Put simply, financial freedom is the ability to live your life the way you want without anxiety about how you’re going to pay for it.
4 minutes
While this appears to come easily to some, for the vast majority of us, living week to week is the best we can manage. Below are five best-practice tips to help you prepare for financial independence.
1. Create a budget and stick to it
We get it. Having spent years stressing about exams, the last thing you want to do as a graduating student is to worry about accounting for your future earnings. However, establishing a budget and sticking to it is the best way to manage your day-to-day finances. It is also your best chance of meeting whatever short-term, or longer-term, goals you may have. While your sources of income may be limited, it’s important you exercise discipline when it comes to impulse purchasing and prioritise existing commitments such as loan repayments and accommodation, course materials or vehicle expenses.
2. Devise a regular savings plan
Financial planning experts say that ideally at least 30 per cent of your active income should be placed in an interest-earning savings account and allocated to savings and/or investments. They suggest whatever remains should be placed in a deposit account and allotted towards debt payments and living expenses. Ultimately putting anything aside for a rainy day is a step in the right direction. Managing your income in this manner is a great way to save or invest for a short-term goal, such as an overseas holiday or a car, or to use as a deposit on your first home loan. Start small, you can always increase the amount diverted to savings as your income increases.
3. Pay down your debt
Always pay your bills when they are due—even if you can only afford the minimum payment. Failure to do so could come back to haunt you. If your credit score declines, your minimum payments and interest rates could rise, making it even harder to stay on top of your payments. It could also make future borrowing for big-ticket purchases, such as cars and houses, much more difficult.
4. Build your super
There’s no such thing as starting too early when it comes to building your super. It’s important to check with the Australian Tax Office to confirm how much super you should be receiving. It’s also vital to keep track of any super accounts you have and consider consolidating them into one account to save on fees. Also, investigate the benefits of putting your super in a growth investment option or making additional contributions as you may be eligible for a government co-contribution.
5. Protect the important things
As a student, protecting yourself or your loved ones against accidents or illness is likely to be the least of your priorities. While you may not have children or a mortgage, in the event the worst happens, any financial obligations you may have such as personal loans, credit card repayments and HECs debt becomes the responsibility of your loved ones. Ensuring you have an adequate level of income protection insurance or life cover will help protect you and your loved ones in the event the worst happens.
Taking on these five pieces of advice can help you get to grips on how to become financially literate in the short term and put you on the fast track to becoming financially independent.
Want to learn more about your different options for managing money? Click on the link to see our range of savings and transaction accounts. Ready to take the next step? Contact us to find out how we can tailor a finance solution for you, or call us on 1300 131 141.