Attaining financial independence is not the work of a single year – it’s a cumulative process of improving your situation little by little. As we enter 2022, the year ahead promises to be challenging: from Covid-19, to soaring inflation and home prices, it’s important not to be daunted. Instead, focus on small but attainable goals going forward.
The following can make a sizeable difference in the years to come:
You’ve already heard all the platitudes about budgeting: save 20 per cent of your income, use compounding interest to grow your wealth, and so forth.
However, there’s an upper limit to budgeting. It can only take you so far, as past a certain point, it’s no longer viable to cut any more costs. The simple fact is, financial independence requires both disciplined budgeting, and a way to make more money.
If you’re a fresh graduate making $3,000 a month, for example, you can’t expect just that pay cheque to eventually lead to financial independence or freedom; no matter how much you budget. You also need to invest it and grow it over time.
So in 2022, it’s time to expand your scope. Pledge to find new income sources, such as with savings plans or side-businesses; or promise yourself to negotiate a raise, or start the process of finding a more (financially) rewarding job.
Automation is one of the most powerful financial tools. Examples of automated savings are automatically crediting your salary to a savings account, or making GIRO payments.
Conversely, automation can also work against us. When we automate payments, we often forget that we’re forking out cash for things we rarely use. Examples are television channels we don’t watch, streaming services we hardly use, or gym memberships when we stopped going months ago.
This year, make a thorough check of all automated expenses, and ensure they’re things you actually need. On the flip side, automate savings, insurance premium payments, or investment sums, so you don’t allow your financial plans to lapse.
It’s time to look for a new job. It doesn’t matter if you have no actual intention of changing jobs just yet: you should, at the start of the year, put out feelers for dream jobs or ideal jobs, just to get a sense of your market value.
You may find, for instance, that a job application for a higher-paying position is easily accepted. Alternatively, you may find that it’s tough to get a similar paying job compared to yours (not a good sign, and it may mean it’s time to upskill).
You don’t need to actually accept these jobs when they’re offered; but you want to know that you could get them if you need. This is also a good way to determine if you’re being underpaid, based on what you can provide to an employer.
The best source of business, for the self-employed, is repeat business. However, this doesn’t just happen on its own – you have to be the one to prompt it.
As 2022 may be a tough year, make a resolution to connect with old clients. This can be in the form of phone conversations, text messages, or – best of all – face to face meetings to catch up.
This can be a bit of a pain, as it could involve both time and money (if you invite them for lunch, you’re probably paying!) However, it is still a cheaper way to acquire business, compared to cold calling strangers.
Assuming you’ve done a good job, past clients already trust you enough to rehire you; they may just need a reminder. It’s also a way to get word-of-mouth referrals, by reminding them that you’re still around and available.
If you have multiple loans outstanding, it’s a good idea to consolidate them at the start of the year. Here’s one example:
Say you have three personal loans and a credit card loan, all of which have interest rates of between six to nine per cent (credit cards have interest rates of around 26 per cent).
If you’re not in a position to pay them all off at once, you could take a single low-interest loan (say at three per cent), and use it to pay off all your other outstanding debts. This now leaves you with just a single, lower-interest loan to repay.
This helps you save money, improves your creditworthiness, and provides better debt management (with multiple interest rates, it’s harder to understand how much you’re really paying).
Of course, you must have the discipline to not take on any more loans, after consolidating your debt.
This means you can hold a reasonably meaningful conversation about the particular asset; be it a certain type of fund, a commodity like gold, or even a more abstract asset like fine art.
This forces you to understand more about different aspects of finance, which is a dynamic and ever-growing field. Even if you think you already know about a particular asset, revisit the topic and see if you can still speak intelligently on it: policy changes,
Covid-19, or disruptive business models may have changed it over the years.
Note that becoming conversant in an asset class doesn’t mean endorsing it. You might even end up being critical of it – but that’s still a step forward, as you’re deepening your understanding of the markets.
Building investment portfolios are not “one-off” events. You will have to rebalance the assets in your portfolio, as weightage and values change.
For example, if 80 per cent of your portfolio is meant to be in equities, but their value now makes up 90 per cent of your portfolio, it’s time to sell some off and buy other assets.
(It might seem strange to sell off a growing asset, but this is how you avoid putting too many eggs in one basket).
Likewise, your financial goals, health, and the status of dependents like older parents and children would have changed. It’s important to review your existing insurance policies, to ensure they can meet new milestones.
Portfolio rebalancing and personal policy reviews are tedious processes, to be sure; and you’ll probably burn a whole weekend doing it. However, that one lost weekend might ensure decades of financial security, and it’s well worth the effort.
It’s time to take stock of where you’re headed in your career: what are the promotion opportunities in your company? Is there a genuine possibility of higher income, or are you already the highest paid in your field?
If your income and career prospects haven’t improved over the past three to five years, then it’s possible you may be at a plateau. This presents the uncomfortable possibility that “this is it” – and if you stay on, you’ll carry on where you are right up till your retirement party.
The sooner you recognise this and make a change, the better your odds of escaping stagnation. This year, it’s time to do a review of where you were in 2017, and how your situation has improved since. If the answer is “not at all”, then it may be time to start sending out resumes.
If you want a career with a higher income ceiling, one possibility is to look within the finance industry itself. Reach out to us at Exodus Capital we can highlight the best possibilities open to you, given your current education and skill set.
