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How to set yourself up for financial freedom

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Money is a tricky topic for many of us, especially with the cost of living crisis stretching household budgets further than ever before. Unless you’re fortunate enough to be in a particularly well-paid job, have lots of savings or no mortgage, it’s likely that you need to take some steps to achieve financial freedom, rather than it just happening unaided. However, it can be hard to know where to start, and money is often a topic that comes with a level of secrecy or privacy, often making it difficult to find trustworthy advice without undertaking formal education.

The right financial strategy is unique to the person or family, but there are some generic areas that you can look into and see if there are any changes that need to be made. In this post, we explore some general tips for setting yourself up for financial freedom and moving towards the lifestyle you’re aiming for.

Work out how much you need

To know how much you ideally need to earn and save, you first need to understand how much money you actually need to cover your expenses. Sometimes we think that we need a lot more than we actually do, so it’s important to try and get to a rough figure to allow you to create a budget

Sit down and make a list of all your regular expenses, such as bills, mortgages or rent and subscriptions, and then add an allowance for savings, pensions, emergency funds and general spending money for things like new clothes or days out. If you’re not sure of costs, you can look at your bank statements or bills to help you get a more accurate understanding of how much you actually spend each month at the moment.

Use saving pots in your account

Many modern banks allow you to set up savings ‘pots’ within your main account, allowing you to ring-fence some of your income without having to open an entirely new account to separate some funds. This can be useful for short term goals, such as saving for a holiday or home renovations, and has the benefit that you can easily and quickly access the money should you need it for something else. 

It also makes it easier to stick to your budget – if you’ve allocated yourself a certain amount for days out per month, for example, you can quickly see how much money you have left in this portion of your budget. Taking control of your spending like this will help you be responsible and aware of overspending in the future.

Automate your savings

Perhaps one of the best and easiest things you can do is to use automation to help you manage your money. Set up a standing order to move a certain affordable amount to a savings account or pot per month, without you having to remember to do this manually. Or if you can’t guarantee you’ll have the same amount available at first, set a reminder for yourself. Then, once all your bills are paid, you can remember to check back and move any leftover cash.

Set up an ISA

When money is tight, it can be hard to think about the future. However, it’s important to take a long-term view of your finances if you can, even if you only save a few pounds per month. Compound interest is really powerful, and it means that you’ll get far more from your money over time in a savings account, so it’s well worth looking into opening either a cash ISA or stocks and shares ISA as soon as you can. The other benefit of an ISA is that it’s tax free up to a certain amount.

The right account for you will depend on your preferred risk level – whilst a stocks and shares ISA can hugely increase your investment, it’s also possible to lose money. Additionally, parents can open a junior ISA account (JISA) for their child, where the funds can be withdrawn when the child turns 18.

Take control of your finances

Managing your money can feel overwhelming at first. However, it can often give you a feeling of control, which is welcome when times are tight. By better understanding your finances, you’re taking the first step towards financial freedom.

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