By Ingrid Micallef, Head – Products and Marketing at MeDirect
Article published on the Malta Business Weekly
All of us would like to be financially independent, meaning that we would be able to cover all our living expenses without relying on others. The question is how to achieve this.
When thinking about financial independence, it’s important to keep in mind that there are no quick solutions. The key factors to success, in fact, are time and discipline together with a well-balanced portfolio of savings and investments.
The role of savings in building financial independence.
We need to learn to walk before we run. When it comes to financial independence, this saying is reflected in the importance savings play in the early stages of your financial journey. Your first step should be to make sure you have enough saved to cover an emergency and up to six months of your living expenses. Creating this financial buffer which protects you from unforeseen circumstances is a necessary starting point. There’s no need to do anything fancy, just put as much as you can afford into a savings account each month, ideally one that pays interest and let it accumulate. A good place to start is MeDirect’s MeMax Savings Account which is an instant access account currently offering 2 per cent per annum interest, paid monthly.
Savings are also critical for covering planned expenses such as a deposit for a home, a new car, a wedding, or a big trip. Being disciplined about how much you save each month, and the purposes you save for, is absolutely fundamental to long term success and being able to achieve your goals.
Building on strong foundations.
Once your have sufficiently built up your savings you then need to think carefully about how to build wealth and earn income from your investments. As a first step, do some maths and work out how much income you will need to maintain your desired lifestyle. Keep in mind that inflation will mean that what you need in the future is more than what you need today. Once you have done this, you will have created a clear target to hit to achieve your financial independence.
Once that target is in place, it’s now once again a question of time and discipline. Financial independence can not be achieved without taking risks, but the risks must be smart. Continue to save and invest every month, making sure your asset allocation is properly diversified to reflect your goals. If you are not sure about how to do this, speak to a financial advisor.
It’s also important to monitor and manage your investments. While too many changes will prevent you from benefiting from long term gains, it’s also important to be able to make changes if something significant has altered either in the economic outlook or your own personal circumstances and goals. For example, as you get closer to your financial freedom it may be wise to further reduce the amount of risk you take with your investments.
Achieving financial independence is not easy, but it is possible.
As we have seen, becoming financially independent is not easy and there will be ups and downs as markets fluctuate and your own personal circumstances evolve throughout your life. That said, if you get into the good habit of saving, you will create the foundations necessary to begin investing and growing your wealth. Setting clear goals, being disciplined, and understanding that success does not happen overnight are the route to financial independence.
MeDirect Bank (Malta) plc, company registration number C34125, 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). The MeMax Savings Account is available in Euro and rate quoted is gross of tax, paid on a monthly basis and is compounded. Account holders can deposit up to €2,000 per month up to a maximum account balance of €50,000. Terms and Conditions apply and are available upon request.