Keep the money coming in. No matter how much money you were able to save up if you have not invested in something that will replenish the money you spend, your pocket will soon be empty. Turn your passion into income. Have a side hustle. Or have something that brings in money even when you are sleeping.

Starting your journey towards financial freedom can be overwhelming. You will need some time to get used to the changes in how you handle your finances. Whenever you feel sidetracked, remind yourself of the personal priorities you set and the progress you have made to reach your financial goal.