10 Valuable Lessons To Achieve Financial Freedom

Becoming financially free does not need to be a daunting undertaking. Here are 10 valuable lessons to achieve financial freedom.

Develop a Wealth Mindset

If you think you can, you can. If you think you can't, you can't. Becoming financially free starts with having the right mindset. Focus on opportunities rather than limitations.

Wealth is typically created over over years. This is why it is so important to practice delayed gratification.

Create specific and measurable objectives and goals and assign realistic deadlines.

There will be setbacks on your journey to financial freedom. View them as learning opportunities. Many wealthy people stumbled on their journey to financial freedom.

Be resilient and persistent. You may need to reinvent yourself. Just do not give up on your vision.

Live Below Your Means

Avoid lifestyle creep. Some people get the inclination to change their lifestyle as their income increases.

You can make all the money you want but if you spend more than you make, you are on the road to financial ruin.

What purpose does it serve to buy stuff you don't need with money you don't have to impress people you don't know?

Your lifestyle does not need to materially change as your income increases over time.

Do NOT let social media or peer pressure dictate your spending habits.

In The Millionaire Next Door - The Surprising Secrets  of America's Wealthy, Thomas J. Stanley, Ph.D. and William D. Danko, Ph.D. lay out their findings from years of having studied how the wealthy become wealthy and stay wealthy.

What they found is that affluent people typically follow a lifestyle conducive to accumulating money. In the course of their investigations, they discovered 7 common denominators among those who successfully build wealth.

1. They live well below their means.
2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth.
3. They believe that financial independence is more important than displaying high social status.
4. Their parents did not provide economic outpatient care.
5. Their adult children are economically self-sufficient.
6. They are proficient in targeting market opportunities.
7. They chose the right occupation.

I would add #8. If you have a partner, make sure you are compatible with this person for life.

Master Budgeting

Tracking income and expenses is essential. Having a realistic budget is critical otherwise we just set ourselves up failure and discouragement. The internet has a wealth of information on how to create and maintain a budget if this is a foreign exercise to you.

Track your inflows and outflows (including their timing) so you can determine what inflows/outflows need adjusting.

The often used 50/30/20 allocation calls for 50% of your after-tax income toward needs, 30% to wants, and 20% to savings/investments. To accelerate the time frame over which you want to become financially free, ramp up the percentage allocated to savings/investments.

Acquire Financial Education

Investing early and consistently is critical. Unless we acquire financial education, however, our investment decisions could be disastrous.

The Books section of this site reflects many of the books and articles I have read and recommend.

I also highly recommend, seeking advice from people who have achieved success.

Invest Early and Consistently

Investing when you are in your teens/early twenties is typically not at top of mind. This, however, is when you should start investing. Do what most people won't do so you can achieve what most people will never achieve.

Even small amounts can grow significantly over time. Don't wait until you have, for example, $100,000.

Consistently invest small amounts through a broad based exchange traded fund (ETF). Avoid mutual funds and do not invest in individual companies unless you understand financial statements and you have the right temperament.

In various posts, I disclose limited information about the investments made by a couple of young investors I have been helping for the past few years; they have bypassed ETFs because the amounts they have to invest are reasonably significant.

There is now an additional young investor to whom I have offered some suggestions; I disclose minimal information for confidentiality reasons.

This new young investor is capitalizing on modern technology to legally make more money in a matter of weeks that most North Americans make in a few years.

Given this, the need for a Will, a Power of Attorney for Personal Care, and a Power of Attorney for Finances are critical.

This young investor is now investing through a:

• non-registered (taxable) account;
• Tax Free Savings Account (TFSA);
• First Homeowner Savings Account (FHSA); and
• Registered Retirement Savings Plan Account (RRSP).

The maximum contributions are being made in all registered accounts. In addition, funds are set aside to invest at the beginning of 2025 the maximum permissible amounts for the year. Additional investments will be made throughout the year in the non-registered account AND sufficient funds are being set aside for tax purposes.

Build Multiple Income Streams

Everyone should consider developing multiple income streams. Relying on one income stream can severely limit wealth-building potential. Try to identify skills you can monetize.

Be careful when creating different income streams. If you are employed full-time and you have 'side hustles' that require you to trade time for money, keep in mind that there are only 168 hours in a week. Your health is important!

If you are a teacher and decide to tutor as a side hustle, how many hours can you tutor without feeling exhausted?

I know someone currently in medical school. While completing a Masters Degree of Pharmacology, this person held a research job at the university, tutored students in classical piano, and graded tests/exams for first and second year students majoring in Russian. This person probably averaged 40-50 hours of sleep a week. Perhaps you can maintain this pace while you are young but is this sustainable as you age?

Leverage Debt Wisely

Prioritize the repayment of high-interest debt first.

Depending on your circumstances, you may wish to look for opportunities to reduce your interest rates.

Know the difference between good versus bad debt. Debt for the purposes of acquiring depreciating assets is bad debt.

Borrowing to fund your education can either be good debt or horrible debt. If your education will lead to a profession where the income potential is significant, the education debt can be good debt. However, we hear stories about medical students, for example, who graduate with hundreds of thousands (sometimes millions) of debt. Gulp!

At the other extreme, are students with crushing debt loads incurred for the purpose of obtaining a degree in a profession where the income potential is low.

Debt incurred to attend 'for profit' colleges? The 'certificate' or 'degree' from these colleges is not worth the paper they are printed on.

If 'good debt' has a very reasonable probability creating returns that far exceed the cost of debt, it may make sense to borrow. However, be cautious.

Imagine borrowing to acquire an investment property. If the income or expenses differ significantly from projections (and not in a good way), a great investment could be disastrous. I know landlords whose tenants have refused to pay rent for months.

Depending on the property locations, the laws may strongly favor the tenants. Furthermore, going through the legal process to evict delinquent tenants can often take months.

What if your investment property requires major repairs? Look at investors who own condominiums in Florida where 6 figure assessments are being levied on each condo unit.

If you borrow to invest in equities, be fully aware of what could happen if you get a margin call.

Network and Surround Yourself with the Right People

If you are broke, there is a very good chance that your family members, relatives, and close circle of friends are also broke. If you are tired of being broke and want to make some changes, are you going to ask them how to go about extricating yourself from your financial predicament?

Seek mentors who have achieved success and learn from their journey. Not every mentor will have a similar background as you so try to get input from several financially successful people.

Just because someone is financially successful does not necessarily mean they are a good role model. Some financially successful people are so messed up that their own family and relatives can not tolerate them.

It is also critical that we distance ourselves from people who discourage or drain our ambitions. Do you know people who always seem to suck the energy from everyone around them? You can be the most optimistic/positive thinking person known to mankind but hang around a grouch/grumbler/complainer and you will feel exhausted.

Associate with people who aspire and challenge you.

Practice Patience and Discipline

Building wealth typically takes time. This is why breaking down big goals into smaller achievable milestones help us stay motivated. Wealth-building strategies work best when applied consistently over time.

In some instances, circumstances may require you to modify your plan. A good example would be in the case of a job loss. In this case, saving to invest may need to be temporarily suspended and slashing discretionary expenses becomes essential. If you have no emergency fund, finding any legal form of employment will likely become your priority.

Focus on the bigger objectives and goal and resist the urge to spend on non-essentials.

Celebrate minor victories to reinforce habits. The celebrations do not need to cost a lot of money!

Give Back and Stay Grounded

Staying humble and remembering your core values ensures lasting happiness.

Depending on your circumstances, you may wish to:

• volunteer your time to understand the value of money beyond wealth; and/or
• allocate a fixed percentage of income to charity.