How To Achieve Financial Freedom

Written by imoney

Randell Tiongson, cofounder of Registered Financial Planner Institute Philippines and personal finance advocate, didn’t realize that he wanted to achieve financial freedom until he was in his 40s. “I realized I can’t live a life like this, when sometimes I have a lot of money, but sometimes I don’t have any. And there was even a time when I was in debt,” he says in an interview with iMoney Philippines.

“This isn’t the kind of life that I want! This isn’t the kind of life I want my children to inherit.”

So from then on, he’s been on the road to achieving financial freedom, and helping others with their financial goals as well. “It’s an issue of getting to financial freedom on a day to day basis. I’m not there yet, but I’m on the right road towards it, and hopefully I’m on my way.”

In a world where money is so important, becoming financially free is a milestone we should all strive towards. But just what is financial freedom, and how can you achieve it? We talked to Tiongson to find out his thoughts on financial freedom and what steps you can take to get yourself closer to it.

What is financial freedom?

Simply put, financial freedom means “the ability to achieve your goals while still being able to enjoy life, and not having to worry about where your next influx of money’s going to come from, and not having to worry about how you’re going to provide for your loved ones,” Tiongson says.

“It’s not based on how much money you have … it depends on how you make your money work for you.”

Why is financial freedom important?

Even as almost everything is ruled by money, we have to remember that that’s not all there is to life. “Anything we do, all our dreams, all our goals, will require some form of money,” Tiongson says. “So we have to plan for it, and eventually we have to understand that there’s more to life than being stressed about money.”

Achieving financial freedom will give you more control over your life. “Financial freedom allows you to be able to be more attuned towards your purpose, and at the same time, to live a less-stressed life,” Tiongson adds.

Photo: Shutterstock

What holds people back from financial freedom?

Tiongson reckons that a lack of education prevents most Filipinos from even attempting to achieve financial freedom. “Filipinos by nature are not that aware when it comes to finances or personal finance. We don’t teach it in schools, or worse, not even in our homes. We’re taught how to make money, but not how to handle it.”

“We like to spend, but we don’t like to save, we don’t like to invest, we don’t prepare for retirement.”

Besides this, the way our society is set up can sometimes hinder financial freedom. “Parents depend on their children, relatives depend on OFWs or someone who’s doing well, there’s a tendency to depend on someone else,” Tiongson observes. Hence, it becomes harder for both parties to become financially free — the dependants, because they don’t have the means, and those being depended on, because their finances are tied up in supporting others instead of building their own financial freedom.

People also think that they need to earn more to be able to become financially free, Tiongson says. “But again that’s a loaded statement, because it’s relative. I talk to people who earn more, like OFWs or senior managers, and it’s the same problems but magnified. It’s not an issue of not earning enough, it’s an issue of how to handle your earnings.”

What are the steps to financial freedom?

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There are no hard and fast rules to achieving financial freedom. However, Tiongson does provide a rough guide to the process, in his book No Nonsense Personal Finance:

1. Improving Cash Flow. “It’s all about money management,” he says. “It’s your ability to earn more, and at the same time, spend less. It’s not enough that you earn more, because if you earn more then spend more, that becomes a problem.”
2. Getting Out of Debt. Once you’ve got a handle on your cash flow and you have some extra money, use it to get out of debt. “Debt will always be a burden, especially the wrong kind of debt — consumer debts, personal debts, credit card debts, you wanna be able to get out of that,” he explains.
3. Setting Up Your Emergency Fund. Emergencies will always happen, “especially if you’re married, or have kids, or have people who depend on you.” Make sure your fund is healthy and can cushion the blow of whatever financial disasters might strike.
4. Getting Protected from Life’s Risks. Getting the right kind of insurance will protect you from the unpredictability of life. Of course, the right kind of insurance differs from person to person, so do some research on what would be the best for your situation. Tiongson offers some help on this topic in his book No Nonsense Personal Finance.
5. Investing for Your Future. As Tiongson says, “Spend less than what you earn, and invest the difference.” Read up on investment and find the financial instruments that will give you the growth you need.

If you’re feeling overwhelmed by these steps, remember that you can do them one at a time, starting from the beginning and moving forward when you’re ready. “Some people have the resources to do it all at the same time, but some can find it overwhelming. especially when you’re not earning that much money, and you have a lot of debts,” Tiongson says.

Things to keep in mind while working towards financial freedom

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1. Figure out your purpose. This sounds tough, but it’s important to know what your purpose or objective in life is so you know what you’re working towards. “Take a look at what you want to accomplish, and then get the money part fixed so you can concentrate on what you really want to do,” Tiongson says. When you don’t have to worry about whether you have enough money or not, you can focus on your purpose.
2. Take baby steps. It takes an enormous amount of effort to change your behavior and attitude about money, and it’s not going to happen overnight. Even if you can only set aside P500 or P1,000, start with that, and increase it as you get a better handle on your finances. Remember: it’s about progress, not perfection. As long as you’ve started the process, and you’re making progress, you’re on the right track. Just keep at it.
3. The earlier you start, the better … “The sooner you do it, it’s less stressful, and you pick up the correct behavior early on,” Tiongson says. Studies show that it’s easier to develop lifelong habits the younger you learn, so if you train yourself in good money habits from a young age, it will be easier for you to carry those habits as you get older.
4. … but it’s never too late. Even if you’re no longer young, you can still achieve financial freedom — it will just take a little more work. But you have to make the decision to try for the kind of life you want. “Social security is not going to be enough. You see people living that kind of life. Gusto mo ba yung ganyang buhay, you’re dependent on your children, is it fair for you to depend on them? When you start having those questions, it’s time to do something about it,” Tiongson says. “It might be more difficult, but you may be earning more money at this point so that might balance out a bit.”
5. Surround yourself with the right kind of people. It’s much easier to stick to your financial resolutions when you’re surrounded by supportive people who are good influences on your spending. “But if your barkada likes to spend or party, you might want to look for a barkada that’s not like that. If it’s a family member it might be harder … but you have to learn how to keep your priorities straight and say no.”
6. Pick the right financial instruments. There’s no one-size-fits-all financial instrument — you have to find one that suits you. “I like the stock market but I can’t recommend it to you if your risk tolerance isn’t high,” Tiongson offers as an example. “But generally there are generic good investments like UITFs or mutual funds. It depends on your objectives, timeframe, and risk tolerance.”

The bottom line

Financial freedom is vital if you want to enjoy your life to the fullest — but remember that money isn’t the be-all end-all. “Money is just a tool, it’s not the end goal … It’s only a means for you to achieve your purpose,” Tiongson says.

It’s not going to be easy to achieve financial freedom, but what’s important is that you take that first step. You can do it!

Need a little kick-start to your journey towards financial freedom? Read our articles on money management to help you fix your cash flow.

Randell Tiongson is one of the most respected personal finance coaches in the country. His book is called No Nonsense Personal Finance: A Step by Step Guide. You can learn more about him on RandellTiongson.com, or follow him on Facebook.