There are many different factors in having a successful financial situation. In some cases it might be a matter of doing the right things, while other times it’s a matter of avoiding mistakes.
I have been targeting financial freedom in the future - and have been taking some actions to help get there. Based on these actions as well as observing others, discussions with a few folks who have done it, and reading about the journey, I’ve compiled a list of things we can do that can clearly help.
Invest Wisely in Education
I know some people will immediately disagree, saying:
a) Formal education is overrated these days
b) Education has become way too expensive
c) Both of the above
Okay, fair enough. I can agree to some extent with the notion that education has become extremely expensive, and that too many people have taken out student loans that could cripple them. In this case, it’s a matter of avoiding mistakes as we discussed above.
But education is not overrated. I’d say that in a shrinking world, education has become even more important. Here in the U.S., simply having a college degree a generation ago pretty much assured most people at least a modest middle class income. Not the case today. Now I think it’s more of an entry ticket than anything else, to have an undergraduate degree.
So while no education can be limiting, and an overly expensive education can inhibit wealth creation and create debt burden, it’s different for the right degree from the right school. In those cases, education and net worth go hand in hand.
Keep on Learning
Okay, a formal education is important. We already talked about it! But I’ve come to believe that it’s more important than ever to keep on learning.
When I came out of undergrad some years ago, I didn’t quite get this right away. My approach was along the lines of thinking that education was done, and that the rest of my learning would be “on the job”.
The reality is that I ended up going back to graduate school, so the formal education didn’t end. More importantly, I came to learn that we have to do more than learn in the office. We need to constantly keep current and aware of trends, changes in technology, shifting markets, etc. The rate of change seems to be higher than ever, so we have no choice but to keep learning!
Cultivate Marketable Skills
I think the foundation of this might be one’s education, and a big part of it would also be the notion of continual learning. That said, even if we know how to learn, we have to translate it into something that generates value. Making sure that we have actual skills that are marketable is a way to ensure that we have income.
After all, we can’t save much money if we aren’t making money!
Build Your Network
It’s pretty hard to be a lone ranger, unless a person has absolutely extraordinary talent. My observations have been that connecting with others and getting to know people at some level can really help with one’s career or entrepreneurial ventures.
People are often inclined to help those who they like, and also who might be able to help them someday. Whether at work, in your industry, or with people in general, it’s good to build your network. Not just with volume, but with quality relationships with people where each person values the other.
Doing what’s expected of us in a given role is often enough for us to stay employed or keep customers. For a while.
To insulate oneself and actually thrive, it’s great to go beyond what’s expected. I’ve noticed that people who do that tend to not only survive but also have a reach chance to see accelerated growth.
Generate Multiple Streams of Income
This is all the rage in personal finance circles, and I tend to agree. Getting several avenues of cash inflow can be a great way to avoid losses (as in Buffett Rule No. 1 don’t lose money) due to the loss of a single income stream. Moreover, it can be a great way to add on to the primary source of income. All this being said, we need to be careful to prioritize our time to focus on what’s most important. The Pareto Principle and money go together, and applying 80/20 to our income efforts is key.
Being a sports fan, I’ve seen so many examples of players that had all the talent in the world, but just couldn’t put it all together. There are innumerable instances of players who were actually overlooked or underrated, but ended up being all-star or hall of fame players. These guys just wanted it more. They outworked the others.
It seems like this is the case with many careers. While this guarantees nothing, it can be said that pushing past frustrations and really working hard and smart can often be enough to put someone over the top. It can be a differentiator.
Differentiate Needs and Wants
In my suburban locale, I need a car. However, I don’t need a really nice car. I want one, but I don’t need one. A roof over my head is needed, but buying a dream home is an example of focusing on something that is simply wanted but not needed.
Keeping this in mind, we can save that cost difference between the wants and needs. It helps to think of opportunity cost, and consider that saving $1 today could really mean saving $5 down the line. After all, if we take our savings and invest it, we would hopefully see it grow to much more in the future.
Save a High Percentage of Income
When younger, I saved money regularly. However, I was never one of those super savers who pocketed 50% of my pay. If I had been, financial freedom might have been much, much closer.
You know, it just makes sense. The more you save, the more you will have for retirement. Simple, right? But so many people don’t save at all, and many just save 5% or 10% of income. While it’s not so easy all the time to get out of decisions that might have already been made, it’s good to always strive to improve.
Start to Save Early in Life
The more money we can save when younger, the better off we are. I know a lot of people advocate living it up and taking risks when young, but I think it can really pay off later in life if you save as much as possible as early as possible. How many people, when older, wish they were more careful with their money when younger?
Focus on Rate of Return
This doesn’t mean obsessing over getting the best rate of return at all costs. Rather, we should at least make sure not to ignore the importance of it. An asset allocation that’s overweighted in “safe” investments such as cash or savings accounts
Sometimes it just takes one or two mistakes to wreak havoc with one’s finances. When it comes to investments, competitively chasing high returns while ignoring risks (as noted above) can be dangerous. However, there can be other risks. Some are personal, such as driving safely, marrying the right person (not divorcing), and the like.
Other risks can be mitigated to a large degree by insurance. This is an area that many people just check the box and move on, but it can really pay to review your coverage and make sure that you have made the right choices. Thinking in detail about your financial risks, based on your life activities and structure, can serve as a starting point for a personal audit of your insurance needs.
Just doing all these things noted above can put someone on the right track. But like anything else, it helps to know where we want to go. At least for me, it helps to set goals.
I like SMART goals. These are specific, measurable, attainable, relevant, and timely.
I know someone who sees things as a zero-sum game. He’s quite successful professionally, and even in some ways personally. A good guy, but always skeptical if anyone wants anything from him.
If he just saw that helping others proactively is not a waste of time, the sky would be the limit for him. Often times, it doesn’t really hurt us to give and try to help others. There are instances when it just might be the right thing to do. Anyway, good deeds and a positive approach can result in that clichéd “good karma” that can benefit us in the future.
If we don’t keep ourselves healthy, it can impact our ability to get wealthy. If we aren’t healthy enough to work, we’ll have difficulty making money. Even if work isn’t directly impaired, having health issues can cause our focus to be diverted and priorities refocused from making money to simply dealing with problems. Not the way to reach financial freedom!
Best to eat well, exercise, manage stress, and sleep regularly. I was actually pretty good at all of this when younger, but got away from it as I entered my 30′s and became a parent. It happens. But lately I’ve been refocusing on health and looking at life as a system, with health, wealth, and relationships all intertwined.
My Questions for You
Which of these steps do you follow?
Are there any that you think are particularly important, more so than the others?
Do you have any others to add?