For many citizens, financial independence is a huge aspiration. But making money is one thing, keeping and growing it is another. Not everyone has the right skills or attitude to manage their finances well.
This lack of financial literacy can lead to problems such as debt and bankruptcy.
So how can one achieve financial freedom? Is earning more money the answer? How do you grow and guard the gap between income and expenses?
For a start, choosing the right banking partner is a step that can nudge you in the right direction. But there are other important points as well.
Understanding income and expenditure
Income represents earnings from work done or investments made. It may be in the form of salary, dividends, property rent, royalty payment, commission and more.
While expenses refer to the money, you spend. That is cash flowing away from you. It may be money used to cover daily utilities, mortgage payment, taxes, payment on car loans, vacation, education, credit card debt and so on.
The difference between what an individual earns or spends can be a major determinant in achieving financial independence.
If the space between expense and earning is narrow, then there is a problem. You will have little or nothing left from your income after spending.
An ideal situation is to maintain a wide gap between earnings and expenses. Meaning you has a lot left after expenses.
Growing and guarding the gap
To accomplish this, you must learn how to increase and sustain the gap between the two indices. It could be by earning more and spending less.
But sometimes without growth in income, we can still increase the gap. This may be by cutting down on expenses, saving more orthrough excellent money management.
Assessing current situation
Understanding your current financial situation is a critical step towards growing and guarding the space between income and expenses.
Knowing how much you earn and how much you need to spend on a monthly basis to keep going is essential. You should also factor in your debt.
Follow up with a financial plan. Create a budget on what to spend, save and if possible invest.
Explore opportunities to earn or save more. Cut out waste from your expenses. Investigate better ways of managing your debt such as re-mortgaging. You can use online tools like mortgage calculators to help with this.
All these translate to taking control of your financial life.
The way to financial freedom lies in developing the right money skills, attitudes and habits. Learning how to grow and guard the gap between your income and expenses. It is something all most everyone can learn and practice.