Proper management of personal finances has a huge impact on our quality of life. Financial prosperity, freedom from debt and stress allow us to feel calm, confident about our future and the future of our children. 

The level of financial literacy of Ukrainians is growing from year to year. This is evidenced by USAID research data. However, at the same time it has not yet reached the minimum target level recommended by the Organization for Economic Cooperation and Development. The Government of our country and the National Bank of Ukraine are implementing projects (e.g., “Talan” and “Garazd”) that allow Ukrainians to improve their financial literacy and teach children how to achieve financial independence by spending wisely, allocating money and planning finances effectively. The websites of these projects are freely accessible and summarize a large amount of useful information on these topics.

Let’s review in our article the basic concepts from the theory of financial literacy and basic money management tips.

Financial independence: steps to achievement

Personal Financial Planning (PFP)

The concept of Personal Finance includes all aspects of our financial life: income, expenses, savings, investments and debts. Having a long-term financial plan is the main basis for achieving a balanced state of personal finances.According to the statistics of the situation in the United States, for example, about 40% of Americans have no savings and cannot afford urgent expenses. This indicates that people do not know how to properly make a financial plan for themselves and their family, and thus achieve financial independence. Let’s further try to break down the basic steps to take when planning.

Set goals

Dream and define for yourself what exactly you want to achieve: it can be the purchase of a house in the country, a round-the-world cruise, the purchase of a cool sports car, education for children abroad or a quiet old age with a stable pension. Set your personal goals and determine how much it will cost you to realize them.

Compare expenses and income

Budgeting requires an objective and sober assessment of the situation. Write down all your sources of income and expenses. Start fixing them in order not to get into overspending and maintain a balanced budget. Discourage spontaneous spending, calculate how much bad habits are costing you to see how they affect the big picture. Use online personal and family budget calculators and special apps.

Start earning a minimum passive income

Evaluate the resources you have and try to make them start working for you and generate income. These can be the following tools:

• Renting out unused real estate. Perhaps you own an apartment, cottage or industrial space that you could rent out at no extra cost and you’ve never gotten around to it. 
• Flexible deposits. If you have free funds, put aside “for a rainy day”, which do not work in any way – put them on a deposit with flexible terms of withdrawal. And you will be able to withdraw them at any convenient moment, but already receiving a small percentage.
• Monetization of hobbies. If you have hobbies, and you, for example, are engaged in homemade wine or cheese “for their own”, talented embroidery or making art photos, you can start selling the fruits of your labor, placing minimal information about them in social networks.
• Revisit the bank cards you use. There may be offers on the market with more favorable conditions on cashback or accrual of commissions that will allow you to receive, albeit small, but constant passive income.

Plan your savings 

Savings are a financial cushion that will enable you to cope with unexpected expenses in crisis situations. The optimal emergency fund is an amount that will allow you to cover your current expenses for at least three months. inсlude it in your budgeting plan and secure your reserves by allocating a portion of your income to it.

Consider investment options

A personal investment plan will allow you to earn a steady passive income and build your capital without being involved in the processes involved or disrupting your normal routine. Consider options that align with your goals and risk preferences. You can create a financial plan that takes into account income from low-risk bank deposit programs and investing in precious metals or real estate, as well as potentially high-return investments in cryptocurrency, crowdfunding, or various DeFi money-making programs. 

Get into debt management

Think of debt, not as a burden pulling you back, but as a financial tool that needs to be managed. Consider all your debts in terms of interest rate and plan to pay off your debts, starting with the ones with the highest interest rate. This kind of financial plan methodology will help you save money on interest and reduce your overall debt faster.

Plan for retirement

Years from now, you’ll be thanking yourself if you think about it today. Think about whether the money you deposit, or the 5-7% of your current monthly income put aside in a personal retirement fund, could help you live a better and more comfortable life in your old age.

Consider insurance mechanisms and risk management

Force majeure situations unfortunately do happen. An optimal insurance scheme can play an important role in protecting your financial resources from unforeseen events and the risks associated with them. Consider the types of movable/real estate, health and life insurance, and choose the options that best suit your life situation.

Take time to improve your financial literacy

According to research by analysts, people with lower incomes show significantly lower levels of financial literacy and education. If you need to, factor into your budgeting the cost of your training and development, taking investing courses, or paying for budgeting and financial analysis apps. Engage in self-development, enter the environment of people who have successfully realized the plan of wealth as a result of competent investment and reasonable allocation of funds. Subscribe to independent sources, where you can find an acceptable example of a financial plan that organically fits into your life realities. Knowledge of financial terminology, tax and investment basics will allow you to make more informed decisions related to money.

Conclusion

Financial independence is having capital, the income from which covers all your expenses. To achieve this goal, try to diversify your sources of income and your capital will gradually increase. Financial independence requires proactive approaches to maintain your growth and provide you with a stable future.

At the same time, it is worth remembering that money is a tool, not the main goal. Go for your dream without letting financial independence issues out of your sight – and you will definitely achieve it.

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