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  • Elias Zeekeh, MBA, CPA, CMA

Financial Freedom with Sacrifice

You may have heard of the National Bestseller ‘Financial Freedom without sacrifice’ by Talbot Stevens. Though the title of the book may sound appealing it’s actually blatantly misleading (probably for marketing reasons). If you want to reach financial freedom, at minimum you’ll need to sacrifice lots of time and energy to educate yourself on personal finance and to execute your financial freedom plan. There is no magic elixir, guru, and or book that will solve your problems. Gaining financial freedom requires hard work and discipline to be successful; just like anything meaningful in your life be it a successful marriage, career success, or personal health.

For Canadians, managing a household budget and saving for retirement has become increasingly important. The national savings rate for households has decreased from a peak savings rate of 20.2% in 1982 to now approximately 4% according to a recent CBC article, and many large companies have cut defined benefit plans after the 2008 stock market crash. Meanwhile, Canadian life spans are constantly increasing which makes the likelihood of many retirees outliving their savings a real possibility. Below are six helpful tips to manage your personal finances.

1. Keep Accurate Financial Records

Keep a detailed record of your financial transactions. Your expenses should be categorized, so you can understand what you’ve been spend your money on. If you have the discipline to pay your credit card in full at the end of the month this can make tracking expenses easier. Personal budgeting software like Quicken and Microsoft Money can helpful to streamline the budgeting process. Personally I find it much easier to use Microsoft Excel.

2. Avoid External Influences

It can sometimes seem like everyone is trying to get you to spend money. There won’t be too many people trying to help you in your effort. Have a “me against the world” attitude and take accountability for your spending habits. Friends will want to you go to the movies, kids will want you to buy them the latest toys, your Realtor will advocate you buy a bigger house, and the waitress will want you to buy the extra drink. Learn to say “no” politely.

3. Be Conservative when Estimating Expenses

When determining your recurring expenses are you honest with yourself? I recommend factoring in a ten percent contingency. Having a cushion insulates you from having to dip into your emergency fund for small unforeseen expenses. If your contingency money accumulates use it to reward yourself for keeping on budget. It’s important to celebrate victories and keep yourself motivated.

4. Attack High Interest Debt

Be aggressive in eliminating high interest debt. When it comes to credit cards don’t carry a balance forward month to month. If you have equity in your home you can refinance your property to pay off your credit card. The interest on mortgages and lines of credit are much less than credit cards. If you don’t have a home with equity talk to a financial advisor about a debt consolidation loan. Other forms of higher interest debt can include car loans and student loans. Tackle higher interest debt first.

5. Prioritize Savings & Be Ready to Make Tough Decisions

There is a saying that you need to pay yourself first, and this can’t be stressed enough. Saving ten percent has been a rule of thumb used by a number of personal finance experts, and this can be a good starting point. I eventually recommend being more specific about your retirement goals and making a custom tailored retirement plan. If you’ve just started saving you’ll need to build an emergency fund first. Three to six months of your income is the standard.

In the event you’re unable to put aside ten percent of your income, then you have to either reduce your expenses or increase your income. It can be a tough transition to change entrenched spending habits. If you’ve been living beyond your means you’ll need to make some tough decisions, such as moving to a cheaper home or getting rid of a second vehicle. Financial freedom requires sacrifice.

6.Learn about Investing & Apply it!

Taking ten percent of your money to financial advisor and having them put it in a mutual fund doesn’t cut it. Learn how fees on investments work, and look for low cost options that can still satisfy your investment targets. Low cost index funds are usually a good route to take. If you prefer real estate don’t just hire a Realtor and buy an investment property. Take the time to really learn about investing through books, online education, and local support groups. Lastly, don’t make excuses that you’re not capable of learning. Giving your money to someone else without understanding what they’re doing is a recipe for financial disaster. You can’t hold your financial advisor accountable if you have no idea about what he or she is doing. Make learning about investing is a “must” not an “option”.

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