By Anna Sergunina and featured on NerdWallet
Learn more about Anna on NerdWallet’s Ask An Advisor
The world is changing quickly, and it’s time for financial planning advice to catch up.
It’s no longer commonplace to work at one company for your entire career and walk away with a nice pension to help you live a comfortable life in retirement. New technology combined with a surge in freelancing and the on-demand gig economy means many people no longer rely solely on their 9-to-5 income. Though in some ways this may complicate your financial plans, it also brings new opportunities to build wealth, diversify income streams and gain control over your finances.
Whether your goal is to start a family or start a business, you can take advantage of employment flexibility and financial planning tips for today’s economy to gain financial freedom and meet your goals more quickly.
1. Live beneath your means
This old adage is still one of the most important building blocks to financial success, but many people don’t actually follow it. Start by looking at what your lifestyle costs you. Do you need $3,000 per month to live on? $5,000? $10,000? Once you identify what your expenses are, examine what you can eliminate to live beneath your means. Maybe you can:
- Switch to generic products.
- Reduce expenditures on luxury items like beauty salons or gadgets.
- Use public transportation to save on gas.
- Go out to dinner less frequently.
- Make lunch and coffee at home.
Mastering this principle of living beneath your means will keep you organized with your finances and on track with your goals. It will help create a solid foundation to achieve financial freedom.
2. Start a ‘side hustle’
It’s time to turn the old “save, save, save” mentality into an “earn, earn, save” mentality. You should still try to live below your means, but once you understand how much you need to cover your basic living expenses, focus your attention on how you can generate extra income. In addition to your regular job, find a side gig that brings in more money. Anything you earn above your monthly cost-of-living target frees up more capital to accomplish your goals.
With an array of new startups, almost anyone can set up a side hustle. You could drive for Uber or Lyft on nights and weekends or rent a spare room in your home or apartment on Airbnb. If you have a talent such as website editing, graphic design, writing or house painting, you can put your skills to use and make extra money through websites like Upwork or TaskRabbit. The opportunities abound; you just need to have a burning desire to achieve your goals — and a willingness to put in the extra work.
3. Save to invest, not to save
Initially you can save your side-hustle dollars in a separate, high-yield online savings account (some accounts pay around 1% per year). Set up direct deposit so that all of your side-hustle money goes straight into that account. As you start saving up this extra income, you’ll soon realize that you can start investing this money in your future. You’ll have a nice chunk of change ready to use, giving you more options to develop additional income streams like rental income or starting a business.
For example, let’s say you want to start investing in real estate and you need $20,000 of seed money. If you are able to set aside $300 each week from a side hustle and living beneath your means, you could save your goal amount in less than 18 months. Using that money to invest in a rental property that will continue to pay you income means you are setting up a stream of passive income, in addition to your regular paycheck.
Financial flexibility
When you have multiple sources of income, you really begin to gain control of your financial situation. It gives you more options and allows you to reach your financial goals faster. Of course, in order to get there, you have to put in the extra effort now so that you can enjoy more financial freedom and flexibility later.
As the economy and our careers evolve, it’s important that financial advice and goals do, too. Thanks to new technology, the rise of the on-demand gig economy, and financial planning advice re-envisioned for today’s opportunities, you can begin investing in your future to diversify your income stream and rely less on your 9-to-5 salary alone.
Anna Sergunina is an hourly, fee-only financial planner, the president of MainStreet Financial Planning and the creator of Money Library.
The article Financial Planning for the 21st Century originally appeared on NerdWallet.
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