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Having enough money to do the things you want to do while covering your expenses is just the first step to financial freedom. The harder part is understanding your relationship with money; what motivates you to save and what triggers spending. Interrogating what would make you feel content financially within a reasonable framework is the first step to achieving it and financial freedom.
Tim Modise is with Candice Paine bringing you another Satrix Podcast. Candice this time we’re talking about financial freedom.
Hi, Tim – thanks so much for having me. It doesn’t however mean being extravagantly wealthy – flying around in private jets and holidaying on long forgotten islands.
Financial freedom really means having an understanding of the money that you have and where it’s going. Are you spending it on the things that are important to you or are you spending it frivolously. What it ultimately means in your life is cultivating a solid foundation by spending less than you earn. Getting out of and staying out of debt and in one of our podcasts we spoke about good and bad debt. You may want the good debt but not the bad debt. Saving, investing wisely, and lastly investing in yourself, so that you can earn more, save more but also ensure that you are happy and content, so when I say it’s a big topic – it really encompasses a whole lifestyle.
But where do we start, really? I mean we’ve given advice over a period of time, for someone who has never really done it at all. How do you make the first step?
A budget – the first thing you need to look at is where’s my money going to? Do I know what I’m spending it on? Many people have no idea where their money goes to and by halfway through the month – the money is gone.
Financial freedom is really about behavioural finance. It’s a psychological concept. It’s my relationship with money. What motivates me to spend it? What stops me from saving it and what I want long term? So it really is deferring that instant gratification that we are all subject too in a modern lifestyle and being able to get to grips with your finances, and making sure that the lifestyle that you create for yourself is supported financially, through the way you look after and nurture your own money.
I want to go back to the concept of freedom, financial freedom. That when do you know that you are financially free? I suppose from a psychological point of view, once you can conceptualise how that freedom looks like and feels like then you can work towards it but if it remains just an idea, a hazy idea, it is very difficult to work towards.
It is, and freedom means different things to different people and it really hinges on contentment and understanding yourself, which is why the last point in financial freedom, I think, or should be the first point is investing in yourself and understanding your own relationship with money and when enough is enough.
Yes, we would all like to be as rich as Warren Buffett but that’s probably not going to happen, so looking at your finances, looking at your budget, knowing that you have money to spend on the things that you want to spend it on, the things that are important to you. Not the peer pressure items, the labels, and the fast car – those things may not be important to you.
If it is important to you, then financial freedom is a very different thing for you, versus someone who is very happy to drive an eight-year-old car, but goes on holiday twice a year, so the other thing about financial freedom is, know that being financially free is not normal. Most people spend more than they earn and there’s peer pressure out there. The minute you say to your friends, ‘I’m pulling the reigns in’. ‘I’m not spending’. ‘I’m not updating my wardrobe, my car, or my house every year’ – it’s going to be hard for you to stick to your knitting, so that’s where you need to have interrogated and really understand your own psychology around money.
I think there was also another point I’m raising here with you. I want you to explain it for me, is that we must remember when you are young – you are still energetic and job opportunities or business opportunities are many, and when you get older, you get closer to retirement age. So you must consider the fact that you’ll not be drawing in any income, as you get older. Therefore, that must be a consideration as well.
It absolutely must be a consideration and so the sooner you start thinking about your retirement and what that looks like, and what you’re going to need for retirement, the sooner you will start investing. You struck on a very important point there – energy. As you get older, your energy does wane and your capacity for work wanes, so you need to have a nest egg, at that point, to support yourself to maintain your financial freedom.
Candice Paine – thank you very much for talking to us.
Thanks Tim.
See also:
#JUSTSTART The power of compounding and why you should save
A unit trust or an ETF – which one do I choose? Satrix explains
Satrix: What is an asset class and how do you choose one?
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