Reaching financial security and freedom is a worthy goal for any young family, but who has the time? I have come up with these 7 simple steps, and while it requires some discipline and planning, importantly it should not take that much of your very busy time, otherwise it will just fall by the wayside.
1. Set Financial and Life Goals: define clear financial and life goals and create a roadmap to achieve them, or better still, get someone to help you. Whether it’s saving for a deposit to buy a property, reducing debt, funding your children’s education, or reaching financial freedom early, having specific targets will keep you focused and on track. Align them with your lifestyle goals (as it should never be about just money in a bank account), such as travelling to Italy for 3 months every year, as this will make the goals more realistic and far more motivating.
2. Create a Budget: most think of budgeting negatively as we feel it will stop all the fun stuff. Definitely not, as it’s more around just understanding where you are spending your money, as we simply don’t keep track anymore (especially with ‘tap and go’ available in most places). Once you understand your income and expenses and where it’s going each month, you then have the control and can make spending and saving decisions with authority.
So the first month’s budget will take some time, and whether by an app, excel or through your bank (as most categorise your expenses now), categorise your expenses and then separate into necessities, savings, and discretionary spending. Once this first step is done see what unnecessary expenses you have, such as how many times you catch an uber or taxi, or order takeaway or do you know how many streaming services you pay for?
The following months will be a lot easier and again you now can make decisions based on what you have learnt about your spending habits. If you need more help, our Money 101 online course is all about getting control of your cashflow and will help you each step of the way.
3. Build an Emergency Fund: set aside an emergency fund in a separate bank account equivalent to 6 months’ worth of living expenses. This fund acts as a safety net during unexpected financial crises, which will prevent you from going into debt. The pandemic was a great example, as so many people needed to dip into their super to get them through.
4. Save and Invest (today!): once you have a emergency fund setup (see point 3), consider making a set saving amount to an investment account by paying yourself first each month. Options are high interest accounts, insurance bonds or managed accounts and if you have a long-term time frame, look at a diversified investment portfolio such as an index share fund. Compound interest and getting your money working harder for you, can significantly accelerate your wealth growth over time.
5. Eliminate High-Interest Debt: the biggest ‘money stress’ issue for most people, especially young families, is feeling overwhelmed by the amount of high interest debt they may have. So work out how much you can spare each month to pay off any high-interest debts, such as credit cards or personal loans, as quickly as possible. High-interest debts can become a real burden on your finances and substantially delay your progress towards financial freedom.
6. Consider Multiple Income Streams: financial security and freedom is rarely achieved early by just earning a salary. To me, the number one tip to reach financial freedom sooner is to consider opportunities for additional passive income streams, such as an investment property and shares. That is income streams such as rent or dividends which are being provided without your personal exertion (and why it’s called ‘passive’). While other income streams such as starting a side hustle or freelance work would also provide additional income streams, but for most young families you just don’t have any spare time to consider this as an option.
7. Educate Yourself, your Family and use Coaches: it’s different to most of the 20th Century where parents instilled the benefit of saving in a bank account, keeping debt to a minimum and owning your own home, and for most that was enough. But with home ownership becoming increasingly more difficult – average cost of home was 4 times salary in 20th century compared to 12 times salary for 21st century, we need to think differently and consider opportunities such as building passive income streams, understanding shares, saving and compounding interest.
You also need to help educate your children and teach them the value of money and get them into good savings habits as early as possible. There are some wonderful programs such as MoneySmart (ASIC), Kit (CommBank) and our own website that has plenty of resources to help educate yourself and your family.
Lastly you don’t have to do this all on your own. There are coaches to help you on money, property, debt management and lifestyle, and so if you need more help or don’t have time yourself, make use of the options available to you and your family to help educate yourself further.
Remember, achieving financial security and freedom takes some time and patience. Stay committed to your goals and adapt your strategies as needed. Importantly seek advice from financial experts if necessary, and stay focused on building a strong financial foundation for your family’s future. Your future self and family will definitely appreciate it!
Article by Marc Bineham – Money coach, speaker and award-winning author of The Money Sandwich