6 good habits you can implement today to help you towards financial freedom!

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If you have read my article about the 7 steps towards financial freedom, you have understood it’s a journey and it takes consistency, focus, and effort. I love this quote from Abraham Lincoln that says “discipline is choosing between what you want now and what you want most”. 

If you want to free yourself from money, I always empower my clients with these 6 habits below: 

The 1st one is keeping track of your numbers. 

You need to know your monthly ins and outs, there is no way around it. It is such fundamental knowledge as it brings you clarity, awareness, and a feeling of control. 

Splitting your expenses by needs/wants/future me is interesting. 

Your needs are your housing, bills, and food, your wants are the outings, sports, anything non-essential, and future me is about your growth: savings, investments, and courses. A rule of thumb from Elisabeth Warren is to have 50% of your after-tax salary in your needs, 30% in your wants, and 20% in your “future me”. Do you know your percentages? 

Doing your numbers is an eye-opener. For some of my clients, it’s the first time they track, they can either be positively surprised as it’s not as bad as they thought, and they always make a lot of realisations: at least they have a starting point to act. Focusing on their values, they recognise they don’t want to spend so much on things they don’t enjoy or that don’t fulfil them. Others have the impression they don’t have much fun spending, but sometimes it doesn’t fit with the data.  

The more focused you are, the more aware you’ll become. Some of my clients have saved up to 500 euros a month without any pain. They got rid of unwanted subscriptions, changed to cheaper bill providers, cooked more at home, etc. 

Looking at your numbers doesn’t have to feel restrictive, you need to find what’s right for you, to make sure you’re on the right track. You want to enjoy the journey and celebrate your small wins. This is important.

Each month your numbers add up to your net worth, which is the cumulated view of what you own (bank and investment accounts, cryptos, real estate) vs. what you owe (mortgage or any other type of debt). 

Looking at the 4 pillars of money (earning, spending, savings, investing) is again an eye opener as one of my clients was stressed it was the first time in her life she didn’t save. What she hadn’t realised is that she bought a flat and instead of saving, she was investing each month (the amount of her capital reimbursement). This gave her an instant relief.

Second, you need to define your goals. It will help you be inspired by your money. Having more money just for the sake of having more money isn’t appealing to everyone! You want your money to flow in the direction you want, so having clear and defined goals will help have all of the plumbing in place. To set effective goals I suggest you use the SMART methodology which stands for: 

• Specific (What)
• Measurable (How much)
• Achievable (How)
• Relevant (Why)
• Time Bound (When)

Most of my clients’ goals are around feeling safe and taken care of: having emergency funding, buying their primary residence, having passive income and a retirement nest, having fun: like taking a holiday or time off, and also, planning for the next generation like financing their kids’ education. 

If we go super practical, you need to apply this methodology for all of your goals, whether they are short-term (<1 year), medium-term (3 to 5 years), or long-term (>7 years). 

For a primary residence, which city/neighborhood are we talking about, which surface and characteristics do you want? How much does it cost? What about the costs associated with buying? Do you need a loan? What are the interest rates? What would be your monthly payment? Does it make sense compared to renting?

For your kids, what kind and how many years of education do you want to cover? When would you want to have that sum of money? How much money can you dedicate now i.e. what’s available from your cumulated wealth, and how much monthly i.e. from your savings? You can then use the below-compounded interest calculator to make simulations and see how realistic your assumptions are. 

The variables you need to input are : 

• What you want to invest now
• What you want to invest monthly
• What is your expected return
• When is your time horizon

https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator

The 3rd habit is about paying off bad debt, where you have borrowed money to purchase consumption goods or rapidly depreciating assets. These kinds of loans (credit cards, Buy Now Pay Later, Overdrafts, etc) cost a fortune, sometimes even up to 30%! Once you are in it, there is a chance you can’t repay, as the amount you have borrowed grows very fast. With a 30% interest rate, the amount you need to pay back doubles every 2.5 years, imagine! There are many reasons to fall into bad debt (Yolo & Fomo trends, lack of financial literacy, lack of planning, and unexpected circumstances), but now that you know, really do pay attention not to fall into the trap. Having a monthly routine will help and having a bit of historical data to see trends in your spending also.  

To get motivated, calculate what is due, and how much you can repay each month. Then circle a date when you’ll be debt-free. This is powerful. You’re looking forward instead of being stuck in the past. 

Sometimes it is also about having an accountability buddy. Some of my clients know they should repay, it’s somewhere on their to-do but the admin side or any more important task makes them not act. 

4th good habit is living below your means. And here I suggest you pause and reflect. What is it that makes you happy, what matters for you? Please take the time to differentiate what drives you vs. what society or other external forces expect you to do. 

Do you know that Warren Buffet, one of the richest men on the planet still lives in the house he and his wife bought in 1958? If you’re happy, there is no need for more, this is a great reminder not to fall into the rat race and compare yourself. 

5th good habit is about paying yourself first. 

This is a very underrated habit, but it’s so powerful! 

Before you pay your rent, mortgage, or any bills, please put in place an automatic transfer to your savings/investment accounts the day you receive your income. It has been proven by research that it is way more efficient to put money aside first than waiting to see what’s left at the end of the month. The amount saved is significantly bigger. Of course, to set this up, you need to know your numbers and know what you can afford to put aside. If you’re not yet able to think of a number, please go back to habit number 1. 

If you have volatile earnings/spending, please take your monthly average. If you prefer, you can take your quarterly average.

If you don’t want to think about it each month, this is exactly it. Having a direct debit in place will give you no mental charge, as everything is automatic. Whether you are busy at work, on holiday, or traveling, your money will still work for you and this is amazing. 

Remember: Put yourself first because you matter. 

The last habit is starting to invest now. 

And the “now” is very important. We can always find good excuses not to do it: we don’t have visibility, we expect things to be better soon, we wrongly think 30 euros will not make a difference, etc. But let me explain the concept of compounding interests which is phenomenal. Your interests earn interests. It’s like a snowball you push down at the top of the hill, which becomes a huge snowball when it reaches the bottom. It’s the same with your money, the sooner the better. 

Let’s assume you earn a 7% return, if you start at 20, you need to invest EUR 290 per month to be a millionaire when you are 65. If you start at 30 it needs to be EUR 600, and if you start at 40 it will be EUR1310. The earlier you start, the less effort you’ll have to make.

This links to the rule of 72. You need to divide 72 by your expected return to find the number of years before your money doubles. This means that with a 7% return (the average return of a diversified investment portfolio over 10 years) your money doubles every 10 years. If you take Bitcoin’s performance over the past 10 years of 74% average per year, imagine the result. Watch out, past performance isn’t a prediction of future returns, but the key takeaway here is that time is your best friend. 

Also, investing is much more accessible than you might think. In the past decade with the boom of investment platforms, you can start from less than 50 euros a month. 

And it’s by being in the game, that you will want to learn more, that you’ll understand who you are as an investor, what emotions you have if there is a crash etc. 

Don’t underestimate the power of habits, all of the tips I have given seem to be pretty usual but when they are consistently done, they can produce extraordinary results.

Convinced now? Are you ready to take action? 

I leave you with this quote by Catherine Morgan.

By Marieka Finot, Financial Empowerment Coach, ex-trader, and podcaster