No better feeling of freedom than a life without financial stress

The road to attaining financial freedom is personal. There needs to be a mind shift and change in the relationship you have with money.

While many people think that financial freedom means having enough money or being debt-free, analysts say it is far deeper than that as one needs to have control over their finances and think about their financial destiny.

“Financial freedom is about being prepared for whatever life throws your way and having control over debt, money in the bank, and a plan for achieving the future you want,” says Babalwa Nonkenge, Nedbank head of retail investments.

“Achieving financial freedom requires dedication, sacrifice and time. Not only will you have the ability to take control of your finances but you’ll also enjoy a life without the financial stress that so many people experience every day, and there’s no better feeling of freedom than that.”

Bidvest Life training specialist Melody Cloete agrees, saying that when we are comfortable with our finances, we are free to focus on other areas of our lives, like our health, relationships and personal growth.

“But financial stress drains our happiness and impacts our overall wellbeing,” she says.

Cloete and Nonkenge give tips on how to attain financial freedom:

Mastering the art of budget

Cloete: This is actually two questions. Everyone can set a budget. There are numerous resources and apps available online to help you do exactly that, but sticking to it is a different matter – and this is where most individuals fall. The secret to managing your money well is paying yourself first.

This means saving a percentage of your income each month and then using what’s left to pay the bills. That way, you’ll have money available for life’s curveballs. Watch out for small expenses like takeaway coffees and extra data to rewatch your favourite TikTok videos.

There’s no need to forego these spoils entirely but it’s important to be conscious of how you spend and be intentional when choosing to splurge. Knowing how much you spend, and on what, enables you to adjust your budget as you go, and rein in unnecessary habits or hidden costs.

Nonkenge: Budgeting is the cornerstone of financial freedom. Contrary to widespread misperceptions, it doesn’t need to be complicated or boring. It just means assigning every rand a purpose and then keeping track of how well it delivers that purpose.

Prioritising paying off debt

Cloete: Debt is one of the biggest sources of money stress and poor financial wellbeing. If you have debt, it’s costed you more every time the interest rate went up. Put every extra cent you can towards paying off your debts, starting with the most expensive debts first. If you can, pay more than the minimum balance owing each month, or you’ll end up paying more interest than you have to.

Nonkenge: Debt is a significant hurdle on anyone’s journey to financial freedom. Your income is your most powerful wealth-building tool and you can't reach your financial freedom goals if a substantial portion of that income goes towards debt repayments.

Use the snowball method which involves listing your debts from smallest to largest and then focusing on paying off the smallest debt as quickly as possible, while making the minimum payments on the others.

Once the smallest debt is paid off, the payments previously committed to the smaller debts can be committed to the next largest debt creating a snowball effect until all your debts are settled. It is a good idea to start eliminating unsecured debts such as clothing accounts.

Set financial goals

Nonkenge: Setting financial goals with deadlines is crucial to achieving financial freedom. Start by defining your short-, mid- and long-term financial goals. Short-term goals could include creating a budget or paying off a small debt, while mid-term goals might focus on saving for a deposit on a house or starting a business.

Long-term goals could include saving for retirement or your children's education. When setting goals, make sure they are realistic and achievable. For example, instead of setting a vague goal like ‘save more money,’ be specific and say save R5,000 in the next six months. Write your goals down and review them regularly to stay motivated and on track.

Preparing for the day you're no longer here

Cloete: It’s a topic most consumers tend to avoid. But what happens if you die? Will your family and loved ones be able to continue meeting their monthly obligations, and living the lifestyle that you want for them? If the answer is ‘no’, it’s a problem that can be fixed.

Start by taking out life insurance. Be sure to consider a Life Income benefit, which instead of paying a lump sum to your beneficiaries (that comes with multiple complexities such as inflation and behavioural risks), pays out as a monthly income.

It’s efficient and easy to understand because it mimics the income stream you are trying to replace. Chat to a financial adviser if you’re unsure, they’re your best source of expert advice. And don’t forget to draw up a will so you’re in control of how your assets are divided in the event of your death.

Protecting your income from life’s curveballs

Cloete: Your biggest risk right now isn’t dying, it’s sustaining an injury or illness that keeps you from working and earning an income. According to Bidvest Life’s 2022 Claims Report, income protection claims accounted for 58% of Bidvest Life’s payouts in 2022 – more than for the rest of its portfolio combined.

This shows the importance of insuring yourself against both minor and serious injuries and illnesses that could affect your ability to earn, which will, in turn, disrupt or even derail your financial stability. Ask yourself, if you can’t work, how long will you be able to meet your financial obligations?

Income protection should be the number one priority for every working South African. It provides security when we need it the most. It pays all your other insurance – medical aid, household expenses and school fees when you can’t earn.

Nonkenge: Build an emergency fund as it is a crucial safety net that helps you manage unexpected financial challenges without having to incur debt. Most financial experts suggest aiming for emergency savings of three  to six months' worth of living expenses.

This may seem daunting, but it is achievable with discipline and patience. It’s important to have this emergency money in a savings account that is separate from your other long-term savings and allows you to access the money quickly if you need to.

mashabas@sowetan.co.za