Financial freedom is characterized by having enough money and resources to cover all of one’s expenses and meet one’s financial goals without relying on a regular paycheck or income stream. In other words, financial freedom entails the ability to live life on your own terms, free of financial constraints.
Financial independence generally requires careful planning, saving, and investing. Setting clear financial goals, creating a budget, living below your means, reducing debt, and building wealth by investing in assets that generate passive income is all part of it.
“When we think about budgets, we think about something that’s super restrictive and makes our lives unfun,” says Vivan Tu, a former J.P. Morgan trader turned TikToker.
However, being smarter with money doesn’t have to be overwhelming. “Budgeting can be really easy,” said Tu.
Here are her top three tips for getting better with money in 2023.
The 50/30/20 Rule
According to the rule, you should spend up to 50% of your after-tax income on necessities and obligations that you must have or fulfill. The remaining half should be divided as follows: 20% for savings and debt repayment, and 30% for anything else you desire.
Tu likes the 50/30/20 method for money management because it makes budgeting simple. It only requires you to track three spending categories and can assist you in creating a budget that you can stick to.
Begin by allocating 50% of your income to necessities such as rent and groceries. Tu recommends setting aside 30% of your income for wants, such as dining out with friends. Finally, put the remaining 20% of your money toward savings, investments, and debt reduction.
It’s fine if you’re a few percentage points off when dividing your money. This guideline can help you get started, and then you can adjust the numbers based on your lifestyle, according to Tu.
Paying Debt and Investing
Borrowing can quickly become unmanageable, and it can be tempting to devote all of your resources to paying it off.
Saving for the future is also important. The earlier you begin investing, the longer your money has to earn compound interest and grow.
It may appear that you must choose between the two, but it is possible to do both, according to Tu, who is working with Citi to explain common credit card topics.
Start by chipping away at debts with high-interest rates, she says. Higher interest rates will cost you more in the long run, so it’s smart to pay those debts off first.
Next, you can turn your attention toward paying down debts with lower interest rates. Since low-interest debt tends to be less costly, you can also start putting money toward investments like your 401(k).
“If you’re planning on holding your investments and being a long-term investor for over 40 years, statistically speaking, the chances of you losing money are very low, and you’re going to be able to grow your wealth,” Tu said.
Be Accountable
Whether you’re saving for a vacation or vowing to spend less money in general, sharing your financial goals with others can help you achieve them.
“My best advice is to write it down on a piece of paper. Say it out loud to a friend. Have it be so that it’s not just you who knows about this goal,” Tu says.
It can be easy to dismiss failing to meet a goal that only you know about, but it’s a little more embarrassing when you don’t meet a goal that you’ve told others about.
“We can guilt ourselves into being a little smarter with our finances when we’re doing it with a buddy,” Tu says. If you and a friend are both trying to be more successful with money, it can be more fun to do together too, she adds.
And while it can feel taboo to talk candidly about improving your finances, there can be benefits.
“If we all talk about money, we are all better off,” she says. “Having these conversations more openly means all of us to get to be better.”
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