Thinking of things to spend your savings on sounds like such a silly concept. There is likely an endless list of things you wish you could purchase. Although, on your journey to becoming financially free, one can’t simply save up, and then blow your whole savings on getting a fancy new toy. This is how most people utilise their savings and why most people are yet to become financially free.
People have repeatedly stated the importance of having an emergency fund. Without one, any curveball thrown your way can leave you in the gutters. Life happens, sometimes a drunk driver hits your vehicle, the geyser is damaged, or a window breaks. Without a safety net to fall onto, life inconveniences could become disastrous. Think of an emergency fund as airbags in a car, while you don’t want to think about when you would need to use it. When the opportunity arises, this could be a lifesaver.
Deal with the “Drag”
After you have an emergency fund, the next step is to pay off high-interest debt, such as credit cards and loans. The principle is a dollar saved is a dollar earned. Most credit cards have an interest rate around 16%. Putting your funds into some sort of investment will usually only yield an interest rate of around 10%. These debts work like breaks on a car or additional weight that is slowing you down and working against you. Thus, the best “investment” you could make is paying these high-interest rate loans.
Next level unlocked!
Once you have paid off the debt that is working hard against you, you now can use the same money you used to pay off your debt every month, and redirect it to investing into a safe market that will give you a good return over time. If you are new to investing, look into using an investment company.
Putting your money in a place that enables it to compound with a reasonable interest rate is vital if you want your savings to not just grow in value but retain the spending value it had when you first put had it. If you save it in a bank of some sort, inflation will slowly eat away at your net worth.
While you have unlocked investment companies, a good thing to consider investing in is a retirement annuity. This way you get the benefit of investing, such as compound interest #beating_inflation with a bonus of legal tax saving. That basically means that because of the nature of Retirement annuities, one doesn’t have to pay the certain taxes one otherwise would be required too. Think of a retirement annuity as you looking after you.
But I want to buy some big-ticket items.
The reason most people struggle to stick to their financial journey is they often are so focused on getting everything perfect and in the process forget to include “enjoying the process” into the plan. People develop a need for perfectionism which often causes the adverse effect. Things never get any better.
On your journey to financial freedom, ensure that your roadmap has a method to buy the things you actually want along the way. If you are saving to purchase something for you, ensure you still continue to contribute to your main quest, of setting up an emergency fund, paying off debt, then investing into an RA and the stock market. By continuing to do this, you aren’t stagnating your growth towards financial freedom.
Cash is King.
Remember, we want to continuously progress on this journey to financial freedom. This only works if we continue moving forward; this means saving up for your significant purchase. Don’t acquire new debt that is going to slow you down.
Besides the continued progress towards your goals, another great reason to purchase things cash is the need to prioritise this item while you save, which means that you will more likely only end up buying things you actually want, everything else will usually fall to the sides.
Many people want to become financially free. Financial freedom is easy to understand but challenging to implement. Don’t neglect rewarding and commending yourself for your hard work!