Financial freedom: put your plan to the test

May 09, 2022
Financial freedom: put your plan to the test

Imagine your ideal life. Maybe you see yourself starting your own business, doing what you’re passionate about and retiring earlier than expected. Or you see yourself in a 9 to 5 job, but making extra income, thanks to property rentals or that fun hobby that earns some side money. Or perhaps you have a low-budget lifestyle because you invest what you earn, with eyes on a relaxing future.

These scenarios above are considered financial freedom. As you can see, there is no single definition. However, the common element is that there is no stress about money because basic needs and the future are covered.

Whatever your definition of financial freedom is, challenge it with these questions: 

  1. Are you hooked on buying 📈 stocks?

Many changes and innovations, like crypto and the pandemic reset, have attracted a lot of new investors. The chats have been — and are — very active. Although it’s a cliché, there is a lot of truth to the saying “don’t put all your eggs in one basket.” So, how much should you invest? A lot of it depends on your age and the risk you can assume. In general, a 21-year-old investor can invest a larger portion in riskier or more volatile assets than a 37-year-old, because they have more time to earn and accumulate and probably fewer commitments. It depends on your current situation.

The key is to diversify, so that your money is protected from inflation. In addition to investing in the markets, you have other alternatives. For example, buying properties and renting them out for income; creating a business or joining one that is already established; or earning money from your hobby (you’d be surprised at how much); crowdfunding or crowdlending, which is lending your money with interest to a business for a period of time. The important thing is to make your money work for you.

  1. What percentage of your income should you 💰 save?

A good rule of thumb that works: You won’t see it, so you won’t spend it. As soon as you start earning, put aside between 10% to 20% of your income. If you only shop and pay debts when you are paid, you are leaving yourself to the end. It’s better to take out a fixed amount for your savings and grow your emergency fund (which should have between 3 to 6 months of your expenses… a little more is even better). A good technique is setting up an account with automatic transfers. This way… you won’t see it and spend it.

If you get some extra cash. Don’t go crazy spending that commission that you earned, or that Christmas or performance bonus that you got. Reward yourself with a small part and keep the rest in a savings account, open an IRA (individual retirement account), or invest it.

  1. What’s the fastest way to raise 🚀 your credit score?
  • Always pay on time and at least make the minimum payment; if you have a little more, add it to the payment.
  • Don’t miss your credit card payment deadline and review your statements as soon as they arrive for any unauthorized or suspicious charges. Better yet, try to use only 10% of the credit.
  • Take it easy with applying for all the credit cards that come your way. Every time you are offered a credit card, boom! It will show up on your credit report. A lot of inquiries to your credit history can also affect your score. Don’t cancel the cards you don’t use either; at least pay the annual fee. This will help maintain your line of credit.
  • Have different types of credit, such as mortgages or car loans, student loans or credit cards. Having multiple sources of credit is good for your score.
  1. How does your age affect the performance of your retirement 📝 plan?

If you have a retirement plan or a 401(k), take advantage of it from day one, so that interest grows exponentially over time. What does this mean? For example, if you are 25 years old and you contribute $1,000 a year to the plan, at an 8% return rate (interest, dividends, and earnings), after 40 years you will have a return of approximately $259,057. On the other hand, if you started 10 years later and retire at 65, your will have a return of $113,283.

As you can see, timing is critical. The earlier you start investing, the better.

Now, put it to the test!

No matter what path you choose to reach financial freedom: properties, savings, investments, crypto… don’t leave it up to chance, get prepared. Start now!

Note: On a personal level, you can occasionally transact cryptocurrencies. You can use your money deposited in Popular to purchase cryptocurrencies and use your account to receive money from the sale of these. However, frequent movement of this type of transaction would require an analysis to confirm compliance with the policy, since managing a business based on this type of currency is not permitted.

This information has been submitted for educational purposes and for your independent consideration. This information does not contain, nor does it constitute or provide accounting, financial, investment or any kind of advice. This material does not include or take into account all factors that may be relevant to your financial needs; it is not to be considered, or viewed, as advice or a suggestion to take (or refrain from taking) any particular action. By providing this information, we assume that you are capable of evaluating this information and the general descriptions found herein and exercising your independent judgment. Banco Popular de Puerto Rico, its subsidiaries and/or affiliates are not engaged in rendering legal, accounting or tax advisory services. If legal, accounting, or tax advice services are required, you should seek the services of a competent professional.