How to use your pay cheque to get financial freedom

We all dream about financial freedom, but if you only have your pay cheque as income, what can you do?

You could do a lot with your pay cheque if you have the right strategy.

Managing your money is one of the most critical skills you need to achieve financial freedom and, while it may be tempting to simply live from pay cheque to pay cheque, developing good financial habits is the only way to really make your money work for you.

“Two of the most important pillars of good financial planning are saving and investing, but these two principles do not necessarily have to be mutually exclusive.

“By thinking of your investment decisions as part of your broader savings plan, you can obtain single-minded focus on what you envision for your future,” Roger Eskinazi, managing partner at Tickmill, says.

World Savings Day, established on 31 October 1924, is coming up and serves as an annual reminder to check in on whether your savings goals are on track.

It offers the opportunity to reassess your financial strategy and make adjustments if needed to ensure you are building towards a secure future and financial freedom.

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You need a clear plan of how to use your pay cheque for financial freedom

Eskinazi says without a clear plan, it is easy to fall into debt, overspend, or miss out on opportunities to grow your wealth. Saving and investing is a power combination, he says.

“The best way to approach saving is to view it as an expense on your monthly budget. Doing this will allow you to shift your mindset to saving as a non-negotiable financial commitment, just like paying rent or utility bills.”

Some people stick to their monthly savings commitment by even choosing to set up an automatic money transfer into a dedicated savings account at the beginning of each month.

He says generally speaking saving is about setting money aside to meet short-term needs or emergencies. In contrast, investing is often seen as a way to grow wealth over the long term.

Therefore, he says, people often think of saving and investing as two different tick boxes in their financial plan, when in reality combining the two can create a robust strategy that balances security with growth potential.

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Saving or investing with your pay cheque?

Eskinazi says saving diligently is one of the most effective ways to build a solid financial foundation. One of the key differences between saving and investing is that saving gives you immediate access to funds, while investment profits take longer to realise and are often reinvested.

“The best way to think about how saving and investing work together is to think of saving as a safety net that provides you with the liquidity you need to tend to unexpected expenses, without touching your investment capital.”

Without a proper savings buffer, Eskinazi warns you may have to sell investments prematurely to cover an emergency, which could mean losses or missed opportunities for growth.

“A strong savings base gives you the flexibility to invest without putting yourself at financial risk.”

But there is a catch. While saving provides access to funds, it offers minimal growth due to typically low interest rates, compared to the growth potential of invested funds. Eskinazi says investments such as stocks, bonds, mutual funds and real estate have historically provided higher returns than savings accounts, allowing your wealth to compound and grow.

“In a sense, saving speaks to an immediate sense of gratification and security, whereas the best way to invest is to have a longer time horizon, which is what compound interest needs to accumulate and grow.”

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Diligent and consistent savers achieve financial freedom with pay cheque

In all cases, he says, becoming a diligent and consistent saver is the first step to building wealth and by investing you can build on that foundation.

“By investing part of your savings, you allow yourself to combat inflation and increase your purchasing power over the long term.”

However, investing offers relatively higher rewards but also comes with a higher degree of risk, Eskinazi warns.

“Unlike savings accounts, which are generally safe, investments like stocks are subject to market fluctuations and may lose value in the short term.

“However, if you are patient enough and can make strategic decisions in times of volatility, investments tend to recover from short-term losses and, in the long-term, grow beyond what a savings account can provide.”

He says it is ultimately about creating a balance between safeguarding your present and securing your future.

“By integrating saving and investing into your financial plan, you will build stability and long-term growth potential. The key is to start where you are and remain consistent. Over time, even small contributions can add up to significant financial security.”