Financial Freedom for Generation Z, Here's How to Make It Happen

Financial Freedom or financial independence is defined as a condition in which a person is free from all types of debt, has passive income that can cover living expenses, is financially protected from all risks, and no longer has a headache when having to spend money to have fun. 

To realize financial independence, we all must have good financial planning. 

However, financial planning is never taught in schools or colleges. Therefore, not everyone has a proper education on this topic.

Financial planner and Lifepal , Aulia Akbar, CFP®, AEPP®, explains that there are several things that Generation Z must know in achieving financial independence.

6 steps to financial independence

There are six stages to financial independence. What are they?

 

The first is the dependency phase, which is the initial phase where a person still depends on others to live. 

 

The second phase is followed by the solvency phase, when a person already has an income because they have just entered the world of work.

 

The third stage is the stability phase, when a person's finances begin to stabilize. In this phase, a person receives a higher income and can save more, has health insurance , and has a sufficient emergency fund.

 

In the next stage, namely the fourth phase, is being free from all forms of debt obligations. 

 

In the fifth stage, there is a safe phase, namely when you already have investments that provide passive income equivalent to basic needs expenses. 

 

Meanwhile, in the sixth phase, the independence phase, a person is said to be financially independent. Passive income from investments can cover basic needs or other monthly needs.

Here's how Generation Z achieves financial independence

For Generation Z, according to Aulia Akbar, there are several ways to achieve financial independence. 

 

"Life goals can be many, but only some of us can achieve them because we can prioritize them. While you're still young, prioritize investments according to your specific goals," said the man known as Akbar.

 

Even though you are still in college, Akbar continued, you can start saving pocket money from your parents or from part-time work. 

 

Additionally, you should also pay attention to inflation. The simple formula is to find savings that exceed Indonesia's inflation rate. 

 

Here are three ways you can start to achieve financial freedom:

Know how and diligently check your financial health

The following is the financial health formula from Lifepal.co.id as presented by Aulia Akbar:

SMART method for life goals

When determining our life goals, both short-term and long-term, make it a habit to apply the SMART strategy.

 

SMART is an abbreviation of Specific, Measurable, Achievable, Relevant, and Timebound or can be measured in terms of achievement over time. 

 

Examples of SMART goals can be seen in the following table:

 

Without this strategy, the goals planned from the start will be difficult to measure effectively. This is what ultimately leads to failure in achieving financial freedom.

Pay close attention to the rolling flowers

You should pay close attention to the compound interest feature, as found in deposit instruments.

 

Compound interest is interest that accrues back on the principal of the borrowed or invested funds. Compound interest can be earned when the money you earn from investments starts generating profits again when reinvested.

 

These are the things millennials need to know to achieve financial independence. Make sure you're one of those capable of making this a reality.

 

College is a golden age for anyone. Therefore, you must navigate it wisely.

 

One way to do this is to start investing while still in college. Investing as early as possible will make the process of investing for long-term goals much easier.

 

"Financial freedom isn't easy to achieve, but it's not impossible. College is a precious time for anyone. If someone can discipline themselves with financial planning during this time, they can more easily achieve financial independence in their later years," Akbar concluded.

Author's note

This article was written by Aulia Akbar CFP®, AEPP®, financial planner and financial educator at Lifepal .