5 ways for young adults to achieve financial freedom on their age

Once you hit your 40s, it would be ideal for you to enjoy a certain degree of financial security. But the pursuit of monetary independence takes time and involves several factors.

If you are in your 20s today, here are five principles to help you achieve financial freedom in the future.

1. Make a deliberate choice

A bachelor’s degree helps you land your first real job. You will earn a salary, and the income flow will be helpful for building wealth.

To thrive, you should realise your employer is not responsible for making you wealthy. You have to make the decision to be rich, and be intent on progressing towards financial success.

This will alter the course of your financial life and influence aspects such as your purpose at work, how you use your free time, and your beliefs about money. You will then use your money differently, which, over time, will shape your level of financial success.

2. Harness the power of learning

A wealthy person would have different ideas about finance and investing than those who are less well-off. Thus, it makes sense for one to learn and study their viewpoints about money.

It is greatly beneficial to read biographies of rich people and materials related to finance and investing, as well as spend time with like-minded friends and mentors. Discuss and exchange ideas, insights and knowledge on topics related to business, investing, wealth protection and so on.

3. Understand the meaning of wealth

There are two definitions of wealth.

The first definition is based on possessions. For example, if a person has a Mercedes Benz and his friend is driving a Myvi, you may see the person as being wealthier than his friend.

But the person with a Mercedes Benz could be financially unstable, while the Myvi owner could be financially wealthy. Similarly, someone with RM500,000 can be more affluent than someone with RM1 million in their bank account.

The reason for this lies in the second definition of wealth – that it is based on time, and measured by how long it can last you without bringing in any active income.

This can be determined by dividing one’s current assets with monthly living expenses, and seeing how many months one’s wealth will be able to last for.

4. Investing is about having a plan

Most people associate investing with the act of “finding something to buy” and the hope that prices go up in the future. They usually focus on finding the next investment product that might grow in price.

While this is not wrong, you should start by learning as much as you can on the subject of investing and crafting an investment plan. Decide how to build your stock portfolio, and put money into companies you have researched.

By having an investment plan, which spells out your objectives, criteria for making investment decisions, and action steps if an investment turns sour, you can make better investments that offer better returns at lower risks.

5. Safeguard your finances

Many people focus on building wealth. Over time, they climb the corporate ladder, build businesses, buy real estate, and have investment portfolios.

These are all good but, without wealth protection strategies in place, some or all of these could be lost in the event of an accident, diagnosis of a critical illness, total permanent disability, or death.

Make sure everyone in your household has adequate protection in the form of insurance. Everybody should participate in a takaful plan wherein members contribute money into a pool to safeguard one another.

And look after yourself, for the moment you lose your health, you also lose your protectability.

This article first appeared in kclau.com.