Achieving “financial freedom” can take different shapes for different individuals, but most often goes back to giving people the power to have full autonomy over their life without the need to be concerned about their finances or having to cautiously look at their bank balance when funds are required.
In this respect, the key component of achieving financial freedom is firstly to receive the right advice. And this requires the assistance of a competent and qualified adviser to guide individuals through the various economic cycles and stages of life, taking the financial stress away from their day to day.
‘Failing to prepare is preparing to fail’
As famously quoted by Benjamin Franklin, preparation is key and the first step towards financial freedom is to set defined goals, no matter how big or small. Management of Clients’ expectations must be maintained, and focus should be solely placed on reaching performance goals set from the start of a relationship. Most individuals will have both short- and long-term goals, and each one should be considered in the initial financial assessment conducted by the adviser. Often, the most common short-term goal will be to purchase a property, while long-term objectives will largely be achieving a comfortable retirement.
Once these goals are set out and clearly identified, it’s important to break down the main objectives into shorter chunks of time to set intermediate goals. This can be through quarterly, monthly, or even weekly budgets which provide opportunities for both advisers and individuals to fact check their progress and readjust targets if necessary. Those who are serious about their financial future will monitor their spending in order to stay on track with their pre-set targets. However, achieving smaller milestones along the way can be a real motivator for people, and provide an opportunity for advisers to test their progress.
Directing money to optimise value
While it is fantastic for people to be able to save money, it is equally important to direct that money into the right places. Once again, receiving the right advice from an expert with understanding of the end-goals and the best ways to achieve them efficiently is a real advantage. This is especially the case as options vary from one individual to another. This can include putting part of your savings into an ISA, creating an investment trust for the children or diversifying portfolios to reduce risk.
~Novel Serialisation: Heavens Fire~
That being said, getting to that financial position requires that any high-interest debts are paid off as early and quickly as possible to minimise unnecessary expenditure in the first place. For those who are able to, once the slate is wiped clean, the journey to investment can then start.
When possible, it certainly pays to begin investing sooner rather than later due to the massive effect of compounding returns over time, where an investor can obtain interest on their existing interest. But maintaining a good credit score is also becoming increasingly important, especially as borrowing and leveraging are now great tools to grow overall wealth. Individuals looking to optimise success should look to continue to build and monitor their credit score as early as possible with their future goals in mind.
Securing the future
One of the common mistakes made by novice investors is to place every bit of spare cash they have into the market. In fact, it remains critical for individuals to maintain a cash reserve as security in case of any unforeseen circumstances or change in situation. This will help cover against changes in health conditions, later life assistance or needs, changes of home or renovations for example. As such, having an emergency financial cushion to fall onto can allow individuals to remain invested in the achievement of their long-term goals, without being forced to sell out of a position for unexpected boiler repairs for example.
When looking to achieve financial freedom, the challenge often lies in the fact that plans are made in one dimensional aspect with focus either set on tax efficiency, retirement planning or investment options for example rather than as an all-encompassing process. However, it is important to undertake a comprehensive financial review with a professional in order to gain a holistic view over the current position as well as to set out the next steps to achieve their financial goals. This includes exploring an array of asset classes such as property, pension structures, ISAs, IRAs, stocks, shares, bonds, state provisions and alternatives which advisers can go through to ensure they are on the right path to achieve full autonomy and comfort when it comes to managing money.
By Chris Griffins, Private Wealth Adviser at AHR Group
