finance
Your step-by-step guide to the 7 pillars of financial freedom

If you dream of getting off the 40-hour work week hamster wheel, these 7 steps should help bring your exit date much closer.
By Hannah McQueen
Financial planning can be a daunting task, especially as it’s often something people only contemplate when they’re feeling stressed about achieving their goals. In this article, financial advisor Hannah Mcqueen explains exactly how to nail down a plan to achieve your goals before the stress even has a chance to kick in.
Is it a financial plan or is it an investment?
People often confuse selecting something to invest in – a managed fund, investment property, shares or something else – with financial planning. But the investment product is just one element of a financial plan, and certainly isn’t the first step! That’s like working out how you’re going to get somewhere before determining where you’re going.
What’s your main objective?
Your first step should be to consider what your overarching objective is. Usually, it boils down to some variation of ‘I want to live a life I enjoy and also be OK in the end’.
But the layer beneath that is important – is it for retirement, to be able to help your kids, fund their education, buy a home, become mortgage-free?
Being clear about our priorities helps determine the timeframe and gives us advisors an idea of whether we have time to get it wrong and then course correct – or not! Knowing your objective is crucial to building a plan that’s right for you.
As well as knowing what you’re aiming for and your timeframe, we need to know your starting point, which we’d usually define as your cash position; we need to know your money personality and tendencies, so the plan considers who you are and what you’re not; and we need to know your appetite for risk and the return you require.
The last two are important to consider in tandem. While it’s logical to want the highest rate of return for the least amount of risk, there is a tension between the two – greater returns are usually accompanied by higher risk or volatility in those returns, while certainty or ‘safety’ usually comes at the expense of higher returns.
Will your financial strategy actually work?
You absolutely need to be able to sleep without waking up in a cold sweat worrying, but you also need to know that your chosen strategy will give you the result you want - or what’s the point? you’re working towards will give you the result you want - or what’s the point?
For example, your natural risk tendency might mean you’d feel safest investing solely in term deposits, but if the best term deposit rate will deliver a return, of say, 4% gross, your funds will scarcely keep pace with inflation after tax, let alone grow.
If you don’t have enough funds for retirement, trading certainty of return for the certainty of not hitting your goals seems perverse. If that approach hasn’t provided you the return you needed, you’ll have to make up that lost ground in a shorter timeframe, which will not only raise your stress levels but likely result in greater sacrifices later and/or taking on more risk.
I find that once clients know what’s required, the options that are most likely to get them there and why, their perspective changes – because there is comfort in knowing their plans are on track.
The key pillars of making a financial plan
Once you’re crystal clear on your objectives, every successful financial plan shares common themes. These form the key pillars you need to underpin your strategy.
1. Maximise how fast you can save
The theory is simple, but it seldom is in practice: finding a cash surplus for your wealth creation engine. Your savings rate is the pulse of your financial progress.
We adopt several tactics to make maximising it as painless as possible, like setting a budget, tracking your spending against that, ringfencing regular costs, setting up systems to support better financial management, optimising your mortgage structure, reviewing fixed costs and having accountability meetings.
To many, the very idea of tracking your spending seems restrictive, so they avoid doing it – but I would argue there’s freedom to be found in cutting out things that don’t maximise your happiness, allowing you to both prioritise the things that do bring you joy, and start kicking wealth creation goals.
Check out Citro’s 100 ways to save money and live a richer life to get you started.
2. Creating equity
The first step here might be growing your surplus to get onto the property ladder, but if you’re already there, the goal becomes repaying your mortgage faster.
Rather than just waiting for property prices to appreciate, an effective debt reduction strategy will fast-track the creation of equity in your property. A 30-year mortgage will not only maximise the interest you pay the bank, but it will also reduce your ability to jump on other wealth creation opportunities.
My rough target is to get a client mortgage free in under 10 years.
3. Utilising leverage
One of the opportunities a solid surplus and faster mortgage repayment creates is the ability to utilise leverage.
Leverage – borrowing money from the bank to buy an appreciating asset – allows you to do more with less. That is, benefit from the capital gain on a higher value asset than your funds could purchase alone. This is usually in the form of an investment property.
4. Dealing with risk
Every investment, and thus every financial plan, has inherent risk, which comes in many forms. But the most overlooked is the risk you don’t continue to earn the income that your financial plan relies on.
Your ability to earn is one of your biggest assets and thus needs protecting. Personal insurances like income protection, life, mortgage or trauma insurance can help us do that, as can ensuring you have enough financial resilience – a buffer – to deal with curveballs. I like to equate this to being able to ‘hold the line’ for two years without having to do anything drastic.
5. Diversify to reduce risk
Diversification is your best friend when it comes to risk mitigation, but I would argue that it needs to be executed at the right time.
There is a case to be made for having a narrower mix of assets in the early stages of your wealth creation journey when you’re interested in stepping on the gas and getting ahead as fast as you can; whereas the closer you are to when you’ll need to start drawing on your funds, the greater the need to balance your desire for growth with your need for security.
For example, you might first repay your home mortgage, buy and pay down an investment property until it’s cashflow neutral, then diversify into more liquid assets.
6. Build, build, build
Once the right building blocks are in place, it’s time to get serious. The world’s most elegantly modelled, de-risked and well-thought-out financial plan is worth nothing if you never get to work.
As businessman Morris Chang said “Without strategy, execution is aimless. Without execution, strategy is useless”.
7. Decumulation of wealth
While our teens might suffer ‘FOMO’ – a Fear of Missing Out, retirees more often report ‘FORO’ – Fear of Running Out. That can result in saving so hard, or spending so frugally, that you miss out on chances to enjoy your healthiest years which I think is just as undesirable as managing it poorly and running out. A decumulation plan is crucial. ‘Enough’ is only enough if you manage the decumulation of your wealth effectively.
Each one of these pillars likely requires a column of its own, but hopefully this provides at least a snapshot of what’s required to build a financial plan that’s fit for purpose with the best chance of getting you where you need to go, when you need to get there.
Feature image: iStock/demaerre
This article reflects the views and experience of the author and not necessarily the views of Citro. It contains general information only and is not intended to influence readers’ decisions about any financial products or investments. Readers’ personal circumstances have not been taken into account and they should always seek their own professional financial and taxation advice that takes into account their personal circumstances before making any financial decisions.
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