Mastering you is probably the most important ingredient in your recipe to financial freedom because without the knowledge, skill and proper mindset, it will be hard to create the lifestyle you want to live.

“Money is just an input. You need to give money leadership and direction - just earning it isn't enough,” says Ann Wilson, best-selling author and founder of The Wealth Chef.

Speaking at the Financial Freedom University Live event in Cape Town recently, Wilson said being financially free means that you have assets, investments, investment properties, stocks and shares and low input businesses that can earn income that pays for the cost of your chosen lifestyle, so you can choose whether to work actively or not.

“It's important that you are clear on what your lifestyle cost you, because the higher the cost of your chosen lifestyle, the bigger the amount of investments and assets you will need to be financially free,” she says.

For example, financial freedom for the Does – a self-employed couple with three children who barely manage to survive the month on their income – would mean having some alternative income sources over and above their self-employment earnings that would flow in consistently irrespective of whether they were working or not.

“This would be in the form of say income from shipping containers or vending machines that earned income for them day and night; an investment property funded from an alternative source, but they get rent back; or dividends from stocks and shares.”

On the question on how the Does can break free if they can’t even save for a weekend away, Wilson said the reality is that every single person can break free.

MONEY MANAGEMENT

“The first thing is we have to know what freedom is. We need to know that it's created by a set of habits and behaviours and it's about learning how to manage money. How to keep some of it in our lives and how to convert it into assets.

“We can also create assets without having to have money, so there are a lot of money myths around, like ‘Oh, it takes money to make money’ and ‘We've got to earn a lot of money’.

“The biggest challenge for the Does to break free is that they need to believe that they can change this reality and break out of what is a faulty money flow and not a cashflow issue. They've got to learn how to keep some of that money they make. They must start by making their financial wellbeing a priority”

She says the Does can start by knowing where their money's coming from and where it is going to – basic money management. “You cannot start any journey without knowing where you are starting from. And this comes with understanding your money flow. What are your income sources? Where does it come from? Is it seasonal? How much does it go up and down by? Then, where does that money go to. What are your expenses, are you really getting value from those outflows and are you paying everything else first rather than your freedom?”

Wilson says you need to understand that you create your financial reality when you choose how to spend your money, not how you bring it in. “So, if you're paying for say, a DStv subscription before you're paying for your freedom, you need to get your priorities straight.

You must really look at your expenses like your medical insurance and ask yourself: ‘Do I need a full blown, fully comprehensive insurance or do I just need a hospital plan?’ Your short-term insurances, have you negotiated on these? Get new quotes every single year. The point is, know where your money is going and it's your responsibility to get the value.”

CREATING ASSETS

The next step is starting to create assets. “It's really important to understand it's not about how much you invest, it's the actual doing it that matters. It's the habit of starting to learn how to create assets and consistently investing that makes all the difference,” says Wilson.

According to her you can invest in an index tracker investment in a tax-free investment account from as little as R300 a month. “This is getting your money invested into a simple portfolio of index tracker stocks and shares that can start working for you, using your tax-free allowances. Also using a retirement annuity and tax-deferred allowances. But the important thing is understanding that you can get assets for a small amount of money.

“You must start now, whether you believe you have the money or not, because here's the thing: if you wait until the end of the month to see if anything's left to save and invest, there never will be any spare [cash]. So those are the very first two actions that need to happen with money. Putting at least 10% aside for savings to spend later and 10% into asset creation.”

BLITZING DEBT

On debt she says the first most important step in getting rid of debt is understanding that no form of debt is ever going to create wealth, no matter how much you've been told that wealthy is about owning stuff. “Any kind of consumer debt is just going to take you further and further away from your wealth.

“So, the first step in getting rid of debt is making a commitment not to use it anymore no matter what. It's making a commitment to close store cards, to close overdrafts, to not use credit cards. You've got to make that radical decision that your freedom is more important than some thing.

“Then list all your debts and commit a fixed amount of money that you’re going to use to destroy your debt.”

Wilson advises that you prioritise your debt, with the one with highest interest and the one you dislike the most the top priority to blitz.  

PROTECTION

Next is protection. “You need a small cash safety net and that's why it's imperative that you start setting aside some money to catch you when life's to be expected, unexpected things come along.

“You also need to understand things like insurances, wills and funeral plans. This is an area where so many people end up wasting so much money by not understanding what is truly needed and what isn't.”

Wilson suggests you at least consider and get quotes for home and vehicle insurance, life insurance and critical illness & disability cover.