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8 Healthy Financial Habits To Build Your Financial Freedom Fund

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As our lives gradually regain some normalcy after years of restrictions, many businesses too are starting to get back on their feet and (hopefully) make up for lost time.

Most of us, whether salaried employees or business owners, were likely to have our income streams affected to a certain extent during the Movement Control Order (MCO) period of limited operation and closures.

At the same time, we are also concerned with the state of our financial situation especially if we have dependents, fixed commitments and stacks of bills to pay at the end of every month.

During trying times like these it is natural for us to imagine a future where we do not have to deal with the daily stress and pressure of depending on continuous monthly income just to ensure that household expenses are covered.

If only we could be free of financial burdens, then our lives could be better spent with our loved ones, sans the worries and sleepless nights thinking of bills and more bills.

Many may wonder how would it be remotely possible to one day achieve financial freedom when there are countless other pressing financial issues on the table that need to be dealt with, particularly in the aftermath of the MCO.

One thing is for sure; financial freedom is not an overnight transformation, neither is it going to happen by chance such as striking a winning lottery ticket.

We Will Bounce Back Stronger

It will take time and there are no guarantees that the process is going to be a bed of roses without sacrifices along the way. But with the right mindset and attitude, financial freedom is an attainable goal for more people than you would imagine.

However, before you attempt to dive headlong into it and say “Tell me the 5 things I need to do to achieve financial freedom”, I have to be upfront that there is no standard magical formula because financial freedom means different things to different people.

Therefore, you need to first understand what financial freedom means to YOU, then and only then can you chart your financial path towards that goal by implementing good long-term financial habits.

While financial freedom may have varied definitions for every individual, there are a few common ones that many of us share, such as:

1. Having sufficient assets or income to support your expenses and financial goals  

2. Having assets that generate sufficient income to cover expenses

3. Not being dependent on active income generation

4. Doing what you love (for passion) rather than working for money

You may find that more than one definition of financial freedom relates to you which you wish to achieve, and that is perfectly fine as these goals are not mutually exclusive. Many individuals have a combination of financial freedom goals to aspire towards, sometimes at different stages in their lives.

Having identified what your financial freedom goals are, the next critical step is to determine your financial freedom number. This refers to your targeted financial freedom fund amount that you require in order to achieve your set goals.

Knowing what number is right for you and why it is so is important because the number is, by all accounts, a goal in itself and should be one that is specific, measurable, achievable, realistic and time-bound (SMART).

The way to go about determining your financial freedom number is by asking yourself these few questions:

a) What kind of retirement lifestyle do you aspire to have?

While typical idyllic responses tend to be “travel the world”, “play golf daily” or “look forward to grandchildren”, don’t forget the potential scenarios that are closer to home such as:

  • Any outstanding loan commitments? You may want to replace your executive sedan with a more fuel-efficient vehicle, so don’t forget to factor in a car loan if any.
  • Will your children have completed their university education by then and be able to start working? Best be prepared that fresh graduates may not be able to find a suitable job immediately and you may be required to help support them for a little while longer.
  • Any plans for home renovations or modifications to make it more senior friendly?
  • Additional health-related expenses that you may not be spending on now but are likely to do so in future, such as comprehensive medical check-ups or procedures that may crop up eventually like cataract operations or joint replacements.

b) What is the cost of that retirement lifestyle in today’s value?

c) What will it cost in the future, after factoring in inflation?

Once you have a financial freedom number with a big red bullseye painted on which may be cause for concern because as far as you are aware, all they money you currently have in your savings, EPF, insurance and retirement fund is not even close to that amount. 

But you still have an advantage in terms of time which is why the sooner one determines his/her financial freedom goal, the better.

With more time ahead of you, funding your financial freedom is doable and the best part is that you will be in better control of how you want to achieve it. You will not have to subscribe to any “Secret tips for financial freedom” by a glorified money guru telling you to invest X amount in this, buy Y worth of that, etc.

A viable way to fund your financial freedom is by adopting the following 8 healthy financial habits and values that have been tried and tested:

#1. Automate your savings and invest in diversified investments instead of going for the ‘hot’ market investment ideas;

#2. Aim to increase your savings rate every year to correspond with your salary increment;

#3. Be mindful of personal lifestyle inflation where there is a tendency to upgrade your lifestyle at the expense of savings which should be the priority;

#4. Avoid falling for the herd mentality when societal and peer pressure influence your spending decisions. Financial matters are personal and should not be a reason to keep up with the Joneses due to fear of missing out;

#5. Pay attention to good debt vs bad debt when making investments to identify which has the potential to appreciate, for example taking a car loan vs an education loan to upgrade your skills;

#6. Diversify your income streams so that you do not become over reliant on any single source;

#7. Optimise your time well to maximise productivity. This means consider monetising your free time whilst in pursuit of your interest. For example, if you love to paint as a hobby, why not put your works of art up for sale?

#8. Leverage on the expertise of others. If you find yourself too busy or lacking sufficient technical know-how to manage your financial affairs, it is good to seek advice from the professionals. Just make sure that you select the right person to speak to, one who is knowledgeable, trustworthy and reliable.

The key to achieving your target financial freedom fund (which also translates into meeting your financial freedom goals) is to start by incorporating the right behavioural changes when it comes to making financial decisions. You will soon see that it is not an impossible dream to achieve that target number after all. 

In fact, you may even discover that by consistently practicing these 8 healthy financial values in the long run, the finish line of your financial freedom marathon can be nearer than you think.

About the Author:

Felix Neoh CFP CERT TM is the Director of Financial Planning at Finwealth Management Sdn Bhd and is a certified member of FPAM. He can be contacted at enquiry@finwealth.com.my

We at Smart Investor and Finwealth is committed to help you better manage your financials. Get a free consultation from an expert by filling in your details here: https://www.smartinvestor.com.my/SIxFinwealth

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