October 26, 2023 | 25 min read
Summary: In a world of ever-changing economic landscapes, achieving financial freedom has become a universal aspiration. We’ve covered the essential strategies and mindset shifts required to pave the way toward financial independence.
In a world where financial stability plays a crucial role in our wellbeing and future aspirations, the concept of financial freedom stands out as a beacon of empowerment.
Financial freedom is the ability to make life choices without being constrained by money considerations. It goes beyond just having a comfortable income; it embodies the power to live life on your own terms, pursuing dreams, and finding peace of mind through a secure financial foundation.
We wanted to understand how the post-pandemic, high-inflation environment had impacted the nation’s thinking around financial freedom. To that end, we commissioned research to explore the aspirations of Australians across generations, genders, and demographics, with more than 2,500 people surveyed. The research was supplemented with questions focused on people’s current sentiment around finances.
Released in May 2023, the Financial Freedom Report 1 uncovered the aspirations of modern Australia.
As the most common aspiration held by Australians was financial independence, with 55% of people surveyed sharing that goal, we have developed this guide to give you a broader understanding of what financial freedom is and how to best go about achieving it.
Financial freedom is a state where your passive income (from investments, savings, or other sources) covers your essential expenses, allowing you to sustain your desired lifestyle without being reliant on a traditional 9-to-5 job.
It's about breaking free from the shackles of living paycheck to paycheck and transcending the cycle of debt. This state enables you to allocate more time and energy towards your passions, personal growth, and meaningful experiences.
Our research found that three in four Australians want to do more with their finances, so the will is there. It’s just a matter of knowing how to do so, which we’d like to share with you.
“When you attain financial freedom, you no longer work for money; instead, your money works for you, opening doors to opportunities you never thought possible. Embracing financial freedom is a declaration of self-worth; it signifies your commitment to creating a life that reflects your passions, aspirations, and limitless potential." - an Insignia Financial Adviser.
Attaining financial freedom requires careful planning, disciplined saving, and strategic investing.
It involves setting clear financial goals, creating a budget, reducing unnecessary expenses, and consistently saving a portion of income. Diversifying investments, exploring passive income streams, and staying informed about financial matters are other essential steps in this journey.
Managing your finances is an essential life skill that empowers you to make informed decisions about your money, plan for your future, and achieve your financial goals.
Whether you're just starting on your journey to financial literacy or looking to fine-tune your money management skills, understanding key concepts such as calculating your net worth, tracking your spending, and creating a budget can significantly enhance your financial wellbeing.
Your net worth is a fundamental measure of your financial health. It represents the difference between your total assets and your total liabilities. Assets include everything you own, such as cash, investments, real estate, and valuable possessions, while liabilities encompass your debts and financial obligations, such as loans and credit card balances.
Calculating your net worth allows you to gauge your financial progress over time and identify areas for improvement. To calculate your net worth, follow these steps:
Regularly tracking your net worth provides a clear snapshot of your financial progress and can serve as motivation to make positive financial decisions.
“Your net worth is the sum total of your financial decisions, a reflection of your past and a blueprint for your financial future. Net worth isn't just a number; it's a story of your financial journey, from assets earned to debts conquered. In the balance sheet of life, your net worth is the ultimate indicator of your financial health."- an Insignia Financial Adviser.
Understanding where your money goes is a critical step toward achieving financial stability.
Tracking your spending allows you to identify patterns, cut unnecessary expenses, and allocate resources more efficiently. Here's how to effectively track your spending:
Tracking your spending empowers you to make conscious choices about your money and ensures that you're aligning your expenditures with your financial goals.
A budget is a powerful tool that provides a roadmap for managing your finances, controlling your spending, and achieving your financial aspirations.
It helps you allocate your income wisely, avoid overspending, and build a solid foundation for your financial future. Follow these steps to create an effective budget:
Creating a budget provides you with a clear financial roadmap, enabling you to make choices that support your long-term financial wellbeing. Start small, be consistent, and remember that financial literacy is a lifelong journey that empowers you to take control of your financial future.
To learn more about budgeting strategies, see our article on the 50/30/20 budgeting rule which is a simple way to manage money by designating a portion of your earnings to three categories.
One of the most significant aspects of financial wellbeing is effective debt management.
Debt, when managed wisely, can serve as a stepping stone towards achieving your goals. However, it can also turn into a burden if not handled carefully.
There are nuances of debt management, such as being able to distinguish between good and bad debt, having strategies for paying off debt, and consolidating debt.
Understanding the distinction between good and bad debt is essential for making informed financial decisions. While debt is generally seen as something to be avoided, there are instances where it can be beneficial.
Good debt is an investment in your future. It typically involves borrowing money for assets that have the potential to increase in value or generate income over time.
Examples of good debt include:
Bad debt is money borrowed for items that do not appreciate in value and can lead to financial stress. Examples of bad debt include:
Paying off debt requires a combination of discipline, planning, and commitment. Here are some effective strategies to help you become debt-free:
Debt consolidation is a strategy that involves combining multiple debts into a single, more manageable loan. It can simplify your financial life and potentially lower your interest rates.
There are a few options for debt consolidation:
“Good debt builds assets and increases your net worth, whereas bad debt drains your resources and limits your financial progress. Debt becomes good or bad based on the returns it generates – good debt creates opportunities, while bad debt creates liabilities.
Successful debt management involves understanding interest rates, repayment terms, and aligning your financial goals with your borrowing decisions. An essential aspect of debt management is distinguishing between proactive borrowing for wealth-building and reactive borrowing that stems from impulse spending."- an Insignia Financial Adviser.
Debt management is a critical aspect of achieving financial stability and realising your long-term goals. Distinguishing between good and bad debt, employing effective debt repayment strategies, and considering debt consolidation options are integral to mastering your financial journey.
Life is unpredictable, and unforeseen circumstances can wreak havoc on your financial stability. This is where an emergency fund comes to the rescue.
An emergency fund is a pool of money set aside to cover unexpected expenses, such as medical emergencies, car repairs, job loss, or any other crisis that may arise.
Having an emergency fund provides numerous benefits:
To build an effective emergency fund:
Retirement is a time for relaxation and enjoyment, but it requires careful planning and preparation.
One of the most effective ways to ensure a comfortable retirement is by investing in retirement funds, more commonly referred to as superannuation or super.
Superannuation harnesses the power of compounding. Compounding allows your investments to grow not only on your initial contributions but also on the returns generated over time. The earlier you start contributing to your super, the more time your money has to compound and multiply.
Learn more about helping your money grow through compound interest.
Background - Emily, a 30-year-old marketing professional, dreams of achieving financial freedom and retiring early. She has a stable job but recognises the limitations of relying solely on her salary.
Method - Dividend share portfolio
Approach - Emily decides to embark on a journey of passive investing by building a diversified portfolio of dividend-paying shares.
She conducts thorough research on reliable dividend shares and invests a portion of her savings regularly. She reinvests the dividends received into more shares, allowing her portfolio to grow steadily over time.
Progress - Over the course of a decade, Emily's dividend share portfolio grows significantly. The compounding effect of reinvested dividends accelerates her wealth accumulation.
By consistently investing a portion of her income and carefully selecting dividend shares, she achieves financial freedom by her mid-40s. The reliable stream of passive income from her portfolio covers her living expenses and allows her to pursue her interests and hobbies without worrying about a traditional 9-to-5 job.
Lessons learned - Emily's case highlights the power of compounding and the potential for achieving financial freedom through patient and disciplined passive investing. Her approach requires thorough research, careful share selection, and a long-term perspective.
Generating passive income is a key strategy for achieving financial independence. Two popular avenues for passive income are rental properties and dividends from investments.
Investing in real estate, particularly rental properties, can provide a steady stream of passive income. Here's why rental income is appealing:
Background - Sarah, a 35-year-old teacher, is determined to achieve financial freedom and retire comfortably despite her modest income.
Method - Real estate rental properties
Approach - Sarah decides to invest in real estate as a means of generating passive income. She starts small by purchasing a duplex and renting out one unit while living in the other. Over time, she acquires more rental properties, using rental income to cover mortgage payments and other expenses.
Progress - Through prudent property management and strategic investments, Sarah's real estate portfolio grows steadily.
The rental income from her properties gradually surpasses her living expenses. By the time she reaches her early 50s, Sarah achieves financial freedom, with rental income providing a comfortable lifestyle and the option to retire from her teaching job.
Lessons learned - Sarah's case demonstrates the potential of real estate investment for achieving financial freedom.
Her success required careful property selection, effective management, and a long-term perspective. Real estate can offer a reliable stream of passive income, making it a viable method for individuals seeking financial independence.
Investing in dividend-paying shares or funds can also yield passive income. Dividends are typically paid out by companies to their shareholders as a portion of their profits. Here's why dividends are attractive:
Learn more about strategies for generating passive income.
"Diversification is the investor's best friend. Spread your investments across different assets to manage risk.
The share market is a long-term game. Patience and discipline are key qualities to possess if you want to reap its rewards. Timing the market is nearly impossible. Focus on time in the market instead. Successful investing is about consistency. Regularly contribute to your investments, regardless of market fluctuations." - an Insignia Financial Adviser.
Achieving financial stability and success often involves more than just relying on a single source of income.
While your primary job is undoubtedly important, exploring additional avenues to increase your earnings can provide you with greater financial security and the means to achieve your goals.
Here are three effective strategies for boosting your income:
Negotiating a pay rise is an essential skill that can significantly impact your financial wellbeing.
Many employees hesitate to broach the topic with their employers, fearing potential discomfort or rejection. However, when approached strategically and professionally, negotiating a pay rise can be a fruitful endeavour:
In this era of digital connectivity and diverse opportunities, starting a side hustle has become an increasingly popular way to supplement your income.
A side hustle allows you to explore your passions, diversify your income streams, and potentially turn a hobby into a profitable venture.
Here are a few tips for getting a side hustle off the ground:
In this article, we explore a range of side hustles that are accessible to people of all ages.
Background - Alex is a creative individual who works as a graphic designer. He's looking for ways to break free from the 9-to-5 grind and build a lifestyle that aligns with his interests.
Investment method - Recognising the potential of online businesses, Alex decides to create a passive income stream through e-commerce. He starts an online store selling unique and artistic merchandise related to graphic design and creative hobbies.
Strategy - Alex invests his time and creativity into designing a range of products, from apparel to digital downloads. He learns about e-commerce platforms, social media marketing, and search engine optimisation (SEO). With consistent effort, he builds an online presence and a loyal customer base.
Outcome - As Alex's online store gains traction, his sales grow steadily. He establishes automated systems for order fulfilment and customer service, enabling him to generate income with minimal day-to-day involvement.
The passive income from his online business gradually replaces his full-time job income, allowing him to reduce his working hours and focus on expanding his creative pursuits. Alex achieves financial freedom by leveraging his skills and passion in a digital landscape.
These case studies illustrate three distinct investment methods that individuals like Emily, Alex, and Sarah employed to achieve financial freedom.
Each method requires a unique approach, strategy, and dedication, demonstrating that there are various paths to attain financial independence based on one's skills, interests, and risk tolerance.
Investing in yourself is an invaluable step toward increasing your income potential and personal growth- a long-term strategy to achieve financial freedom.
Whether through education, skill development, or networking, self-investment can yield significant returns over time. Examples include:
"Invest in knowledge before you invest in anything else. Education is the foundation of successful investing.”- an Insignia Financial Adviser.
Achieving financial freedom requires more than just wishful thinking; it necessitates a strategic approach and consistent effort.
Here, we'll explore the key steps to attaining financial freedom.
The journey to financial freedom begins with clearly defining your financial goals. These goals serve as the foundation upon which your entire financial plan is built. Here are some key considerations when setting your financial goals:
With your goals set, the next step is to create a comprehensive plan to reach them. This plan will outline the specific actions you need to take and the strategies you'll employ to achieve financial freedom:
Embarking on the path to financial freedom requires dedication and perseverance. To stay motivated and accountable, consider the following strategies:
Achieving financial freedom is a journey that requires careful planning, commitment, and a positive mindset.
By setting clear financial goals, creating a well-defined plan, and staying motivated and accountable, you can pave the way to a future of financial independence and security.
Remember that small, consistent steps taken today can lead to significant rewards in the future.
In a world of ever-changing economic landscapes, achieving financial freedom has become a universal aspiration. We’ve covered the essential strategies and mindset shifts required to pave the way toward financial independence.
The journey to financial freedom begins with a solid foundation built upon sound financial practices. We’ve emphasised the importance of budgeting, managing debt, and establishing an emergency fund. By mastering these basics, you can create a stable financial platform from which to launch your pursuit of freedom.
Investment plays a pivotal role in securing long-term financial success; diverse investment avenues such as shares, real estate, and retirement accounts.
We’ve also explored the power of compound interest and how investing early can harness its full potential.
But true financial freedom extends beyond numbers and spreadsheets. It calls for a shift in mindset - from being a passive consumer to an active creator. This involves exploring opportunities for additional income streams, such as side businesses or freelancing, which can accelerate the path to financial independence.
Moreover, we have emphasised the importance of continuous learning and adaptability. In today's rapidly evolving financial landscape, staying informed about market trends and new investment options is vital.
“By embracing a growth-oriented mindset, you can position yourself to make informed decisions that help you to fulfil your long-term goals."
“Taking charge of your financial destiny and achieving financial freedom requires dedication, discipline, and determination. By applying the principles discussed here and taking proactive steps, you can gradually free yourself from financial constraints and enjoy a future characterised by autonomy, security, and prosperity. The journey might be challenging, but the potential rewards are immeasurable.”
Empowered with knowledge and guided by the strategies outlined above, embark on your path toward financial freedom with enthusiasm and determination. The time to secure a brighter financial future is now.
1 Insignia Financial – Uncovering the aspirations of modern Australia, Financial Freedom Report – May 2023 – McCrindle Research.
As one of the largest super providers in Australia,* we’re focused on delivering competitive returns, so your money continues to grow. When it comes to support, we go the extra mile— providing general super advice at no additional cost.
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This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. NULIS is part of the Insignia Financial group of companies comprising Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate (‘Insignia Financial Group’). The information in this article is current as at November 2023 and may be subject to change. This information may constitute general advice. The information in this article is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. It is recommended that you consider the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) before you make any decisions about your superannuation. You can obtain the latest copy of the PDS (or other disclosure documents) and TMD by calling us on 132 652 or by searching for the applicable product at mlc.com.au. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Opinions constitute our judgement at the time of issue. The case study examples (if any) provided in this article have been included for illustrative purposes only and should not be relied upon for decision making. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the Insignia Financial Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.