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How to handle your money
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- Category: Financial freedom
Once you are financially free, the worries about money disappear, but to get there you need to take a few steps and learn a few things.
You have to keep track of all your expenses, where does the money go? Make budgets for different types of expenses, so that one budget does not eat away from another budget. Keep it tight, and be rigid about the several limits you have set for yourself. This attitude will help you from day one and into the future.
Even if you have reached financial freedom at some point, don't let go of this attitude. Keep track, and never overspend or else you might lose the freedom faster than you achieved it.
What does financial freedom mean to you?
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- Category: Financial freedom
When people think about financial freedom, very often they think of millionaires. But being financially free really means that your expenses are covered. The lower your expenses the sooner you can achieve that goal.
Does it mean you can drive an expensive car or bike? Do you need to go on expensive all-inclusive holidays or will a visit to a local park do as well? Do you want the freedom to choose a career no matter what the salary or social status is? You can feel like a millionaire without actually being one. But in any case, you have to learn how to deal with money, preferably at a very early age. We'll get into that.
Learn to invest
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- Category: Financial freedom
If you want to grow your capital, you have to learn about your investment options. Just putting it in a savings account at 0,05% is not going to bring you any closer to your goal of financial freedom.
One major key to success in investing is to start early. That's the only way you can put compound interest to work, and with interest, you can read dividend returns as well. Reinvest those, and your total return at the end will be huge!
For all legal and tax details you should probably seek professional advice, but keep a close look at costs. Never choose an investment where the advice is 'free' because what you don't see is that this advisor is likely getting a kickback fee from the product he has suggested you should invest in.
Don't invest in actively managed funds, because research has shown that those funds have huge expenses but not so excellent returns. Instead, look for a low-cost ETF. This is a passive fund exactly following an underlying set of stocks, bonds, etc. No active trading (which is costly), no expensive fund managers, or golf clinics with all their CEO colleagues.
Investing in real estate and actually owning it always seems a good deal. Over time you can increase the rent, and hopefully, the value of the property goes up as well.
All investments have risk, there's no other way. Always make sure you can handle the risk and still sleep well. Also, make sure that all risks of all your investments are of a different type so they don't get exposed all at the same time. Diversify in the type of risk.
While being on your way to financial freedom
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- Category: Financial freedom
While you're on this journey to financial freedom, keep reminding yourself it sometimes requires active steps. You have to keep a good look at all your funds continuously. And sometimes you just have to look for professional expertise to help you in making certain important decisions.
Don't just focus on potential gains, but also look at possible downsides. At several points in time, while on your journey to becoming financially free, you may want to rebalance funds to find the right balance for projected gains and possible losses.
Be realistic about your journey, it's going to take time. If you want to make it a sprint, it's probably not going to end well.
Record you expenses
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- Category: Save money
How often did it happen, that by the end of the month, you had no money left to put into your savings account? (by the way, you should always put savings away before anything else) But more importantly, do you have no clue where all that money went?
If that's you, then you're not alone. Most people can not list their monthly spending, not even the recurring ones. If your monthly paycheck is enough for you not to worry about that, then great! But for most people, it would help to have a clear insight into their monthly spending patterns.
To make this recording of spending easier, there are numerous ways. Check your online banking system, some banks recognize your transactions and can make up a clear categorization. Did you spend it on groceries, rent, and car repairments? For most transactions, your bank can make a good guess. And if you not, you can easily make a manual adjustment. Give it a try and see what it does for you. Cut down on those expenses you thought were not that big, but in reality, were eating away at your monthly budget.
Wealth building starts with your job
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- Category: Financial freedom
The most logical en biggest wealth-building tool is income from your job. Make sure that your current job is offering certain important aspects.
First, you have to like your job to some extent. Otherwise, it's going to be a huge burden to drag yourself to the office every day. But on the other hand, it's just a job and every job has some downsides, that's ok.
Ask yourself if the job and company you're at still offer something useful to you in let's say the next 10 years.
Is there a potential for a higher income at this firm? Your added value for the firm will increase over time, but will your salary keep up?
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