Achieving financial independence requires effort and commitment

By Adrian Vella
Head of Investment Network at MeDirect Bank

Today, 25 April is the day dedicated to raising awareness on financial independence. When mentioning financial independence, we are referring to the situation whereby you are able to cover your living expenses without being dependent on others. We are all hoping to enjoy life at some point, but what would happen if we cannot? Are we prepared for that eventuality?

Everyone wants to be financially independent, but not everyone manages to reach that goal, possibly because financial independence is an ongoing process. It requires effort and commitment over a long period of time. Financial independence holds a different meaning for each one of us as we all have different expectations from life and this, in turn, means that the path you will take will be unique.

These are some tips that can help you reach financial independence:

1. Live within your means and your budget.

This might seem like something obvious, but it is not. You might be aware of your income, but do you know how much money you spend on groceries and restaurants or how much goes into your home loan? What is left by the end of the month?

It is important to make sure you can always afford to pay your loan and your utility bills when they are due.

Make a list of your commitments to help you have a clearer outlook of your overall expenditure.

2. Set up an emergency fund or a nest egg

By its very definition, an emergency will strike out of nowhere, and often, when you least expect it. Once you have managed to understand your budget and your expenses make sure you set some money aside for emergencies.

A rule of thumb is that your emergency fund should be sufficient to cover three to six months of your expenses - and it should be easily accessible.  Without planning and budgeting, it might be difficult to put aside this amount of money.

Depositing these funds in a different bank account than the one you routinely use will help you ensure that this target is reached.

3. Put some numbers to your dreams

Make sure you understand how much money you need to achieve your financial independence. How much would it cost you to continue living your current or desired lifestyle?

By knowing what your current spend is, you would be able to project, whilst taking inflation into account, how much money you would need in the future to maintain your standard of living.

4. Save and invest every month

Save and invest whatever you can, as early as you can. Saving can become a good habit - for example, if you are trying to stick to a budget, make sure to transfer money into your savings account right when you get your salary – remember, you can’t spend what you don’t have!

To make this decision even easier, use technology to automate the process. Nowadays, we can set up an automatic transfer on our bank apps to automatically transfer money from our everyday account to the savings account on a given day.

5. Choose the right investments for you

Financial independence is all but impossible without taking some risks. The savings mentioned above should be set aside and invested every month in order to help you claim your financial freedom.

The key here is "smart" risk - make sure your asset allocation is properly diversified to reflect your goals.

You’re not sure what is best for you? Ask a financial advisor.  They can provide personalised guidance to help you achieve your financial goals.

6. Stay up to date with your investments and invest for the long term

Make sure you know what is happening with your investment and stay on top of your money because it matters. With age, your risk tolerance and requirements might change, and you might want to adjust your portfolio of investments accordingly.  

On the other hand, it is important to note that making constant changes to your investment portfolio will defeat the purpose of staying invested for longer for maximum gains. Always seek professional advice when in doubt.

With all this in mind, one must find a trusted institution to help you achieve your goals. MeDirect Bank offers a wide range of savings accounts that would meet your needs.

It is very easy to set up a savings account - this is ideal to start building your nest egg. Apart from offering an online trading platform where you can choose your own investments and have access to free investment research, MeDirect also offers personalised financial advice, with a team of experienced advisors who can help you achieve your long-term goals.

It gets even easier! MeDirect Bank gives you the facility of becoming a customer and opening your accounts from the comfort of your own home. Visit www.medirect.com.mt and start your journey towards financial independence today! 

The author of this article, Adrian Vella, is Head of Investment Network at MeDirect Bank

The above is for information purpose only and should not be construed as an offer to sell or solicitation of an offer to subscribe for or purchase any investment.

MeDirect Bank (Malta) plc is licensed to undertake the business of banking in terms of the Banking Act (Cap. 371) and investment services under the Investment Services Act (Cap. 370).